How crypto’s liquidity engine grew after Terra’s collapse

Crypto’s liquidity engine is now worth over $300 billion

article-image

JLStock/Shutterstock modified by Blockworks

share


This is a segment from the Empire newsletter. To read full editions, subscribe.


If crypto were an ocean, Terra was a whirlpool the size of a Maelstrom.

And by all accounts, when that Maelstrom collapsed in on itself, in May 2022, the chaos sucked the liquidity right out of crypto markets for a solid year.

Stablecoins were crypto’s primary liquidity machine at the time and massive chunks of the market simply pulled the plug.

Tether withstood a month-long $16 billion “bank run” on USDT, while Circle net burned over $30 billion USDC between June 2022 and November 2023. 

At the same time, Paxos was winding down Binance stablecoin BUSD — redeeming about $20 billion worth of stablecoins over a 12 month period. A period that coincidentally ended just as bitcoin’s current run was heating up in late 2023.

Looking back, it’s clear that liquid staking and restaking tokens may have helped plug the leak as the rolling liquidations, bankruptcies, and fraud cases played out.

This chart plots the market cap of stablecoins (blue) alongside liquid staking (purple) and restaking (pink) tokens since Q1 2021. 

Combining the three token classes forms what I’ve called crypto’s liquidity engine.

Notice that as tens of billions of dollars were being drained from crypto via stablecoin redemptions — starting with Terra and into the middle of the chart — liquid staking tokens expanded to mitigate those losses. 

It kept crypto’s liquidity engine on an even keel for a solid 10 months, with liquid (re)staking tokens taking off at the first hint of a reversal of the stablecoin redemption trend.

Terra is now a blip in crypto market history. Stablecoin supplies have just set a new all-time high close to $194 billion (about $6 billion higher than just before Terra), while liquid staking and restaking tokens are also at a fresh combined peak of $92.5 billion.

That makes crypto’s liquidity engine nearly $300 billion deep — with apparently no Maelstrom in sight.


Get the news in your inbox. Explore Blockworks newsletters:

Tags

Upcoming Events

Old Billingsgate

Mon - Wed, October 13 - 15, 2025

Blockworks’ Digital Asset Summit (DAS) will feature conversations between the builders, allocators, and legislators who will shape the trajectory of the digital asset ecosystem in the US and abroad.

Industry City | Brooklyn, NY

TUES - THURS, JUNE 24 - 26, 2025

Permissionless IV serves as the definitive gathering for crypto’s technical founders, developers, and builders to come together and create the future.If you’re ready to shape the future of crypto, Permissionless IV is where it happens.

Brooklyn, NY

SUN - MON, JUN. 22 - 23, 2025

Blockworks and Cracked Labs are teaming up for the third installment of the Permissionless Hackathon, happening June 22–23, 2025 in Brooklyn, NY. This is a 36-hour IRL builder sprint where developers, designers, and creatives ship real projects solving real problems across […]

recent research

Featured.png

Research

Helium stands at a pivotal moment in its evolution as a decentralized wireless network, balancing rapid growth, economic restructuring, and global expansion. With accelerated growth in domestic DAUs and Hotspots supporting its network, Helium is leveraging strategic partnerships and innovative proposals to scale internationally. The recent implementation of HIP 138, “Return to HNT,” has unified its token economy under HNT, simplifying participation and strengthening liquidity, while HIP 139’s phase-out of CBRS refocuses efforts on scalable Wi-Fi offload. Meanwhile, governance shifts under HIP 141 raise questions about centralization as Nova Labs consolidates control over the roadmap.

article-image

The DeFi Education Fund has ideas on how the crypto-friendly SEC can bring Commissioner Peirce’s vision to life

article-image

“Be prepared to do more with less,” Framework Ventures’ Michael Anderson said

article-image

Q1 may have been “frustrating,” but things are looking brighter for Q2

article-image

Tokens worth 20% of the current supply of the TRUMP memecoin launched by the president are set to be unlocked tomorrow

article-image

A crypto-industry lawsuit is “moot” now that Joint Resolution 25 has been signed into law

article-image

Fed Chair Powell assured markets that the labor market is in “good place,” dependent on price stability