Introduction

Terra USD, also known as UST is an algorithmically stablecoin that is pegged to the US dollar by Terra LUNA. UST is interchain to major blockchains such as Ethereum, Solana, and Polkadot. On Ethereum, UST is available as a wrapped token, with liquid pools such as UST-USDT enabling swaps.

The purpose of this research is to compare UST price of the UST-USDT pool on Uniswap (Ethereum) to the UST oracle price on Terra. This dashboard will answer the following question in relation to the research:

• What is the average daily price of UST on Ethereum and UST on Terra?
• How are they performing against the peg?
• What accounts for price disparity if any?

The peg is determined by taking the median price across all-time Terra oracle prices. Daily average prices are taken to present a crisp chart of price movements.

Volatility - 90 Days

The chart below shows the average daily price of UST on Ethereum (yellow) against UST on Terra (cyan), and how they are both performing against the peg (red) over the last 90 days.

Findings & Conclusion

We can see that for the UST-USDT price, the farthest it has been off the peg is 1.7% compared to the UST Terra price whose variance from the peg is capped at ~0.3%.

However, UST-USDT price's farthest variance was experienced in May 2021. Since then, prices have been below 0.5% of the variance.

What accounts for the disparity in prices?

First, we have to understand that the liquidity pools on Uniswap, which is an automated market maker (AMM), are disconnected from external markets. Changes to the token price on external markets will not affect the AMM. Price changes on AMMs are affected by arbiters who trade assets in the pool. Therefore, it is reasonable to conclude that UST-USDT price volatility in May was a result of low pool liquidity.

Hence, for UST-USDT price to see continuous stability, there must be enough liquidity in the pool to cater for large trades likely to cause a significant shift in prices.