How the UST crash changed the stablecoin landscape

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How The UST Crash Changed The Stablecoin Landscape

As soon as the third largest stablecoin, TerraUSD (UST) has shaken all the stablecoin market after it collapsed on Could 9. As a substitute of lastly determining an answer to algorithmic stables like hundreds of individuals thought, it went to zero almost in a single day.

How The UST Crash Changed The Stablecoin Landscape

UST failed as a consequence of a sudden and large sell-off because it depegged, inflicting an extreme quantity of Terra (LUNA) to be minted. Regardless of its quickly increasing provide,  LUNA didn’t re-anchor UST to $1 as its worth plummeted.

How The UST Crash Changed The Stablecoin Landscape

UST’s market cap surpassed Binance USD (BUSD) in April, that means it trailed solely behind (USDT) and USD Coin (USDC). Nonetheless, the collapse got here so shortly that it was too late for a lot of buyers to even money out at a loss. 

How The UST Crash Changed The Stablecoin Landscape

The occasion has created the biggest disaster of belief in DeFi. Stablecoins are not steady.

How The UST Crash Changed The Stablecoin Landscape

However crises convey their very own alternative. How has the stablecoin market modified after UST?

How The UST Crash Changed The Stablecoin Landscape

Persons are nervous about and warming to USD Coin

USDT and USDC account for nearly 80% of the whole stablecoin market.

How The UST Crash Changed The Stablecoin Landscape

For every USDT issued, ’s checking account is deposited with USD funding on a 1:1 foundation. USDC is much like USDT and is issued by Circle.

USDT is by far the extra controversial undertaking out of the 2. In Oct. 2021, it garnered important press protection for its alleged lack of transparency and repeated penalties from US regulators for mendacity to the general public. 

When UST crashed, individuals instantly considered USDT, and its market cap dropped by greater than $10 billion to $72.5 billion over the course of half month.

Curve’s 3pool, its largest pool (made up of DAI, USDC, and USDT) displays the market sentiment round these essential stables. 

USDT had beforehand remained at 20-30% of the pool. Nonetheless, as Terra Luna collapsed, customers started throwing their USDT into the pool and swapping for USDC and DAI. This frantic sell-off led to USDT peaking at 83%.

Footprint Analytics – Curve 3pool in Ethereum

Earlier than the collapse, USDT’s worth tended to hover above $1, however the occasion introduced it to a close to three-month low of $0.996. Paolo Ardoino, Tether’s CTO, introduced on Twitter that they redeemed $7 billion to assist it regain its greenback anchor, and was assured that he might proceed doing so if the market wished.

Footprint Analytics – USDT Worth Pattern

The transfer has restored some confidence and USDT’s proportion of the 3pool dropped to 61% on June 5. 

USDT’s market cap dropped by $10 billion, however its share of the whole stablecoin market has not declined. 

This results in the query of the place UST’s share of the market fled to.

 Based on Footprint Analytics, USDC has been the most important beneficiary, with its market cap rising from $48.three billion to $54.1 billion and its market share from 27% to 34%. 

Footprint Analytics – Market Cap of Stablecoin

DAI finds its footing whereas Magic Web Cash stumbles

Overcollateralized stablecoins, led by Dai (DAI), Magic Web Cash (MIM), and Liquity (LUSD) are minted by depositing non-stablecoins in extra of the 1:1 ratio into the protocol as collateral.  

These overcollateralized cash had been affected by UST’s drop, however not directly. The respective market cap of DAI and MIM dropped by $2 billion, however this downward development started on Could 6, earlier than the UST crash.

Footprint Analytics – Overcollateralized Stablecoin vs BTC Market Cap

DAI is generally collateralized by Bitcoin (BTC) and Ethereum (ETH), whereas MIM is collateralized by interest-bearing property like yvDAI. When most cryptocurrency costs fall quickly, the overcollateralized stablecoins they use as collateral additionally decline.

The latest drop in BTC, which has been affecting the value of cryptocurrencies, is once more associated to the US market. The Federal Reserve has taken measures to boost rates of interest with a purpose to stop inflation, which has triggered a drop in US shares as effectively. A transparent downward development can be seen within the Nasdaq 100 Index.

The info at Footprint Analytics reveals that the value of BTC was largely uncorrelated with the Nasdaq 100 Index till 2021, however the correlation between the 2 has grown stronger since then. Whereas customers as soon as entered cryptocurrency partially to hedge their danger, crypto now looks like a extremely leveraged model of the inventory market.

Footprint Analytics – BTC Token Worth vs Nasdaq 100

The UST plunge has actually delivered one other blow to overcollateralized stablecoins, as Terra founder Do Know purchased a considerable amount of BTC as margin for the UST, placing additional downward stress in the marketplace and inflicting extra individuals to promote BTC in concern. The failure of Do Know’s plan to rescue UST additionally despatched the value of BTC to a close to 1-year low, additional affecting the liquidation of the overcollateralized stablecoins.

Nonetheless, DAI is minted not solely by collateral resembling ETH and BTC, but additionally by numerous stablecoin points resembling USDC and USDP. Subsequently, DAI managed to regulate the influence inside a restricted vary. In distinction, the state of affairs of MIM isn’t too good, after the market cap dropped by $2 billion in January, it dropped by one other $2 billion in Could.

Algorithmic Stablecoin Market

The de-anchoring of UST shattered the newly constructed confidence within the algorithmic stablecoins, and the value of USDN, which has an analogous mechanism on the Waves chain, additionally de-anchored immediately to $0.eight on Could 11, earlier than progressively pulling again. 

Nonetheless, as of June 5, the value was nonetheless not fully anchored at $0.989. As seen by Footprint Analytics, this isn’t the primary time USDN has been so badly unanchored.

Footprint Analytics – USDN Worth Pattern

FRAX, which equalled UST in market cap till Could ninth, additionally plummeted by $1 billion. Since FRAX requires each USDC and FXS to be minted, with USDC because the collateral portion and FXS because the algorithmic portion, FTAX is comparatively extra steady than a totally algorithmic stablecoin. Though the value of FXS additionally fell, FRAX rebounded after its market cap fell to $1.four billion.

Footprint Analytics – Algorithmic Stablecoin Market Cap

FEI, which permits customers to mint stablecoins with $1 in property, is at present collateralized at 168% and about 70% of the property within the protocol are ETH. FEI’s market cap isn’t massive, at $500 million, and has not been affected a lot.

What’s notable is that whereas most stablecoins have fallen in market cap, USDD, a stablecoin issued by Tron, has surpassed FEI’s market cap by $670 million as of June 5, making Tron the third-largest TVL chain after Ethereum and BSC.

As seen from the success of UST, customers select stablecoins relying on safety and profitability. USDD may be mentioned to be optimized on UST, however USDD’s issuance, burning and first market actions are managed by TRON DAO Reserve, and odd customers can solely commerce USDD on the secondary market. Subsequently, the steadiness of USDD is principally associated to the TRON DAO Reserve and its permitted whitelist, and never a lot to do with the algorithm.

This shifts the customers’ degree of belief from the algorithm to TRON DAO Reserve. USDD additionally has a inflexible of interest of 30%, which is extraordinarily engaging to customers.


Whereas the marketplace for stablecoins took an enormous hit when UST collapsed, there’s additionally a newfound alternative for some protocols like USDC and USDD. 

In overcollateralized stablecoins, DAI stays the primary, and the hole with the once-prominent MIM has grown.

Anxieties about USDT proceed, but it surely has up to now weathered the storm.


Date & Creator: June 16,  2022, [email protected]

Information Supply: Footprint Analytics Stablecoins After the UST Occasion Dashboard


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