Stablecoins are digital assets that aim to maintain a constant value relative to another (pegged) asset. Traditionally, the reference asset has been an off-chain fiat currency, most commonly the US dollar. Stablecoins are becoming a buzzword in the traditional financial space and serve as an entry point for many into crypto.

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The global stablecoin market capitalisation stands at approximately $245B. Citi Group’s base case, however, estimates that this could grow to be a trillion-dollar industry in the next 10 years. This is expected to be motivated by big entrants – the likes of major governments and banks entering the space. In particular the European Central Bank is testing and developing a Digital Euro. Separately the likes of Bank of America, Santander and JPMorgan have all announced stablecoin plans. 

JPMorgan already has a private US dollar-backed digital token, JPM Coin, which is available exclusively for settling institutional client transactions on its private blockchain Onyx. There has been speculation that JPMorgan is set to release a new stablecoin-like "deposit token" on a public blockchain, JPMD (JPMorgan Dollar), which represents a dollar's worth of bank deposits. 

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Stablecoins can be broadly classified by the mechanism that maintains their value peg and how the reserves that guarantee that peg are held. Fully collateralised stablecoins are backed 1:1 by reserves, ensuring redemption at face value. These can be backed by different assets such as fiat, crypto, or commodities. The most popular method is to back the stablecoin token using real-world assets held off-chain, usually cash or more liquid government treasuries (in the case of US dollar stablecoins, this generally means T-bills). However, some commodity-backed coins exist that peg their value to the price of gold or other commodities. Non- or under-collateralised types, such as algorithmic stablecoins, rely on smart contracts to maintain their value. The smart contracts manipulate the supply of the token by buying and selling the token so as to maintain value relative to the reference asset.

Fiat-Collateralised Stablecoins 

The stablecoin space is heavily dominated by two incumbents, Circle (USDC) and Tether (USDT), which together make up 85.7% of the total stablecoin market. Other stablecoins are a fraction of the size of these market leaders. Both USDT and USDC are fiat-collateralised stablecoins, representing the value of a US dollar on-chain. 

In general, most reserve-backed stablecoins are administered and distributed by a single organisation. Their pegs are usually maintained by the promise of redemption of each token for the pegged value of the asset on demand – since the on-chain asset is backed by a reserve off-chain, controlled or custodied by the distributing organisation. 

Tether (USDT)

While not the very first to be minted, Tether (USDT) became the first stablecoin to gain widespread use after it was launched in 2014 under the original name “Real Coin.” – promising that each token was backed 1-to-1 by safe, dollar-denominated assets held in reserve. USDT's popularity grew in tandem with the 2017 BTC bull run, with 1.4 billion tokens minted by January 2018. Now, with a market capitalisation of $155.23 billion, USDT accounts for over 60% of the $245 billion global stablecoin market. 

Today, USDT is deployed on more than 13 blockchains, with major concentrations on TRON (approximately 53 billion USDT in circulation) and Ethereum (approximately 41 billion USDT), and additional supply circulating on Solana, Arbitrum, BNB Chain, Avalanche, and Polygon. It is the most commonly used quote currency on top centralised exchanges, including Binance, OKX, and Bybit, and plays a foundational role in decentralised finance (DeFi) ecosystems. 

Customers that want to mint USDT tokens directly with Tether must pass a KYC procedure. However, once minted, coins are freely traded on the secondary market. 

Reserves

Tether maintains the peg of USDT by promising the redemption of tokens at the value of $1. It is able to promise that redemption as it claims to hold dollar deposits and other liquid assets at a 1:1 ratio to tokens in circulation – “All Tether tokens are pegged at 1-to-1 with a matching fiat currency and are backed 100% by Tether’s Reserves”. 

According to Tether’s own disclosure, their reserves comprise of:

Additionally, Tether disclosed in Q1 2025 that it held $5.6B in excess reserves as a capital buffer to absorb redemption demand and enhance market stability.

However, despite this 1-1 backing claim, over 10% of Tether’s reserves consist of more volatile assets such as precious metals, Bitcoins, secured loans and other investments, with only 81.49% being backed by Cash & Cash Equivalents & Other Short-Term Deposits, according to their attestation.

