182 [Terra] UST-LUNA Highway
Intro to Terra minting mechanism
I previous wrote about the Terra minting mechanism in a previous bounty. Here's a recap:
> Normally, to swap between tokens a user has to do it on a centralized exchange (CEX)like Binance or a decentralized exchange (DEX) like Uniswap. However, because Terra has a special relationship between LUNA and Terra stablecoins, Terra has a special swapping capability built into its core. In Terra station, this capability appears as “Market” whenever you try to swap between the Terra native coins. > > > # Market Module > > The Terra market module facilitates swaps between the Terra native coins. It operates similar to DEX pools like on Terraswap, Astroport, Uniswap etc. you might be familiar with but with the major difference that there are no actual liquidity pools. Instead, this mechanism employs virtual liquidity pools. > > The major difference between the two kinds of swap mechanisms is that in a normal liquidity pool, you have a token that gets added to the pool and another token gets removed. In Terra’s Market Module, one of the token gets burnt while the other gets minted.
> # LUNA<>UST Mint Mechanism
> If you haven’t guessed by now, then the “Market module” is also known as seigniorage machine made famous by Danku_r.
> This module enables the following arbitrage mechanics around LUNA<>UST swap mechanism which holds the peg around $1.
Back to present day
Now, let's take a look at how the UST vs LUNA mints have been doing. We're looking at the last 14 months of data starting in Jan 2021.
Here's the timeline of what I can observe:
- March 2021 - There's a large bump in UST mints peaking at 69M (nice!) on March 17th. Coincidentally, March 17th, 2021 was also when Anchor Protocol was launched 😁 So, all this UST minted is likely the UST being deposited into Anchor Earn!
- May 24, 2021 - We see a peak in LUNA minted at around 42M. This is because UST got depegged to $0.91 during the May market crash causing a panic and UST holders escaping back to LUNA. This is basically the arbitrage behavior as explain above when UST is below peg.
- November 10-19, 2021 - UST minted peaks at around 280M daily. This is because of the community pool LUNA burn which burnt around 89 Million LUNA. All this minted UST will be distributed to LUNA stakers over the next 2 years.
- December 2021 - The source of the UST minted in this time period is less certain but it's likely because UST adoption was increasing on other chains as well as Binance listing, therefore ample UST liquidity was required.
- Feb-March 2022 - The UST being minted in this timeframe is likely the UST incentives for UST pools on other chains, LFG reserve LUNA being burnt to acquire Bitcoin and general demand for UST on various central exchanges, on-ramps like Kado and Alice etc.