What Is TerraClassicUSD (USTC) and Will It Ever Repeg to $1?
May 2022 witnessed one of the major catastrophes in the history of cryptocurrency. The Terra blockchain’s main cryptocurrencies, LUNA and the UST stablecoin, crashed and became virtually worthless in just a few days. The obliteration of UST was particularly notable, as this crypto stablecoin had been pegged to the U.S. dollar with a functional mechanism designed to ensure rate stability. When UST lost its peg to the dollar in early May, most investors lost confidence in it and its sister token, LUNA, almost instantly.
After the Terra ecosystem crashed, the blockchain was rebranded to Terra Classic, and new iterations of the LUNA and UST tokens — called LUNC and USTC, respectively — were launched. While USTC was still envisioned to achieve parity with the greenback, it was worth less than a cent at the time of the rebranding. In fact, until recently, USTC rarely rose in value above a couple of cents.
However, a combination of factors has taken the stablecoin from $0.013 on Nov 25, 2023 to over $0.06 a week later. With this recent impressive rally, USTC has been catapulted into the spotlight — and the possibility of it once again achieving parity with USD is being actively discussed.
Key Takeaways:
TerraClassicUSD (USTC) is a cryptocurrency on the Terra Classic blockchain that’s designed to maintain an algorithmically controlled peg to the U.S. dollar. However, at the moment, USTC’s peg maintenance mechanism has been disabled, and the token trades in a free-floating format.
USTC is currently in the midst of a significant price spurt, supported by supply cuts and renewed enthusiasm about its ability to repeg to the U.S. dollar (USD or US$).
Although USTC’s chances of attaining parity with USD are slim, the token still has some growth potential.
What Is TerraClassicUSD (USTC)?
TerraClassicUSD (USTC) is a cryptocurrency on the Terra Classic (LUNC) blockchain. Its purpose and working mechanism were originally designed so it would maintain a 1:1 peg to the U.S. dollar. However, following the May 2022 crash of its predecessor, UST, USTC has largely traded for just a few cents, and has lost most of the properties associated with a stablecoin.
USTC is supposed to be an algorithmic stablecoin, whose dollar peg is maintained not via fiat reserves, as is the case with assets like USDT or USDC, but rather via a minting and burning mechanism to adjust the token’s price.
USTC's predecessor — UST — had successfully maintained its dollar peg for over one and a half years until May 2022, using a burn and mint system in tandem with Terra's native governance token, LUNA. To mint UST, you needed to buy it with LUNA, which was burned in the process. Likewise, to get more LUNA, you would mint it by paying with UST, which would also be burned. Terra employed an automatic swap mechanism to keep the UST peg by minting and burning LUNA and UST when the stablecoin rate deviated from $1.
Following the UST crash and the relaunch under the USTC name in May 2022, the token's price-stabilizing mechanism via mint and burn processes was turned off. Despite this, many online publications, including from major sources, continue to imprecisely describe USTC as an algorithmic stablecoin.
How TerraUSD (UST) Became TerraClassicUSD (USTC)
In 2018, two young South Korean entrepreneurs, Do Kwon and Daniel Shin, introduced the concept of a blockchain called Terra that would offer stablecoins with algorithmically maintained peg rates. In 2019, Terra’s mainnet was launched to much fanfare, and in September 2020, the platform introduced its first algorithmic stablecoin, the U.S. dollar–pegged TerraUSD (UST). As described above, the UST/LUNA swap mechanism maintained the stablecoin's rate.
However, as early as 2018, before Terra’s mainnet launch, some industry analysts questioned the viability of the Terra model. According to industry analyst Cyrus Younessi, a fundamental weakness in UST’s peg maintenance system wasthat the stablecoin depended upon the LUNA token to correct any large, panic-driven deviations from the $1 peg. However, if UST investors panicked, that was going to quickly hit LUNA as well, and vice versa.
In May 2022, these dire predictions were realized when both UST and LUNA plunged virtually to nothingness. At the start of the month, UST, as any respectable greenback-pegged stablecoin, was worth $1, while LUNA traded at over $80. By mid-May, both tokens were trading for tiny fractions of a cent, essentially becoming worthless.