Tether has faced scrutiny in the past over its claim of backing each USDT token with $1, and have been historically vague in their disclosures about what backs USDT. In October 2021, Tether Holdings Ltd was ordered to pay $41 million in fines to the Commodity Futures Trading Commission (CFTC) for “making untrue or misleading statements and omissions of material fact” regarding their reserves. This followed another long-running legal dispute that concluded in February 2021 with an $18.5 million fine paid to the New York Attorney General’s Office. As a result, Tether can no longer legally operate in the state of New York. 

In response to these controversies, Tether now provides attestation reports each quarter under the “Transparency” section of their website. Those reserve attestations are audited quarterly by BDO Italia, a top-five global accounting network, offering partial transparency into Tether’s backing. However, beyond these attestations, Tether has never completed a full, independent audit of its reserves. 

Despite the scrutiny, Tether has so far stood the test of time, reliably honouring redemption requests in all market conditions. For example, when the historic stablecoin Terra’s UST depegged from the market in May 2022, it sent shockwaves through the stablecoin market. This  amounted to more than $7B USDT redemptions caused by a drop in stablecoin trust. Yet, Tether was able to process more USDT redemptions than they claimed to hold in cash reserves, presumably through the sale of their non-cash assets.

The Need for Regulation

Since the European Union enacted the Markets in Crypto-Assets (MiCA) regulation, stricter compliance requirements have been introduced for stablecoin issuers operating within the EU. Tether has not secured a MiCA licence and, as a result, its USDT token was delisted from several regulated European exchanges, including Bitstamp and Uphold. This delisting created liquidity fragmentation in the European crypto market and led many regional traders to seek alternative stablecoins such as USDC and EURC. In May 2025, Tether faced additional regional restrictions following continued non-compliance with MiCA.

Additionally, Tether has prohibited US persons and entities from using Tether’s mint and redeem services, a precautionary action on the back of their previous ruling from the New York Attorney General and unregulated status in the US. 

The minting and redemption of USDT is centralised (controlled by Tether entirely), and so retains the ability to freeze and blacklist wallet addresses to facilitate the recovery of lost USDT tokens. As of June 2025, Tether has blacklisted over 5,100 wallet addresses across the Ethereum and Tron blockchains, freezing approximately $3.03B in USDT in total. To recover funds, Tether can blacklist the addresses wrongfully holding USDT, rendering the tokens unusable and then issue an equivalent amount to the rightful owner.

However, the ability to recover USDT is limited to specific and exceptional scenarios, typically to comply with law enforcement or to mitigate the loss of user funds following exploits. Despite having a level of control over the movement of tokens, Tether has issued a blanket statement: “We cannot reverse a completed transaction nor guarantee any recovery of funds sent to incorrect or incompatible addresses.”

USD Coin (USDC)

Issued by Circle, USD Coin (USDC) is another US dollar-pegged stablecoin, launched in 2018. With a current market capitalisation of approximately $61.02B, USDC stands as the second-largest stablecoin by market capitalisation. The stablecoin operates across multiple blockchain platforms, including Ethereum, Solana, Avalanche, Algorand, Stellar, and the recently integrated XRP Ledger, and is used in decentralised finance (DeFi) applications, centralised exchanges, and cross-border payment solutions. Circle’s adherence to financial transparency and regulatory standards has made USDC a favored stablecoin among institutional investors, traditional financial entities and governments who are building out their regulatory scope on digital assets. 

In June 2025, Circle successfully launched its initial public offering (IPO) on the New York Stock Exchange under the ticker symbol "CRCL," with its stock surging nearly 170% on the first day of trading and now trading at approximately $180 per share, as of Jul 1, 2025, with a market cap of  over $40 billion. Circle's annual revenue grew from $15M in 2020 to $1.7B in 2024, driven largely by interest income earned on USDC reserves. Since its inception, USDC has facilitated over $25T in on-chain transactions.

Reserves

USDC also promises 1:1 redemption with the US dollar and as a fiat-collateralised stablecoin – like USDT, the peg is maintained by the equivalent backing held in reserves. Circle publishes monthly reserve attestations detailing the composition and valuation of reserves, conducted by Grant Thornton LLP, a leading accounting firm, to verify that reserves meet or exceed the value of USDC in circulation. In comparison to Tether’s array of investments, Circle showcases a reserve “100% backed by highly liquid cash and cash-equivalent assets.” 

