Terra Contagion Leads to Over 80% Drop in DeFi Protocols Associated with UST

The ripple effect of the collapse of Terra (LUNA) and its stablecoin TerraUSD (UST) spread widely across the cryptocurrency market on May 11, as projects with any kind of association with the decentralized finance (DeFi) ecosystem have seen their prices hammered.

The forced sale of Bitcoin (BTC) holdings backing part of the UST also influenced BTC’s current drop to $29,000. Analysts fear that DeFi platforms that have liquidity pools mostly made up of UST and LUNA could collapse.

LUNA, ANC, ASTRO and MARS in USDT pairings. 4 hour chart. Source: Trading View

Terra-based protocols suffer

The darker projects are those hosted on the Terra Protocol, including Anchor Protocol, Astroport, and Mars Protocol.

As seen in the chart above, Anchor Protocol (ANC), Astroport (ASTRO), and Mars Protocol (MARS) have seen their prices drop over 80% since May 4, when LUNA’s price began to correct. .

The protocols in question are all DeFi-focused, meaning they had strong integration with UST as the primary stablecoin for their liquidity pairs, as well as LUNA as a major source of value locked to their smart contracts. .

As long as the UST remains outside its peg at $1.00 and LUNA is trading down 98% from just seven days ago, it is unlikely that these protocols will be able to rebound and to recover from today’s fallout.

Interblockchain communication protocol also took a hit

Cosmos ecosystem assets were also hit hard by the collapse of UST. Cosmos (ATOM) and other tokens like Mirror Protocol (MIR), Osmosis (OSMO) and Kava (KAVA) that use the Interblockchain (IBC) communication protocol have been heavily patched due to their integration with Terra.

ATOM/USDT vs. KAVA/USDT vs. MIR/USDT vs. OSMO/USDT 4 hour chart. Source: Trading View

The price drops of these assets were less extreme than those hosted on the Terra protocol, but their proxy to Terra did not protect them from contagion.

Related: LUNA’s Collapse Sparks Theories and Revelations From the Crypto Community

Maker takes advantage of volatility

Maker (MKR) is the only bright spot to emerge in trade on May 11 as crypto traders now find themselves embracing Dai (DAI) as the “best” decentralized stablecoin option in the market.

The price of MKR soared 124% in trading on May 11, rising from a low of $1,025 to an intraday high of $2,299 before falling back to $1,278.

MKR/USDT 4 hour chart. Source: Trading View

As the market digests the current correction and news of fund and protocol meltdowns emerge, it will be interesting to see how other stablecoin protocols like Frax Share, USDD, and mStable perform and whether or not crypto traders will steer clear. 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 conduct your own research when making a decision.


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