Dai (DAI) vs TerraUSD (UST) – Which is the better investment?
Posted by : Crypstarter Team
Category : Blog, news
The stablecoins UST and DAI are backed by other cryptocurrencies. They are decentralized, as opposed to other stablecoins. Stablecoins are cryptocurrencies that have a stable price because they are linked to another asset, either crypto or fiat. They are less volatile than other forms of cryptocurrency.
MakerDAO launched DAI in 2017 and it is based on the Ethereum blockchain. It has the security of the Ethereum platform and the stability of a stablecoin. It is kept stable by collateralizing it with ETH in a smart contract algorithm. It contributes to the security and power of the Maker network, on which it is generated and traded.
Terraform Labs was launch UST in September 2020. It is kept stable by a smart contract algorithm and an elastic money supply mechanism. Seigniorage is the process by which new USTs are issued. It is backed by LUNA, Terra’s native coin.
Both stablecoins are decentralized in the sense that they do not have a centralized authority like the other popular stablecoins. They are also linked to cryptocurrencies rather than fiat currencies. They use smart contract algorithms to keep prices stable.
The collateral (ETH) must be far greater than the amount of DAI to be minted when minting DAI. UST, on the other hand, requires a LUNA equivalent in USD to mint the same amount. In doing so, a portion of the LUNA is burned, while another portion is set aside for the community treasury. The greater the demand for UST, the greater the amount of LUNA burned.
The smart contract algorithm used to stabilize UST can both generate and maintain UST. However, ETH’s high volatility can have an impact on DAI’s stability. Furthermore, the market capitalizations and trading volumes of these assets indicate that UST is preferred over DAI.
This could be due to UST’s arbitrage system, which assists it in automatically maintaining supply when it falls below the peg. When UST is lent out, the Anchor protocol currently allows for an APY of approximately 20%. If you want to invest in a decentralized stablecoin, UST is the better option.
Everything in the crypto space is volatile, no matter how stable it appears. As a result, proceed with caution and conduct thorough research. Don’t risk more than you can afford to lose.