Do Kwon, Terraform Labs CEO, talks the explosive growth of Terra which is up 5,600% on the year.
ZACK GUZMAN: In today’s Crypto Corner, a refresher on stablecoins and why they are so important. As we saw this week with the SEC stepping in to prevent crypto giant Coinbase from launching a way for investors to earn interest on their stablecoin holdings, there’s a lot of regulatory attention on stablecoins now. It’s worth asking, what are stablecoins exactly? They’re special cryptocurrencies designed to stay stable in value or pegged to a base currency.
In the case of the largest stablecoins by market cap, that means staying pegged to $1 US. And that gives crypto investors an easy way to cash out into stability during times of volatility without having to cash out into real physical cash. But that also begs the question, how do these stablecoins stay stable. And one way is just to keep an equivalent dollar value in the banks. If you have a $20 billion in the bank, you’ve got 20 billion stablecoins.
USDC, the second largest stablecoin, just opted to do that. Or you can back your stablecoin with slightly riskier assets in the bank, so to speak, with a mix of corporate debt cash equivalents, which is what the largest stablecoin tether has done for years. And both of those stablecoins have seen billions of dollars flow into them this year.
In fact, Tether’s market cap has more than tripled in 2021, while USDC has seen its market cap grow by a factor of six to more than $26 billion. And as wild as the growth has been for them, there is a stablecoin out there that has seen even more explosive growth in 2021. That would be Terra’s UST stablecoin that has seen its market cap swell by 13 times this year to become the fifth largest stablecoin.
And unlike USDC and Tether, it’s not backed by cash or other real assets. It’s actually backed by cryptocurrency as well, Luna, which is up nearly 6,000% year to date. And for more on that, I want to bring on the man behind all of it at Terra, Terraform Labs Co-Founder and CEO Do Kwon joins the show here today.
And Do, appreciate you coming on to chat, man. I mean, it’s fascinating to see how this all works because you basically kind of built a Federal Reserve system here, burning Luna at a rate that keeps UST pegged to the dollar. But talk to me about how that works and maybe why you’ve seen so much growth this year.
DO KWON: Yeah, Thanks for having me, Zack. So how Terra works is instead of keeping $1 in the bank account for every stablecoin that’s issued, you have a reserve currency called Luna that helps to stabilize Terra’s peg. So the idea is that at any given time in order to mint one unit of Terra USD, you need to burn $1 worth of Luna. And then vice versa, if you’re trying to redeem out of Terra USD, you burn it and then get $1 worth of Luna in return.
So this is a completely decentralized system, where you can have stablecoins that are issued by a community of holders…
Read More: finance.yahoo.com