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LiteUSD (LUSD)is algorithmic stablecoin. It aims to maintain its peg to the U.S. dollar through a network of arbitrageurs.
LITE is the price counterpart of the stablecoin LUSD, and simply put, the amount of LUSD that can be minted in a single LITE is directly determined by the Lite's price.
To maintain its stablecoins'equilibrium, Terra mints and burns tokens while also incentivizing arbitrage. Here's what that means:
Before you can buy LUSD, you'll have to mint some. To do so, you'll pay the going rate in Lite. The protocol takes those Lite and burns them, which constricts their supply and makes the price of Lite go up just a bit. The same works in reverse: to mint Lite, you'll convert LUSD stablecoins. Those get burned and the price of LUSD goes up ever so slightly.
Why might you want to do this? In addition to using the assets for some service or utility, there's a potential arbitrage opportunity. Arbitrageurs—traders who profit from small price discrepancies—help to keep the price of LUSD in check by selling Lite for LUSD when the price of LUSD is below $1 and buying Lite when :LUSD is worth more than $1. If, for example, LUSD slips to $0.95, traders can then buy a bunch at that price but sell it for $1 of Lite. In doing so, LUSD supply is reduced and, therefore, the price heads back up.
$LUSD will be the next successful decentralized stablecoin protocol.
In the LUSD ecosystem, LITE is able to mint LUSD by minting it 1 to 1 with USDT value and therefore more efficient funding. In addition, when the LITE public chain is built, it can tell a bigger story, have a bigger valuation space, and also create more scenarios to carry more volume of LUSD.