Do Kwon targets significant growth for UST stablecoin in 2022

Do Kwon, the founder of South Korean cryptocurrency project Terra, believes supply of his team’s US dollar-pegged stablecoin ($UST) can increase significantly over the next 12 months.

Speaking exclusively to Asia Markets, Kwon said there a number of factors that will enable the UST market cap to continue soaring well past its current level of around $11 billion.

A significant increase in the UST supply would likely have a significant impact on the price of Terra’s ‘LUNA’ token, which was designed to accrue value from UST usage by acting as its reserve currency and ensuring its price stability algorithmically.  

One analyst says that value capture model is so powerful that a $50 billion UST market cap, for example, could take the LUNA price to at least $350.

The LUNA price at the time of publication is $61.

We’ll have more detail on the theory behind that bold prediction later, but first, we’ll explain why Do Kwon believes UST’s market cap will continue rising quickly.

A multi-chain future

Terra is one of the first projects to build a “multi-chain” model, which allows its products, including LUNA and UST to be transacted on other blockchains like Ethereum.

The Gemini cryptocurrency exchange, for example, lists ‘wrapped’ versions of both tokens, which means it holds them on the Ethereum blockchain.

Kwon has told Asia Markets he expects the growth of UST to be fuelled – in part – by increased usage of the stablecoin on other networks.

“(Much of the) supply will be exported via bridges and distributed over other layer ones outside of the Terra network,” he said.

However, Kwon has also outlined other potential catalysts for the increase, including:

Binance exchange listing

The recent listing of UST on Binance was a big deal for Terra.

Around the time the listing was announced, the LUNA price reached an all time high above US$100.

“Binance is by far the largest crypto exchange in the world by volume in both spot and derivatives, making it the premier exchange venue for adding UST,” Kwon said.

“Besides gaining more exposure to Terra from Binance’s massive user base, the gradual addition of multiple UST-based quote pairs in major crypto assets like Bitcoin, Ethereum and others helps boost demand for UST as a viable trading pair.”

Kwon believes its a crucial step towards taking market share from incumbents like Tether (USDT), which has been the preferred stablecoin for most traders and investors on centralized exchanges.

“For many Binance users, having UST listed also grants them easier access to the Terra ecosystem by making one-way withdrawals from native UST on the exchange to their Terra wallets that are compatible with apps like Anchor, Mirror, Pylon, Astroport, and more,” Kwon said.

Future exchange listings

Whilst the Binance listing was significant, UST still features on much fewer exchanges than incumbent stablecoins like USDT.

There has been much speculation UST will inevitably be added to most major platforms, including Coinbase, which through its venture capital arm was an early investor in Terra.

“Exchanges don’t actually notify teams of listings until they are listed for a variety of legitimate reasons, so it’s difficult to comment on future exchange listings,” Kwon said.

“However, as UST grows in adoption and demand, mirrored by its swelling market cap, exchanges are much more likely to list UST as an avenue for unlocking a new subset of users seeking fiat on/off ramps for the asset and a gateway to a new, vibrant blockchain ecosystem.

“Liquidity begets liquidity, so as UST becomes more prevalent on DEXs and other protocols in DeFi, the impetus for exchanges to list native UST increases as well.”

So, with all of this in mind, let’s take a look at where the price of Terra’s LUNA token could be headed.

Luna price projections

For analysis of what a growing UST market cap could mean for the LUNA price, we have gone to Murray Rudd, who is an applied micro-economist and LUNA investor.

Rudd admits predicting price is difficult, with many factors coming into play, including interactions between liquid, circulating and total LUNA supply that can be modelled and a lack of data with which to model LUNA demand.

“Advanced modelling techniques could be developed, but it may be easier to just take the current results and do some informed speculation on price outcomes based on past crypto market performance,” Rudd said.

Under Rudd’s models, he has the LUNA price reaching $350 when the UST supply hit $50 billion.

(It’s worth pointing out, however, he works off a relatively steady growth rate for UST, with $50B being reached in late 2023.)

Rudd points out the $350 figure would come largely from the reduction of LUNA’s circulating supply due to the increased UST supply, not due to the expanding market demand for LUNA.

He says expanding LUNA market demand (fuelled by front-running the supply shock and general market sentiment) would see the price go much higher.

For a more detailed explainer of this and Murray Rudd’s valuation models, please refer to his substack post.