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How the UST crash changed the stablecoin landscape

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How the UST crash changed the stablecoin landscape Footprint Analytics 路 22 mins ago 6 min read

Stablecoins underpin the DeFi market, and the Terra-Luna crash has changed the landscape, with a newfound opportunity for some protocols.

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Updated: June 16, 2022 at 8:53 pm

Cover art/illustration via CryptoSlate

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Once the 3rd largest stablecoin, TerraUSD (UST) has shaken the entire stablecoin market after it collapsed on May 9. Instead of finally figuring out a solution to algorithmic stables like thousands of people thought, it went to zero nearly overnight.

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UST failed due to a sudden and massive sell-off as it depegged, causing an excessive amount of Terra (LUNA) to be minted. Despite its rapidly expanding supply,聽 LUNA failed to re-anchor UST to $1 as its value plummeted.

UST鈥檚 market cap surpassed Binance USD (BUSD) in April, meaning it trailed only behind Tether (USDT) and USD Coin (USDC). Nevertheless, the collapse came so quickly that it was too late for many investors to even cash out at a loss.聽

The event has created the largest crisis of trust in DeFi. Stablecoins are no longer stable.

But crises bring their own opportunity. How has the stablecoin market changed after UST?

People are nervous about Tether and warming to USD Coin

USDT and USDC account for almost 80% of the total stablecoin market.

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For each USDT issued, Tether鈥檚 bank account is deposited with USD funding on a 1:1 basis. USDC is similar to USDT and is issued by Circle.

USDT is by far the more controversial project out of the two. In Oct. 2021, it garnered significant press coverage for its alleged lack of transparency and repeated penalties from US regulators for lying to the public.聽

When UST crashed, people immediately thought of USDT, and its market cap dropped by more than $10 billion to $72.5 billion over the course of half month.

Curve鈥檚 3pool, its largest pool (made up of DAI, USDC, and USDT) reflects the market sentiment around these main stables.聽

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

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Footprint Analytics 鈥 Curve 3pool in Ethereum

Before the collapse, USDT鈥檚 price tended to hover above $1, but the event brought it to a near three-month low of $0.996. Paolo Ardoino, Tether鈥檚 CTO, announced on Twitter that they redeemed $7 billion to help it regain its dollar anchor, and was confident that he could continue doing so if the market wanted.

Footprint Analytics 鈥 USDT Price Trend

The move has restored some confidence and USDT鈥檚 percentage of the 3pool dropped to 61% on June 5.聽

USDT鈥檚 market cap dropped by $10 billion, but its share of the total stablecoin market has not declined.聽

This leads to the question of where UST鈥檚 share of the market fled to.

According to Footprint Analytics, USDC has been the biggest beneficiary, with its market cap rising from $48.3 billion to $54.1 billion and its market share from 27% to 34%.聽

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Footprint Analytics 鈥 Market Cap of Stablecoin

DAI finds its footing while Magic Internet Money stumbles

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

These overcollateralized coins were affected by UST鈥檚 drop, but indirectly. The respective market cap of DAI and MIM dropped by $2 billion, but this downward trend began on May 6, before the UST crash.

Footprint Analytics 鈥 Overcollateralized Stablecoin vs BTC Market Cap

DAI is mostly collateralized by Bitcoin (BTC) and Ethereum (ETH), while MIM is collateralized by interest-bearing assets like yvDAI. When most cryptocurrency prices fall rapidly, the overcollateralized stablecoins they use as collateral also decline.

The recent drop in BTC, which has been affecting the price of cryptocurrencies, is again related to the US market. The Federal Reserve has taken measures to raise interest rates in order to prevent inflation, which has caused a drop in US stocks as well. A clear downward trend can also be seen in the Nasdaq 100 Index.

The data at Footprint Analytics shows that the price of BTC was largely uncorrelated with the Nasdaq 100 Index until July 2021, but the correlation between the two has grown stronger since then. While users once entered cryptocurrency in part to hedge their risk, crypto now seems like a highly leveraged version of the stock market.

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Footprint Analytics 鈥 BTC Token Price vs Nasdaq 100

The UST plunge has certainly delivered another blow to overcollateralized stablecoins, as Terra founder Do Know bought a large amount of BTC as margin for the UST, putting further downward pressure on the market and causing more people to sell BTC in fear. The failure of Do Know鈥檚 plan to rescue UST also sent the price of BTC to a near 1-year low, further affecting the liquidation of the overcollateralized stablecoins.

