The purpose of this analysis is to share Terra’s approach to creating a price-stable cryptocurrency (stablecoin) for global adoption. Specifically, we solve for an optimal composition of currencies that will comprise Terra’s currency peg. Since Terra is a new stablecoin, it makes sense to first begin by drawing understanding from the practices of fiat monetary regimes and then applying this knowledge to cryptocurrencies. We then solve for an optimal currency basket to comprise the peg, resulting in Terra’s decision to peg its protocol stablecoin to the International Monetary Fund’s Special Drawing Rights (SDR).
Do you have any questions about the SDR or other related topics? Please feel free to ask!