TerraUSD is supposedly stable only when people want Luna. But who the hell wants Luna? The whole idea failed at its very premise from the beginning.
So the idea was that the Luna token would stabilize the peg for the UST stablecoin. In turn the UST stablecoin would drive demand for Luna blockspace giving the Luna token its underlying value.
To Terra’s credit they did make fairly serious efforts to spread a UST payments system. This got a fair bit of traction particularly in South Korea. The idea being that every time you paid for a cup of coffee from your UST wallet, the transaction fee would bid up Luna blockspace and help stabilize the peg.
As the market cap of Luna skyrocketed it allowed for the minting of massive quantities of UST, and then as the price of Luna declined the value of the tokens backing UST was less than what was in circulation and contributed to the death spiral.
No amount of demand for Luna block space was ever going to keep this thing pegged. The only thing defending it was open market moves from extremely well capitalized trading desks which is uh decidedly not "algorithmic" nor "decentralized".
There's other stable coins with similar mechanisms like Synthetix / SUSD which are also risky, but AT LEAST in their case they require 400% overcollateralization in SNX to mint SUSD.
What's shocking is how many people, who ostensibly should be in the top 1% in terms of finance IQ, (e.g., Mike Novogratz, Raoul Pal, etc.) were seemingly unaware of these risks and never examined how it worked while shilling it to retail investors.
Apples and oranges, really. There is no redemption mechanism in sUSD that results in uncontrolled printing (i.e. devaluing) of SNX (the underlying collateral), unlike UST/LUNA.
sUSD is more akin to DAI (i.e., over-collateralized debt-based stablecoins) than to UST.
Not shocking at all, it’s answered in TFA:
> Many of the large firms that invested in and marketed this coin were able to exit before the crash occurred, escaping with massive profits. Strangely, some of these whales felt the need to share this in their comments following the crash. Pantera Capital CIO Joey Krug admitted that they had sold 80% of their Luna position before the crash. Furthermore, Pantera Capital partner, Paul Veradittakit, seemingly bragged that they had turned their $1.7 million dollar Luna investment into around $170 million dollars. Galaxy Digital CEO, Mike Novogratz, wrote in a letter that Galaxy had “booked profits along the way” before the Luna collapse happened.
The entire value proposition of the crypto-currency industry is like "I will create this virtual token out of thin air and people will pay real money for it because.... reasons".
In theory, people would want Luna to get the 20% returns through Anchor.
Of course, that assumes the 20% returns would continue forever (which a bunch of crypto people foolishly believed) ...
The people don’t believe we can all be trillionaires, they just believe everyone who believed and HODLled their savings into XYZ is going to be one.
TerraUSD yielded 20% returns on anchor
Luna gave staking yield. It received a portion of transaction fees off the Terra network, that was what created demand for Luna - if you thought transactions on Terra were going to increase and therefore give increase yield in the future
Of course there simply wasn't enough demand to offset the terrible peg mechanism
That TerraUSD all came from people buying Luna and converting it to TerraUSD.
The root of demand for the Luna ecosystem was the 20% returns.