This is broken down by cash held at regulated financial institutions:

And at the “Circle Reserve Fund”, a SEC-registered government money market fund which holds a portfolio of short-dated US Treasuries, overnight US Treasury repurchase agreements, and cash managed by BlackRock:

Regulatory compliance 

USDC has grown its market share through its regulated reputation, becoming the stablecoin to replace USDT’s former European market share. Unlike Tether, Circle secured the necessary regulatory approvals under the European Union’s Markets in Crypto-Assets (MiCA) regulation, allowing USDC to remain listed and traded across European exchanges in compliance with EU law.

Additionally, Circle has expressed support for the United States' Guiding and Establishing National Innovation for US Stablecoins (GENIUS) Act – the first stablecoin legislation that has passed through the Senate, aiming to establish a comprehensive regulatory framework for stablecoin issuers. It is actively preparing its operations to align with the Act’s provisions. As such Circle’s USDC can be minted and redeemed by institutional clients worldwide with an exclusion on sanctioned jurisdictions such as North Korea, Iran, and Syria.

However in a similar vein, Circle is also a centralised organisation and retains the right to blacklist user accounts if there is a security threat to the proper operation of its network, or in order to comply with law enforcement demands. Circle has previously frozen USDC funds in the accounts of its users at the request of law enforcement. This “blacklisting” means that the user can no longer receive or spend USDC onchain. Commenting on the event, Circle noted it retains this right if there is either a security threat to the proper operation of its network, or to in order to comply with law enforcement demands. 

World Liberty Financial USD (USD1)

USD1 is a USD-pegged stablecoin launched in March 2025 by World Liberty Financial (WLFI), a decentralised finance (DeFi) platform. WLFI is politically associated with the Trump family, who initially held a 75% stake but have since reduced their holdings, now holding a 40% stake as of Jun, 2025. This has raised concerns regarding potential conflicts of interest and the regulatory treatment of USD1.

Within three months of its debut, USD1 reached a $2.1B market capitalisation, establishing itself as the seventh-largest stablecoin globally and positioning it as one of the fastest-growing stablecoins since its launch. This initial rapid growth was boosted by a promotional airdrop in June 2025, awarding 47 USD1 tokens to each verified WLFI token holder, symbolically referencing Trump as the 47th US President.

However, the vast majority of its outstanding supply is the result of its usage as the settlement currency in a single $2B investment agreement from MGX into Binance. This represents a significant portion of its market capitalisation and questions have emerged about the token’s organic scalability. It is estimated that 93% of the total supply is reported to be concentrated in just three wallets.

Currently available on Ethereum and BNB Chain, USD1 has additional native bridging capabilities to transfer the asset across different blockchains.

Reserves

USD1’s proposition is very similar to USDC, boasting fully backed reserves consisting of cash and U.S. treasuries and championing regulatory adherence such as anti-money laundering (AML) and know-your-customer (KYC) compliance. The reserves are handled by BitGo Trust Company, a US regulated custodian and WLFI have pledged to conduct regular third-party audits of its USD1 reserves to ensure transparency.  The first audit is yet to be released with the latest update as of June 25, 2025 being that the company will issue its stablecoin audit "within days". 

Crypto-Collateralised Stablecoins 

Crypto-collateralised stablecoins derive their value from on-chain collateral. These stablecoins generally offer alternative benefits such as offering a yield or introducing the concept of decentralisation into stablecoins through smart contracts. The mechanics of stablecoins in this category vary widely between implementations.

USDS (Formally DAI)

In 2024, MakerDAO rebranded itself as the SKY Protocol and launched USDS, a new decentralised stablecoin that shares the same collateralisation mechanism, yet with additional features outlined below. USDS makes use of smart contracts that lock up user issued digital asset collateral, and mint USDS stablecoins in exchange. This means that once the USDS is redeemed and the underlying collateral is unlocked, the PnL associated with the collateral remains the users property. 

The currency DAI remains active and is pegged to USDS at a 1:1 ratio. USDS is not explicitly fiat-redeemable, it is pegged to Circle’s USDC at 1:1 creating an indirect peg on the US Dollar. USDS and DAI together have a combined but fluctuating market Cap of over $10B. 

Generation and Redemption of USDS Tokens

There are two ways to mint USDS and the first carries over from DAI’s original vault mechanism. USDS’ minting mechanism can be considered more like a USDS loan with the locked up digital assets as collateral. Users deposit digital asset collateral (e.g., ETH, USDC, RWA tokens) into a vault with predefined parameters including an overcollateralisation ratio, liquidation threshold, debt ceiling and interest rate, relative to the USDS value. The protocol then mints USDS against that collateral. 

