Terra contagion causes more than 80% drop in DeFi protocols associated with UST

By May 12, 2022DeFi
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The fallout from the collapse of Terra (LUNA) and its stablecoin TerraUSD (UST) spread throughout the cryptocurrency market on May 11, since projects with any kind of association with the DeFi ecosystem saw their prices drop.

The forced sale of Bitcoin (BTC) holdings backing a portion of UST also played a role in BTC’s current drop to $29,000 and Analysts fear that DeFi platforms that have liquidity pools made up mainly of UST and LUNA will collapse.

4-hour chart of LUNA, ANC, ASTRO and MARS pairs with USDT. Source: TradingView

Terra-based protocols bear the brunt

The projects with the worst prospects are those that are hosted on the Terra protocol, including Anchor Protocol (ANC), Astroport (ASTRO) and Mars Protocol (MARS).

As shown in the graph aboveAnchor Protocol (ANC), Astroport (ASTRO), and Mars Protocol (MARS) saw their token prices drop by more than 80% since May 4, when the LUNA price first started to correct.

All the protocols in question are focused on DeFiwhich means that they had a strong integration with UST as the main stablecoin for their liquidity pools, as well as with LUNA as a major source of value locked in its smart contracts.

As long as UST remains outside of its $1 peg and LUNA trades down 98% from where it was just 7 days ago, it is unlikely that these protocols can recover from today’s fallout.

The Interblockchain Communication Protocol also took a hit

Assets in the Cosmos ecosystem were also heavily affected by the collapse of UST. ATOM and other tokens like Mirror Protocol (MIR), Osmosis (OSMO), and Kava that use the Interblockchain Communication Protocol (IBC) have been drastically corrected due to their integration with Terra.

ATOM/USDT vs. KAVA/USDT vs. MIR/USDT vs. OSMO/USDT 4-hour chart. Source: TradingView

The price drop for these assets was less extreme than for those hosted on the Terra protocol, but their proxy for Terra has not protected them from contagion.

Maker benefits from volatility

Maker (MKR) is the only bright spot to emerge on the May 11 trading session, as Cryptocurrency traders are now embracing Dai (DAI) as the “best” decentralized stablecoin option on the market.

MKR price soared 124% in the early hours of May 11, going from a low of $1,025 to an intraday high of $2,299 before settling back to $1,278.

MKR/USDT 4-hour chart. Source: TradingView

As the market digests the current correction and news of pool and protocol crashes emerges, it will be interesting to see how other stablecoin protocols such as Frax Share (FXS), USDD and mStable (MTA) perform and whether or not crypto traders will avoid them. these projects for more centralized options.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should do your own research when making a decision.

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