UST by Terra overtakes DAI, becomes the fourth largest stablecoin by market capitalization

The stablecoin universe is so far dominated by two main tokens, Tether and USD Coin. Tether is already more than 60 percent of the total stablecoins currently issued, worth about $100 billion. [Image: Shutterstock]

Terra's US dollar-pegged stablecoin UST has surpassed DAI, its stablecoin equivalent created by MakerDao, the oldest-operating decentralized stablecoin in the market, surging to number four in terms of market capitalization.

While UST currently has a market capitalization of about $9 billion ($9,216,965,278), its counterpart DAI has a market cap of about $8.9 billion ($8,969,084,150), per data from CoinGecko.

While Tether (USDT) reigns at the top with a market cap of around $77 billion ($77,549,775,071), USD coin (USDC) comes a far second, commanding a market cap of $42 billion ($42,394,442,724). Binance USD (BUSD) features in the third place, with a market cap of $14 billion ($14,449,979,414).

But what distinguishes USDT, USDC and BUSD from UST and DAI is the fact that the former three are centralised, constituting of traditional monetary instruments like US treasuries, cash, corporate bonds and more. This makes it easier to maintain their value closer to the underlying stable asset class, like dollar or more.

However, UST and DAI are decentralized stablecoins, backed by other cryptocurrencies. Since the highly volatile cryptos form the basal asset, it is hard to keep these stablecoins pegged stably to the dollar.

DAI can be minted by pledging various other cryptocurrencies as collateral, similar to how one can get a cash loan by putting forward stocks or any other asset as security. On the other hand, UST is minted by burning LUNA, which is Terra's native token, used for token governance and transaction fees payment. In order to mint DAI, one needs the value of collateral to be more than 100 percent of the stablecoin employed.

What's happening with Stablecoins?

Stablecoins have caught the fancy of US legislators, who have, time and again, reiterated their potentially harmful implications on the US financial system. Senator Elizabeth Warren termed them as "not always stable".

“In troubled economic times people are most likely to cash out of risky financial products and move into real dollars. Stablecoins will take a nosedive precisely when people most need stability, and that run-on-the-bank mentality could ultimately crash our whole economy,” Warren said.