How Cryptoasset Markets Have Changed Since Terra Crash

One month on from Terra ecosystem implosion, only one cryptoasset in the top 100 is in the green


Blockworks Exclusive Art by Axel Rangel


key takeaways

  • Terra’s UST’s fate hasn’t deterred traders from experimenting with TRON-powered algorithmic stablecoin USDD
  • Bitcoin dominance has risen 15% to almost half of the entire crypto market

It’s been a month since Terra’s algorithmic stablecoin UST de-pegged from the US dollar. At the time, Terra’s native token LUNA and UST were the ninth and 10th largest cryptocurrencies by market capitalization — together valued at $42 billion. Both tokens have since evaporated almost entirely, begetting a major market shakeup.

Bitcoin dominance is on the rise and most cryptoassets are in decline, yet one exchange token has bucked the downtrend. While algorithmic stablecoins may not be completely dead, UST’s demise has changed the stablecoin landscape dramatically.

Tether (USDT) is still the largest stablecoin ($72.5 billion versus USD Coin’s $53.9 billion), but the past month was its most significant dollar-denominated reduction across its seven-year history. USDT’s supply is down 13% over the past month, the equivalent of nearly $11 billion, after big money traders flocked to redeem their tokens throughout May’s market chaos.

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

Algorithmic stablecoins such as Magic Internet Money (MIM) and Frax are also significantly smaller. MIM’s total supply has shrunk 87% while Frax’s has fallen 43% — with $3.6 billion altogether leaving those two protocols. 

MakerDAO’s DAI, while not strictly algorithmic, has given up 18% of its supply since UST de-pegged — even though it is overcollateralized on-chain by more than half. In fact, Circle’s USDC and Binance’s BUSD (issued by Paxos) are the only top 12 stablecoins not to lose market share following UST’s demise. 

Clearly, market participants now favor asset-backed tokens — just not Tether (USDT). USDC has seen its circulating supply surge $5.4 billion, an 11% boost. 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 crumbled, has attracted $491 million over the past month — a 230% increase in supply.

USDD holders have been able to lock their tokens inside lending platform JustLend for double-digit yield all month, a prospect which has been a boon to TRX’s price. USDD’s market value is now $703 million, ranking it the 10th biggest 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 turn out to be proof that algorithmic stablecoins are a flawed concept, or whether different design choices could be successful in the future.”

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

Still, the collective supply of the top 12 stablecoins at the time of UST’s de-pegging — not counting UST itself — is down by $9 billion.

Bitfinex’s LEO most resilient cryptoasset

According to price data reviewed by Blockworks, Bitfinex’s Unus Sud Leo (LEO) token was the best performing 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 of 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 rebuys and burns LEO to reimburse investors who contributed to the sale, while regular Bitfinex users receive discounts on fees when holding LEO in their accounts. The company committed to eventually burning all one billion LEO tokens, of which it has already destroyed around 6.5% of the supply.

Crypto exchange tokens outperformed much of the market in May. Many have burn mechanisms similar to LEO’s as a way to reward holders. KuCoin’s native token KCS has been the third-best top 100 crypto asset post-Terra, falling only 3.5%. But FTX’s FTT and Binance’s BNB weren’t so hot — both tanked 20%.

LEO’s price doubled earlier this year when US authorities revealed they seized $3.5 billion in bitcoin stolen from the exchange back in 2016. Bitfinex has said it will commit at least 80% of the recovered net funds to repurchase and burn LEO tokens within 18 months of the date of recovery.

A Bitfinex spokesperson told Blockworks LEO’s performance should be viewed as a measure of its customers’ confidence and trust in the platform.

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

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

Ether, on the other hand, sank 30% over the month — about average for the top 100. Bitcoin dominance rose almost 15% to now represent nearly half of the digital asset market, while ether dominance fell almost 9% to just under 18%.

On Wednesday, the second largest cryptoasset by market cap took an important step toward its planned Merge, as the Ethereum Ropsten testnet successfully transitioned to proof-of-stake.

As for the losers: LUNA aside, the native digital asset for Terra-powered lending protocol Anchor was the worst hit, down 91%. Tokens for lending platform Convex Finance and privacy blockchain Secret Network collapsed 66% and 62% respectively, while move-to-earn project StepN fell 60%. 

Alternative networks Oasis and Avalanche both drained by 55%, decentralized finance governance token Yearn lost 54% of its value, while metaverse project ApeCoin and layer-11 assets NEAR, MINA and solana all halved in price.

While crypto markets fell throughout April in the lead up to UST’s de-pegging, all digital assets are worth 20% less since the stablecoin went kaput, representing $336.6 billion in value lost.

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