How cryptoasset markets have changed since Terra Crash

How cryptoasset markets have changed since Terra Crash

It's been a month since Terra's algorithmic stablecoin UST was de-pegged from the US dollar. At the time, Terra's native tokens LUNA and UST were the ninth and 10th largest cryptocurrencies by market capitalization - worth a combined $42 billion. Both tokens have since almost completely evaporated, causing a major market shake-up.

Bitcoin's dominance is increasing and most cryptoassets are declining, but one exchange token has bucked the bearish trend. While algorithmic stablecoins may not be completely dead, the demise of UST has dramatically changed the stablecoin landscape.

Tether (USDT) is still the largest stablecoin ($72.5 billion versus USD Coin's $53.9 billion), but last month marked the most significant dollar-denominated decline in its seven-year history. USDT's supply has fallen 13% over the past month, equivalent to nearly $11 billion, after major money traders flocked to redeem their tokens during market chaos in May.

“The decline in USDT since the UST collapse reflects relative market confidence in its issuer Tether (based in the British Virgin Islands) compared to USDC (issued by the US-based Center Consortium, founded by Circle and Coinbase),” Genesis Trading wrote in May report.

Algorithmic stablecoins such as Magic Internet Money (MIM) and Frax are also significantly smaller. MIM's total supply has shrunk by 87%, while Frax's has declined by 43% - with a total of $3.6 billion leaving these two protocols.

While MakerDAO's DAI is not strictly algorithmic, it has given up 18% of its supply since the UST peg was lifted - despite this being the case over-collateralized on-chain by more than half. In fact, Circle's USDC and Binance's BUSD (issued by Paxos) are the only top 12 stablecoins that have not lost market share following UST's demise.

Apparently, market participants now prefer asset-backed tokens – just not Tether (USDT). USDC has seen its circulating supply increase by $5.4 billion, an increase of 11%. BUSD grew by $555 million, about 3%.

But it seems some still trust algorithmic stablecoins. TRON’s Decentralized USD (USDD), launched by blockchain founder Justin Sun just days before UST collapsed, has attracted $491 million over the past month – a 230% increase in supply.

USDD holders were able to lock their tokens on lending platform JustLend for double-digit returns throughout the month, a prospect that has proven to be a boon for the price of TRX. USDD's market cap is now $703 million, making it the 10th largest stablecoin behind Waves' Neutrino USD and ahead of Paxos' gold-backed asset PAXG.

According to Genesis: “The jury is out on whether the UST collapse will prove to be evidence that algorithmic stablecoins are a flawed concept, or whether other design decisions could be successful in the future.”

“The event highlighted the importance of understanding nuances in this space and that not all stablecoins are created equal.”

Nevertheless, at the time of UST de-pegging, the collective supply of the top 12 stablecoins – excluding UST itself – fell by $9 billion.

LEO by Bitfinex, the most resilient cryptoasset

According to price data reviewed by Blockworks, Bitfinex's Unus Sud Leo (LEO) token was the top 100 token (excluding stablecoins and wrapped tokens) by market value - the only token to increase in value over the month, albeit by half a percent.

Bitfinex raised 1 billion USDT in 10 days with LEO's private token sale in May 2019. The idea was to replace $850 million lost when the exchange's embattled third-party payment processor, Crypto Capital Corp, was raided by authorities.

Bitfinex buys back LEO and burns it to compensate investors who contributed to the sale, while regular Bitfinex users receive discounts on fees for holding LEO in their accounts. The company committed to eventually burning all one billion LEO tokens, of which it has already burned around 6.5% of the supply.

Crypto exchange tokens outperformed much of the market in May. Many have similar burning mechanisms to LEOs to reward holders. KuCoin's native token KCS was the third best performing top 100 crypto asset after Terra, falling just 3.5%. But FTX’s FTT and Binance’s BNB weren’t so hot – both fell by 20%.

LEO's price doubled earlier this year when US authorities announced they had seized $3.5 billion worth of Bitcoin stolen from the exchange in 2016. Bitfinex has announced that it will use at least 80% of the net recovered funds to buy back and burn LEO tokens within 18 months of the recovery date.

A Bitfinex spokesperson said Blockworks LEO's performance should be viewed as a measure of its customers' trust in the platform.

“We have also begun to see what could be a correlation between LEO’s performance and the prospects of Bitfinex receiving the stolen Bitcoin seized by US authorities earlier this year,” they said.

Other top 100 tokens performing relatively well after Terra include TRX (down 3.5%) and Monero (down 9%). Bitcoin came in fifth, falling 14% from nearly $35,500 to $30,400. BTC is currently range-bound with no clear momentum.

Ether, on the other hand, fell 30% over the month - about average for the top 100. Bitcoin's dominance rose almost 15% and now represents almost half of the digital asset market, while Ether's dominance fell almost 9% to just under 18%. .

On Wednesday, the second-largest cryptoasset by market capitalization took a major step toward its planned merger when its Ropsten testnet successfully transitioned to proof-of-stake.

As for the losers, aside from LUNA, the native digital asset for Terra-powered lending protocol Anchor was the hardest hit, with a 91% decline. Tokens for lending platform Convex Finance and privacy blockchain Secret Network plunged 66% and 62%, respectively, while move-to-earn project StepN plunged 60%.

Alternative networks Oasis and Avalanche both lost 55%, DeFi governance token Yearn lost 54% of its value, while Metaverse project ApeCoin and layer-one assets NEAR, MINA and Solana all halved in price.

While crypto markets fell ahead of UST's de-pegging in April, all digital assets are worth 20% less since the stablecoin went bust, representing a loss in value of $336.6 billion.

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The post How Cryptoasset Markets Have Changed Since Terra Crash is not financial advice.