DAI and USDS’s value is derived by the underlying overcollateralised vaults where the value of the cryptoassets at the time of writing the loan is greater than the dollar value of new USDS minted. 

To unlock the collateral, the original user who took out the “loan” can pay back the minted USDS plus a stability fee. The stability fee is comparable to a bank loan’s interest that continuously accrues on the USDS balance issued and can be paid in USDS or SKY tokens (formerly MKR). All USDS paid back to the vault is burned. 

The second form of minting, introduced alongside USDS’ rebrand is through the Lite Peg Stability Module (LitePSM). This is a smart contract where USDC can be deposited and “swapped” for USDS at a 1:1 ratio minus the minting fee.

Collateralisation

Each USDS vault is risk-isolated. If the value of a single vault’s collateralisation falls too much, the smart contract facilitates the liquidation of the loan position, only selling the necessary amount of collateral to reinstate the overcollateralisation ratio. Each collateral type has its own liquidation ratio and each ratio is determined by holders of the system’s governance token (SKY), who can determine these economic parameters via token-weighted voting, based on the risk profile of the particular collateral asset type.

When this liquidation ratio is reached, the cryptoassets are auctioned to the highest bidder, who must pay in USDS. As the borrower of the original loan keeps their minted USDS (and loses part or all of their collateral), the buyer of the assets is essentially paying back the loan for the borrower before it becomes undercollateralised. As the liquidation ratio is higher than 100%, the value of reserve should in theory remain over-collateralised.

If the underlying assets value continues to drop and liquidation proceeds are insufficient, the system draws from a shared DAI and USDS surplus fund, which covers both assets.  The surplus fund is centralised and managed by SKY Protocol. Vaults are isolated meaning collateral from one vault cannot be used to cover losses in another. If there is still a shortfall, SKY can mint and sell SKY tokens and use the proceeds to recapitalise shortfalls. These mechanisms are used to maintain the underlying reserve value of USDS.

How it Maintains the Peg

The Lite Peg Stability Module (LitePSM) is a smart contract system designed to facilitate 1:1 swaps between USDS and USDC and retain the USDS:USDC peg through an arbitrage argument. Previously, the DAI peg frequently deviated from $1 due to the previous pegging system. That system was based only on liquidating vaults and the sales of SKY tokens (formerly MKR) and was not agile enough to cope with rapidly changing market conditions.

When USDS de-pegs and its price rises above $1, users can mint new USDS via the LitePSM by depositing USDC at a nearly fixed 1:1 rate, typically paying a small fee (approximately 0.1%). They can then sell the newly minted USDS on the open market at a premium, making a “risk-free” return. This increases the USDS supply and puts downward pressure on its price, nudging it back toward the $1 peg. 

Conversely, when USDS trades below $1, users can buy it cheaply on the open market and redeem it through the LitePSM for USDC, typically at a fixed rate minus a negligible redemption fee. This removes USDS from circulation, reducing supply and placing upward pressure on the price, restoring the peg.

While the Lite Peg Stability Module (LitePSM) is permissionless, meaning anyone can interact with it, the actual capacity of how much can be redeemed at any time depends on the liquidity held within the module, specifically how much USDC is pre-funded into it. Transactions will fail if the USDC liquidity is insufficient. 

The management of LitePSM liquidity is not decentralised. USDC is deposited manually into the smart contract by externally owned accounts (EOAs) controlled by teams such as Sky Labs or other MakerDAO ecosystem participants. This use of EOAs to manage large USDC reserves raises transparency and security concerns, especially in scenarios of governance failure or malicious key compromise. 

A particular concern arises when large scale redemptions of USDS drain the USDC’s liquidity in the LitePSM. If not replenished quickly enough, users could turn to the open market, offloading their USDS at a discount and disrupting the peg’s stability.

Regulations

USDS also remains unregulated. However, given its decentralised nature, its regulatory status remains ambiguous across jurisdictions.  

In the United States, while the GENIUS act for stablecoins is not yet passed into law, it focusses on centralised and fiat-backed stablecoins, leaving USDS in a grey area. Existing legislation requires Know Your Customer (KYC) and Anti-Money Laundering (AML) compliance. Since the protocol is permissionless, using only smart contracts, there are no KYC or AML procedures and USDS is freely available to mint and redeem by anyone, anywhere.

