Exchanges holding LUNA would benefit from replacing USDT with UST, as it would make their LUNA more valuable. The reason why they still use USDT is either that they aren’t familiar with UST/LUNA, or that traders prefer USDT because it’s currently more liquid and adopted.
If 1:1 UST-USDT cross-chain exchange liquidity was available, popular exchanges could switch from USDT to UST without a negative impact on liquidity or interoperability. If traders could swap between UST and USDT 1:1 there would be no downside to using UST over USDT. And to anyone familiar with the Terra eco-system, the upside of switching to UST would be obvious.
So how much would it cost to provide such a cross-chain peg? Would it be worth it if LUNA holders decided to contribute to such a peg? The cheapest stablecoin exchange i’m aware of today is Smoothy.finance. The fee for swapping 1:1 between UST and USDT is 0.04%, and if the swap amount is below a certain level there’s zero price impact/slippage. So far, the construction seems to be working.
Assume LUNA holders would fork Smoothy and remove the 0.04% fee, or collaborate with Smoothy to allow LP’s to forfeit the fee on UST-USDT swaps. There would be little incentive for LPs to do so unless they were confident it would significantly boost the adoption of UST. Some LPs would probably do it but most would not, unless it was incentivised by liquidity mining.
So the hypothetical question boils down to: would it be worth it for LUNA holders to sponsor liquidity mining of a solid UST-USDT 1:1 peg on popular chains?