However, DAI is minted not only through collateral such as ETH and BTC, but also through a large number of stablecoin issues such as USDC and USDP. Therefore, DAI managed to control the impact within a limited range. In contrast, the situation of MIM is not too good, after the market cap dropped by $2 billion in January, it dropped by another $2 billion in May.

Algorithmic Stablecoin Market

The de-anchoring of UST shattered the newly built confidence in the algorithmic stablecoins, and the price of USDN, which has a similar mechanism on the Waves chain, also de-anchored instantly to $0.8 on May 11, before gradually pulling back.聽

However, as of June 5, the price was still not completely anchored at $0.989. As seen by Footprint Analytics, this is not the first time USDN has been so badly unanchored.

Footprint Analytics 鈥 USDN Price Trend

FRAX, which equalled UST in market cap until May 9th, also plummeted by $1 billion. Since FRAX requires both USDC and FXS to be minted, with USDC as the collateral portion and FXS as the algorithmic portion, FTAX is relatively more stable than a fully algorithmic stablecoin. Although the price of FXS also fell, FRAX rebounded after its market cap fell to $1.4 billion.

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Footprint Analytics 鈥 Algorithmic Stablecoin Market Cap

FEI, which allows users to mint stablecoins with $1 in assets, is currently collateralized at 168% and about 70% of the assets in the protocol are ETH. FEI鈥檚 market cap is not large, at $500 million, and has not been affected much.

What鈥檚 notable is that while most stablecoins have fallen in market cap, USDD, a stablecoin issued by Tron, has surpassed FEI鈥檚 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, users choose stablecoins depending on security and profitability. USDD can be said to be optimized on UST, but USDD鈥檚 issuance, burning and primary market activities are managed by TRON DAO Reserve, and ordinary users can only trade USDD on the secondary market. Therefore, the stability of USDD is mainly related to the TRON DAO Reserve and its approved whitelist, and not much to do with the algorithm.

This shifts the users鈥 level of trust from the algorithm to TRON DAO Reserve. USDD also has a rigid interest rate of 30%, which is extremely attractive to users.

Summary

While the market for stablecoins took a big hit when UST collapsed, there is also a newfound opportunity for some protocols like USDC and USDD.聽

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In overcollateralized stablecoins, DAI remains the first, and the gap with the once-prominent MIM has grown.

Anxieties about USDT continue, but it has so far weathered the storm.

Date & Author: June 16,聽 2022, [email聽protected]

Data Source: Footprint Analytics Stablecoins After the UST Event Dashboard

What is Footprint Analytics?

Footprint Analytics is an all-in-one analysis platform to visualize blockchain data and discover insights. It cleans and integrates on-chain data so users of any experience level can quickly start researching tokens, projects and protocols. With over a thousand dashboard templates plus a drag-and-drop interface, anyone can build their own customized charts in minutes. Uncover blockchain data and invest smarter with Footprint.

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Brave Group Inc

Japanese Virtual IP Firm Raises $10 Million To Accelerate Metaverse Business

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Japanese Virtual IP Firm Raises $10 Million To Accelerate Metaverse Business

Brave Group Inc., a Japanese virtual IP firm, recently said it had raised $10 million in new capital and that the company expects to use part of these funds to boost its 鈥渟olution services for clients in the metaverse marketing business.鈥 Taking part in Brave Group鈥檚 latest funding round were two local companies, foreign investment funds, as well as individual investors.

Metaverse Market Growth

A Japan-based virtual IP business, Brave Group Inc., recently said it had raised $10 million in new funding, thus bringing the total raised so far to $18 million. The company is set to use the new capital to strengthen its existing business operations and to 鈥渆xpand its solution services for clients in the metaverse marketing business.鈥

In a recent statement, Brave Group revealed that Japanese companies like Dawn Capital and Osaka Gas Co. Ltd. had participated in the round that also featured 鈥渇oreign investment funds and individual investors.鈥 In remarks following the announcement of the capital raise, Kazuhiro Ishikura, a general partner at Dawn Capital, said:

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As the boundary between real and virtual life disappears, the form of entertainment will also change, and new IP content KOLs are expected to be born. As the metaverse market grows globally, we believe that the Brave group鈥檚 content will be at the center of the enthusiastic virtual communities that will emerge. We hope that the strength of the anime and manga culture that Japan has cultivated over the years will be brought to the world virtually.

