Terra USD (UST) Vs Tether (USDT): A Comparison of Two Stablecoins
The author is a tech enthusiast and QA analyst who works at DevNami.
Terra UST and Tether USDT
Terra UST is an algorithmic stablecoin from the Terra Labs in South Korea. Tether USDT is a stablecoin based on a 1:1 ratio of government-regulated USD reserves.
Let us look at the comparison between these two stablecoins in the cryptocurrency market.
| Terra USD (UST) | Tether (USDT) | |
|---|---|---|
Launch | Terra UST launched on Bittrex Global in September 2020. | In 2014, Tether tokens were first released. In 2015, they were traded in exchanges. |
Total Supply | 18 Billion | 14.6 billion |
Circulating supply | 18 Billion | 14.4 billion |
Type | Algorithmic Stablecoin pegged to USD by Terra Luna. | Government assurance backed stablecoin with accuracy of peg 1:1 ratio with reserve dollar. |
Blockchain | Terra Luna | Multiple Blockchains |
Multi-Nation FIAT Stablecoin | Yes. Terra has FIAT pegged stablecoin for multiple nations. | No. Only USD supported. |
Smart Contract Support | Yes | Yes, supported by the deployed backend chain. e.g. Ethereum, TRON.. |
SDK Support | Cosmos SDK | Chain dependent |
Consensus Protocol | Proof of Stake. Tendermint Protocol. | Chain dependent |
Blockchain Bridge | Support for blockchain bridge to chains like Ethereum, Osmosis, Binance, Harmony etc. is supported by Luna. | Tether is deployed on the blockchains that support smart contracts and bridges so the functionality is dependent on base chains. |
Use Case | UST is currently being used by the Chai payment trail and Anchor Protocol market. | Govt regulated stablecoin. |
Risks | Government regulation, Peg accuracy etc. | Centralized chain. Regulation. |
Consensus Mechanism
Terra uses the Tendermint Proof-of-Stake (PoS) consensus mechanism in its blockchain. At its core, the blockchain is built on the Cosmos SDK. The blockchain has more than 100 validators that do the job of the proof of stake consensus.
In comparison, Tether does not use the consensus mechanism. Instead, it relies on the base chain on which it is deployed for the consensus operations. Currently, it maintains the peg based on government reserves. This forces the base chains to comply with the value of the token.
Transaction Speed
Terra uses the Cosmos SDK, which supports around 10,000 transactions per second. It has an average transaction time of around two to six seconds. Compared with the USDT, you may find the UST has much better transaction speed.
Tether (USDT) has transaction speed dependent on the blockchain on which it has been deployed. For example, USDT on TRON is very different in speed compared to the USDT on Ethereum.
Stablecoin: Algorithmic vs. Reserve
Terra UST makes use of the algorithmic stablecoin USD peg. Depending on the market changes, the peg price is adjusted and accurately pegged as much as possible.
Tether, on the other hand, is pegged to the USD values is adjusted based on the government reserves. So the Tether USD value always stays in a 1:1 ratio with the federal bond reserves.
Centralization
Terra labs are the entity behind the Terra UST. This company takes most of the decisions related to the Terra Luna and Terra UST coins. So despite having the open-source blockchain, the primary decision-making is centralized. The only difference being the coins are not government regulated.
On the other hand, Tether is an entity that regulates the stablecoin peg using the bonds in reserve with the government. It follows all government regulations, is centralized, and logs every transaction for legal purposes.
Multi-National Stablecoin
Terra UST has its stablecoin for most nations for which UST fiat is deployed. So, for example, UST is available for USD, WON, and EUR currencies, which pegs to respective fiat values.
Tether USDT is currently limited only to the USD value. As of now, it has not been deployed for any other nation's fiat currency. That may be possible if such countries accept the USD peg soon.
Transaction Fee
Terra USD has relatively lower transaction fees compared to ERC-20 tokens. In the case of Terra, the cost of a transaction goes from 0.05 up to 0.50 for higher amounts, which makes it ideal for financial transactions.
If deployed on Ethereum, Tether would fetch more gas fees and require a more significant amount for balancing gas fees with respect to the amount being sent. Meanwhile, Tether on TRON or other chains would be cheaper to send.
Final Thoughts
Terra UST, an algorithmic stablecoin, maintains its value as it depends on its native LUNA coin for the stability value. This makes it independent from the US market peg value. Meanwhile, Tether USDT is a government-regulated stablecoin that has many flaws limiting its exposure to the open web and the decentralized market.
Depending on the use case, available market, and the development choice, one can choose either UST or USDT stablecoin for their use.
This content reflects the personal opinions of the author. It is accurate and true to the best of the author’s knowledge and should not be substituted for impartial fact or advice in legal, political, or personal matters.
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