In the European Union, the MiCA regulation imposes strict requirements on stablecoin issuers, setting out a statement on decentralised protocols that “This Regulation should apply to natural and legal persons and certain other undertakings and to the crypto-asset services and activities performed, provided or controlled, directly or indirectly, by them, including when part of such activities or services is performed in a decentralised manner. Where crypto-asset services are provided in a fully decentralised manner without any intermediary, they should not fall within the scope of this Regulation.”

This current framework leaves a regulatory grey space for determining if a protocol is “fully decentralised”. SKY protocol takes the stance that USDS is “fully decentralised” and therefore doesn't fall under the MiCa regulations. Hence, continues to operate permissionlessly in EU. However, others may argue that since the protocol was developed and is maintained by an identifiable contributor, SKY, that MiCa does apply. The European Securities and Markets Authority (ESMA) is set to expand the MiCA legislation to cover decentralised finance (DeFi), Decentralised Autonomous Organisations (DAOs) and permissionless infrastructure, from 2026 onward.

Ethena USDe

Ethena’s USDe is another, high market cap, crypto-collateralised stablecoin with an approximate market capitalisation of $5.21B. It too uses a crypto-collateralised reserve, yet it is centralised  and its protocol differs vastly from that of USDS. Whereas USDS requires over-collaterisation and uses deposited crypto tokens to back the stablecoin’s value, USDe requires a 1:1 collateralisation ratio for USDe minting and uses a trading strategy explained below to maintain value.

USDe minting and redemption is fixed in U.S. dollar terms. For instance, if a user deposits $60,000 worth of crypto assets, they will be entitled to redeem an equivalent of $60,000 in stablecoins or reserve assets.

Additionally, USDe offers the ability to “stake” their stablecoin in exchange for sUSDe. “Staking” of Ethena’s USDe is not used in the traditional sense as USDe does not secure a “proof of stake” network. Instead, sUSDe refers to a yield bearing token that allows the user to receive a portion of the profits generated from the protocol's revenue streams. This is primarily derived from the actual staking of ETH and profits from the trading strategies outlined below. 

However it is important to note that there is no guarantee of a staking yield since losses from the trading strategy can outweigh the income from the staked Ethereum. In this case, sUSDe holders have a zero yield. Importantly, not negative since holding of the sUSDe guarantees a zero or positive rate. When this happens, Ethena will use their reserve fund to support the underlying protocol, maintaining USDe and sUSDe’s value. The reserve fund is a pool of capital funded by a portion of the protocol’s revenue and private placement investor's capital  investments designed to act as a safety net on days when the protocol makes a loss. sUSDe holders receive gains upon redemption. 

Maintaining the Peg With a Delta Neutral Strategy 

To mint USDe, users must deposit crypto-collateral such as stablecoins, BTC, ETH, or staked ETH into Ethena’s system at an approximate 1:1 collateralisation ratio. The ownership of the collateral transfers to Ethena .

The trading strategy works as follows: Ethena holds a long position, created by holding the user’s deposited assets. This is balanced by opening an equivalent short position in perpetual futures. This creates a delta-neutral position, meaning that the underlying dollar value of the position remains unchanged with respect to changes in the underlying asset. However, there is a cost of carry associated with the trade which can create a profit or loss depending on market moves.

In a bull market it's common for funding rates on perpetuals to turn negative, meaning Ethena will be paid to hold the short position, which benefits the strategy. The basis can widen during sharp sell-offs, creating better entry points for future basis trades. This market scenario is optimal for Ethena’s delta-neutral setup, because it maintains the USD value alongside profiting from funding rates and the larger basis spreads.

Conversely, when the price of ETH declines, the long spot ETH position loses value, but the short perpetual position gains equivalently, preserving the net USD value. In bear markets, funding rates often are positive, meaning that traders holding short positions (like Ethena) must pay funding to those who are long. This is a net loss. Additionally, the basis, the difference between the futures and spot price, tends to narrow as markets climb, reducing opportunities for profitable arbitrage. So, while the dollar value of the underlying stays flat due to hedging, the trading strategy incurs a net loss. When this happens, Ethena uses the funds generated from staking ETH to offset the loss and if necessary, their reserve fund.

This trading strategy retains the value of Ethena’s USDe as the delta hedge creates an approximately "stable" dollar value of the underlying cryptocurrency reserves.