Yuichi Sakamoto, senior general manager with Osaka Gas鈥 innovation department, is quoted stating his company is ready to help Brave Group Inc. 鈥渞ealize lifestyles and businesses that respond to the New Normal.鈥

For his part, the CEO of Brave Group Inc., Keito Noguchi, said through the $10 million fundraise, his company would now 鈥渕aximize the impact of Brave group鈥檚 IP not only in Japan but also in the world.鈥

What are your thoughts on this story? Let us know what you think in the comments section below.

Terence Zimwara

Terence Zimwara is a Zimbabwe award-winning journalist, author and writer. He has written extensively about the economic troubles of some African countries as well as how digital currencies can provide Africans with an escape route.

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Disclaimer: This article is for informational purposes only. It is not a direct offer or solicitation of an offer to buy or sell, or a recommendation or endorsement of any products, services, or companies. Bitcoin.com does not provide investment, tax, legal, or accounting advice. Neither the company nor the author is responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods or services mentioned in this article.

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Saddle.Finance

Saddle鈥inance Creates New Standards For DeFi Trading

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Saddle鈥inance Creates New Standards For DeFi Trading

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DeFi is a sub-sector in the crypto industry that has witnessed significant innovation since its inception. However, the narrative has struggled to stay consistent, affecting the domain overall. The current bear market has wiped out more than half of DeFi Total Value Locked (TVL), hampering innovations. Furthermore, several projects have simply forked (copied) existing protocols and brought zero ideas to the market.

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Amidst all of this, one project is making strides with the best innovations DeFiers have seen in a long time. Saddle Finance is the protocol that enables efficient DeFi trading for stablecoins and pegged-value crypto assets like wETH and wBTC. It redefines DeFi trading by offering cheap, efficient, swift, and low-slippage swaps for traders and high-yield pools for Liquidity Providers. The protocol has facilitated over $2B in transaction volume to date.

Enabling an Efficient and Secure DeFi Trading Experience

Saddle Finance is an AMM-based decentralized exchange (DEX) running on multiple blockchains, including Ethereum, Fantom, Arbitrum, Optimism, and Evmos. It is designed specifically for trading stablecoins and pegged crypto assets.

The platform is ideal for HODLers and newbies because of its easy-to-use interface. Its strongest point, however, is that it ensures minimum slippage while swapping assets. This is accomplished through innovative liquidity pools that use the StableSwap mathematical formula to maintain market liquidity.

The protocol is also known for its top-notch security. It has been audited by some of the best auditing firms in the sector, including Certik, Quantstamp, and OpenZeppelin. Moreover, the platform is backed by several renowned venture capital firms like Polychain Capital, Electric Capital, Dragonfly Capital, Framework, Coinbase Ventures, Nascent, and BoostVC.

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The project鈥檚 most intriguing aspect is its open collaboration. Saddle鈥檚 code is completely open-source, inviting Web3 developers to join the mission and build on top of the protocol. Moreover, its recent SEMPI project has enabled developers to get compensated for developing and forking the protocol.

$SDL: The Utility Rich Token Powering Saddle Ecosystem

$SDL is the native utility token of Saddle Finance. Its use cases revolve around staking, yield farming, and governance. The platform recently announced the completion of $SDL鈥檚 first vesting stage. Thus, users who provided funds to its liquidity pools can now trade and transact $SDL tokens.

They can also stake $SDL on saddle.exchange to earn rewards and receive the $veSDL tokens. $veSDL is the vote escrowed (ve) token that will serve as the platform鈥檚 governance token. Stakers will be able to vote with $veSDL and manage the $SDL supply in associated liquidity pools. Beyond that, users can provide liquidity to the SDL/WETH pair on SushiSwap

In the future, Saddle also plans to create more initiatives to take the protocol to the next level. These include migrating to on-chain governance, adding liquidity to $SDL through Tokemak, and introducing a new gauge to unlock extra staking yield boosts. The protocol will also issue bonds through Olympus Pro to generate more protocol-owned value.