Following the disaster, the original Terra blockchain was rebranded to Terra Classic, with UST and LUNA changing their tickers to USTC and LUNC, respectively. However, the stablecoin rate maintenance function based on mint/burn swaps was disabled. Effectively, this left USTC an algorithmic stablecoin in name only. The token now has a variable, and at times volatile, rate dependent upon direct market forces. However, this does not mean at all that USTC is an asset without potential.
How Much USTC Crypto Is in Supply?
After UST’s relaunch as USTC, the token's supply levels stabilized somewhat, due to the abandonment of the constant mint and burn processes. In September 2023, the Terra community voted to stop minting new USTC altogether in order to boost the token's chances of achieving parity with the U.S. dollar. Additionally, the community has supported proposals for USTC burn events in recent months.
As of Dec 4, 2023, USTC's total supply is close to 9.8 billion, while its circulating supply is nearly 9 billion.
TerraClassicUSD (USTC) Price Prediction
In late November 2023, the former stablecoin's price was around $0.01, a price at which USTC had typically stabilized after the turmoil of May 2022. However, the coin has experienced a head-spinning price rally in the last few days, jumping to $0.065 as of Dec 4, 2023.
The chart below shows USTC prices for the fortnight leading to Dec 4, 2023, with the large spike initiated on Nov 26, 2023 clearly observable.
Since USTC is nominally a stablecoin, even if only for historical reasons, many major crypto price prediction portals do not publish long-term forecasts for it. Those who do post its predictions don't see the token ever reaching parity with the dollar. For instance, DigitalCoinPrice expects USTC to maintain its price at around $0.064 even until 2030. However, CoinCodex holds a rather favorable stance in the long run, predicting USTC to rise as high as $ 0.1198 in 2030.
Can USTC Get Back to $1?
The ongoing USTC price rally and the recent supply-limiting measures taken by the Terra Classic governance community have raised hopes that the token might return to parity with USD at some point in the future. For the first time since the original Terra blockchain catastrophe, the possibility of USTC trading for anything close to $1 is being seriously discussed.
In our view, these discussions are driven more by emotive enthusiasm than by any fundamental reasoning. The decisions to stop minting USTC and burn some of its supply are driving the fervor and current price rally. However, in order for USTC to reach the $1 mark, something extraordinary must happen. This might be in the form of a massive (multibillion-dollar) injection of capital. However, few investors would risk such a daring move, given the current state of the Terra Classic network and its tokens, USTC and LUNC.
Is USTC a Good Investment?
Although USTC’s parity with the dollar is highly unlikely, that doesn’t mean that the token has no investment potential. Many crypto analysts and investors have excessively focused on the parity issue while disregarding USTC's general growth potential. Between Nov 25 and Dec 4, 2023, USTC experienced a 400% growth rate.
While much of that growth is driven by zealous hype, USTC isn’t just a purely speculative asset. Some factors that might support the token's further price gains:
The Terra Classic community looks determined to initiate further supply-cutting burn events to push USTC’s price as close to $1 as feasible. These supply cuts might serve as a support factor for the token, although excessive burning isn’t going to act as a magic panacea for it.
If USTC’s current growth trajectory continues, short-term profit-seeking investors will likely favor the token, helping push its price further. Therefore, in the short term, USTC might be among the most profitable, even if risky, cryptocurrencies.
In general, USTC is likely a good asset for short-term (or at most, mid-term) oriented crypto investors who don’t mind high-risk investments. At the moment, with all the hype and solid growth surrounding it, USTC carries both significant risk and great return potential.
Where to Buy USTC
You can buy USTC on Bybit as a Spot pair (USTC/USDT) or a USTCUSDT Perpetual contract. If you don’t yet have an account on Bybit, you can easily register for one and trade hundreds of cryptocurrencies in both the Spot and Derivatives markets.
Closing Thoughts
As of early December, USTC's impressive rally is an ongoing event. The current growth spurt offers tremendous profit opportunities for short-term traders with a penchant for risk. For those with a longer-term perspective, things are less clear. The current price spike might go on for a while, perhaps weeks or months, or it might fizzle out just as fast as it started.
USTC's chances of ever reaching parity with the greenback look slim at the moment, but significant positive returns in the future are definitely in the cards. One highly positive factor for the Terra Classic project is that for the first time since the May 2022 calamity, the crypto market is taking USTC and the Terra Classic blockchain seriously.
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