The Terra network provides a mechanism for preserving the value of the stablecoins on the network. This is a collaboration between LUNA and Stablecoin. Here are some examples of collaboration between LUNA and UST:
In the event of high UST demand, resulting in a higher value of $1.002, this should not be the case. The Terra Network allows users to swap $1 LUNA for $1 UST through the Terra Station wallet. This exchange process would burn 1 dollar of LUNA, to create 1 UST, increasing the supply of the UST. As the UST was valued at $1.002, the user was able to make a profit of $0.002.
On the contrary, with low UST demand and drop in value to $0.998, users can purchase UST for $0.998 and use the Terra Station’s function to exchange 1 UST for 1 dollar of LUNA. This will burn 1 UST and create a 1 dollar LUNA, making the user gain $0.002 as a profit.
This exemplified process takes place on the Terra network almost all time, giving the stablecoin on the network the closest value to the fiat currency.