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Similarly, launching a borrowing function against liquidity providers and adding leveraged yield farming through Rari Capital鈥檚 Fuse is also part of the plan. Lastly, Saddle intends to improve its virtual swaps and launch new services where users can deploy their own customizable pools.

Building the Future of DeFi

Although the current bear market has hit DeFi hard, the sector鈥檚 long-term potential is enormous. Innovations are critical in keeping this space alive. Saddle Finance is thus heavily focused on creating innovative solutions in DeFi. Its stableswap model, along with robust tokenomics, is an excellent example of genuinely innovative solutions.

The $SDL token and its utilities across various protocols clearly indicate token-level innovation. It is now tradable on the platform. Join the emerging revolution by staking $SDL on saddle.exchange鈥攃ontribute to DeFi鈥檚 future while earning passive income.


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Disclaimer: This article is for informational purposes only. It is not a direct offer or solicitation of an offer to buy or sell, or a recommendation or endorsement of any products, services, or companies. Bitcoin.com does not provide investment, tax, legal, or accounting advice. Neither the company nor the author is responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods or services mentioned in this article.

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China

Chinese State-Run Media Warns About Bitcoin鈥檚 Price Falling To Zero As Regulators Issue Fresh Crypto Warning

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Chinese State-Run Media Warns About Bitcoin鈥檚 Price Falling To Zero As Regulators Issue Fresh Crypto Warning

A Chinese state-run newspaper has published an article warning about bitcoin鈥檚 price falling to zero amid the crypto market sell-off. Meanwhile, financial regulators in Shenzhen have issued a new warning about cryptocurrency.

State-Run Newspaper Warns About Bitcoin Becoming Worthless

China鈥檚 state-run newspaper Economic Daily published an article warning about bitcoin Wednesday, according to SCMP. The nationwide newspaper is directly under the control of the Central Committee of the ruling Chinese Communist Party.

The article warned that investors should beware of the risk of bitcoin prices 鈥渉eading to zero鈥 amid the recent crypto market sell-off.

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鈥淏itcoin is nothing more than a string of digital codes, and its returns mainly come from buying low and selling high,鈥 the newspaper details, adding:

In the future, once investors鈥 confidence collapses or when sovereign countries declare bitcoin illegal, it will return to its original value, which is utterly worthless.

The newspaper details that the lack of regulation in Western countries, such as the United States, helped create a highly-leveraged market that is 鈥渇ull of manipulation and pseudo-technology concepts.鈥 The article describes it as an 鈥渋mportant external factor鈥 contributing to bitcoin鈥檚 volatility.

The warning from the state-run media reflects Beijing鈥檚 firm stance against cryptocurrency and related activities that the government has outlawed.

New Warning About Crypto by Chinese Regulators

On Tuesday, the Financial Regulatory Bureau of Shenzhen, the Shenzhen Central Sub-branch of the People鈥檚 Bank of China, and the Shenzhen Development and Reform Commission also jointly issued a warning that investors should be vigilant of illegal financial activities relating to crypto and how to avoid being scammed.

The notice states that virtual currency trading and speculation 鈥渟eriously endanger鈥 the safety of people鈥檚 property and breed gambling, illegal fundraising, fraud, pyramid schemes, money laundering, and other illegal and criminal activities. It also claims that they disrupt the country鈥檚 economic and financial order.

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The financial authorities cited a statement published in September last year by China鈥檚 central bank, the People鈥檚 Bank of China (PBOC), and 10 ministries and commissions declaring that virtual currency is not legal tender and related activities are illegal financial activities.

What do you think about the state-run newspaper publishing a warning about bitcoin鈥檚 price sinking to zero and the Chinese regulators warning about illegal crypto activities? Let us know in the comments section below.

Kevin Helms

A student of Austrian Economics, Kevin found Bitcoin in 2011 and has been an evangelist ever since. His interests lie in Bitcoin security, open-source systems, network effects and the intersection between economics and cryptography.

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Disclaimer: This article is for informational purposes only. It is not a direct offer or solicitation of an offer to buy or sell, or a recommendation or endorsement of any products, services, or companies. Bitcoin.com does not provide investment, tax, legal, or accounting advice. Neither the company nor the author is responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods or services mentioned in this article.

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