3. USTD - Definition, concept & Vision

3.1. USTD definition

3.1.1. What USTD is

USTD is a utility token.

Used for on‑chain yield:

• Holding USTD unlocks automated yield airdrops and lets users move value inside Terra Classic without touching banks or brokers.

Fully collateral‑backed:

• Each USTD is minted only when a user deposits 1 USD‑worth of USDC/USDT, so the token’s value comes from transparent smart‑contract vaults.

Decentralised governance:

• All parameters (collateral pools, yield split, upgrades) are set by open on‑chain votes of Terra Classic validators. No board, no CEO, no corporate treasury.

Why these points matter:

• USTD’s primary function is to give users a self‑custodied, interest‑earning dollar proxy they can spend, trade or collateralise inside DeFi.

• Access to those utilities does not depend on a central manager; it is baked into code that anyone can audit.

• Because the token’s value comes from collateral and smart-contract rules—not from a promoter’s future efforts—USTD fits the legal category the SEC, FinCEN and many state regulators call a utility token.

3.1.2. What USTD is not

USTD is not a security token (Not an “investment contract” under the Howey test).

The U.S. Supreme Court’s Howey test asks four questions. If a token fails any of them it is not a security; USTD fails in at least two:

• Investment of money – The mere act of swapping USDC/USDT for USTD is an “investment of money,” so prong is technically satisfied.

• Common enterprise – Each deposit is isolated and fully collateralised on‑chain. No profit‑sharing pool. Holders do not share in each other’s gains or losses, nor in a central balance sheet. Prong is not satisfied.

• Expectation of profit – Yield is generated by utilizing stablecoin-to-stablecoin liquidity pools. UST Protocol / USTD is not a profit vehicle. Yield is variable and expressly not promised. This prong / question is open for debate but at best is not satisfied,

• Reliance on the efforts of others – After deployment all parameters are governed by validator votes; no central team’s future work is essential to the token’s value. Prong is not satisfied.

Not a “note” under the Reves family‑resemblance test:

• USTD is redeemable on demand for the underlying stablecoin collateral, much like a cashier’s check or stored‑value card—both instruments that U.S. courts have excluded from the definition of a security. USTD therefore sits within the consumer‐payment exception of Reves, not in the “security note” category.

Not a payment stablecoin under the GENIUS & STABLE Acts:

USTD does track the dollar, but:

• It is marketed as a yield‑bearing store of value, not as everyday tender.

• Redemption returns USDC/USDT whose market price can drift off $1.

• There is no legally accountable issuer able to obtain the banking‑style licence the Acts demand.

For these reasons USTD would be classed—if at all—as a non‑payment stablecoin, outside the Acts’ stringent regime.

3.1.3. More information

For the complete legal and compliance analysis, please see Chapter 10 — Regulatory Compliance.

3.2. Core Principles

Decentralization:

• USTD leverages Terra Classic L1’s decentralized infrastructure. All protocol parameters and upgrades are managed via the Terra Classic on-chain governance process.

Transparency:

• All transactions, collateral management, yield generation, and supply control operations are executed on-chain and are fully auditable.

Automation:

• Smart contracts autonomously manage yield harvesting, distribution, and buyback/burn operations, ensuring continuous optimization without manual intervention.

3.3. How USTD Works

Minting Process:

• Users deposit fiat-backed stablecoins (USDC/USDT) into the UST Protocol integrated within Terra Classic L1. In return, they receive USTD tokens at a 1:1 ratio.

Yield Generation:

• The protocol automatically allocates deposited collateral into stablecoin-to-stablecoin liquidity pools on decentralized exchanges (DEXs) to generate yield from transaction fees and optimized liquidity strategies.

Yield Distribution:

• Automatic Rewards: Once you acquire USTD, you become eligible to receive yield.

• Periodic Airdrops: Approximately 50% of the yield generated is distributed directly to USTD holders as regular on-chain airdrops. This means that USTD holders earn yield simply by holding USTD in their wallets—no additional staking or lock-up is required.

• Reinvestment Mechanism: The remaining yield is used for buyback and burn operations, reducing supply, supporting the peg and building a decentralised collateral reserve.

Redemption:

• USTD tokens can be redeemed at any time by converting them back into their underlying collateral (USDC/USDT) through a fully transparent on-chain process.

3.3. Long-Term Objectives

Scalability:

• Achieve broad adoption by leveraging Terra Classic’s high throughput, low fees, and cross-chain interoperability.

Sustainability:

• Maintain the US Dollar peg and provide consistent yields by dynamically balancing minting/redemption, yield distribution, and supply control mechanisms.

• Expansion of reserves into decentralised assets as we overcollateralise.

Seamless Integration:

• Operate as an integral part of the Terra Classic ecosystem—fully governed by Terra Classic’s decentralized governance—ensuring alignment with the broader community’s interests.