Regulations 

Ethena’s USDe is currently unregulated and faces many of the same regulatory hurdles as Tether’s USDT. Since Ethena is centralised like USDT, it requires a MiCA license which it does not have. Therefore residents in the EU are restricted from directly minting or redeeming USDe. Direct minting and redemption with Ethena are limited to whitelisted users who have completed Know Your Customer (KYC) procedures. However, like other stablecoins, USDe remains freely tradable on the secondary market and the staking of USDe into sUSDe is permissionless, allowing any holder to “stake”. 

Algorithmic Stablecoins

Algorithmic stablecoins, once touted as an innovative solution for achieving price stability without relying on traditional collateral, have largely failed to deliver on their promise. These digital assets attempt to preserve a consistent value by automatically controlling their supply based on market dynamics. This is typically executed through algorithmic mechanisms and smart contracts that increase or decrease the number of tokens in circulation in response to shifts in demand. Despite the theoretical appeal, the practical application of such systems has repeatedly faltered.

Frax, a once prominent name among algorithmic stablecoins, even made a strategic shift away from the model following the TerraUSD crash. It now operates on a 100% fiat-collateralised reserve.

TerraUSD (UST) / TerraClassicUSD (USTC)

The Downfall

The downfall of algorithmic stablecoins was triggered by the major collapse and depegging of the most well known example of such a stablecoin – TerraUSD (UST). TerraUSD (UST) collapsed in May 2022, leading to the creation of TerraClassicUSD (USTC). USTC which still exists, trades at just over $0.01 however, well below its intended $1 peg and is no longer considered a stablecoin.

Terra was an ecosystem of algorithmic stablecoins built on a dedicated blockchain that maintained their peg via arbitrage incentives between the stablecoin and equity token LUNA that encouraged a reversion to the target price. These stablecoins are pegged to many different global fiat currencies, and allow for cross-border payments and swaps between them. In May 2022, however, it broke its peg to the USD (and so to every one of the coins it aims to track on-chain) and its governance token LUNA fell to below $1, marking a dramatic failure in the protocol. 

The collapse of UST sent shockwaves throughout the broader stablecoin ecosystem, extending beyond just algorithmic tokens. It led to a surge in redemptions across even  fiat- collateralised stablecoins like USDT and USDC, as investors rushed toward the perceived safety of actual cash. The failure of UST dealt a heavy blow to the credibility and trust in such a model. As a result, algorithmically backed stablecoins have minimal market presence today. 

LUNA Token and Governance 

This is the governance token of the Terra ecosystem. Holders of this token were granted the power to make decisions regarding the operation of the protocol. This includes choosing the oracles that provide the “real-time” price data for fiat currencies, and the “live” price of LUNA on the open market that determines the amount of LUNA that can be exchanged for UST in the mint/burn function. A small fee is paid out to holders of the LUNA token for every transaction of the stablecoin. The LUNA token also “absorbs” the price volatility from Terra by enforcing a constant exchange rate between $1 of LUNA to 1 UST. It does this by providing an arbitrage opportunity to traders that, if taken, should return UST to its $1 peg. This system does not work if the value of LUNA is 0, as there is no arbitrage profit to be gained by buying UST at a discount and exchanging it for LUNA. 

Price Stability 

The protocol’s market module enabled users to exchange 1 USD worth of Luna (as determined by a price oracle) for 1 UST (and vice versa) at all times. This allowed users to exploit an arbitrage opportunity that adjusts the supply of UST relative to LUNA. This same principle is true for trading between all Terra stablecoin denominations. When the price of UST is below its target of $1, users can buy UST tokens at a discount and trade them for $1 of LUNA tokens – which they can then sell at a profit. The Luna Foundation Guard (LFG) was a reserve fund set up to support the $1 peg and always acted as a buyer of UST. The ultimate issue was that the fund could not match the volume of sellers during the crash and therefore the peg was lost.

When UST is above its peg, users can buy $1 of LUNA tokens and exchange each of them for UST tokens that they can then sell on the market at premium. It is important to note that this merely moves the price volatility out of UST and into LUNA. If this volatility is so extreme as to send LUNA to near $0, then the price of LUNA itself must be propped up. This was the case in May 2022, when Founder Do Kwon was forced to sell $1.5B of BTC that had been held in reserve in order to back LUNA and preserve the peg.