Terra contagion leads to 80%+ decline in DeFi protocols associated with UST

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

The forced selling of the Bitcoin (BTC) holdings backing a portion of UST also influenced BTC’s current drop to $29,000 and analysts fear that DeFi platforms that have liquidity pools primarily comprised of UST and LUNA will collapse. 

LUNA, ANC, ASTRO and MARS in USDT pairings. 4-hour chart. Source: TradingView

Terra-based protocols suffer

Projects with the direst of outlooks are those that are hosted on the Terra protocol including Anchor Protocol (ANC), Astroport (ASTRO) and Mars Protocol (MARS).

As shown in the chart above, Anchor Protocol (ANC), Astroport (ASTRO) and Mars Protocol (MARS) saw their token prices plummet more than 80% since May 4 when LUNA price first started to correct.

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

As long as UST remains off its $1 peg and LUNA trades down 98% from where it was just 7 days ago, it is unlikely that these protocols will be able to bounce back and recover from today’s fallout.

The Interblockchain Communication Protocol also took a hit

Assets in the Cosmos ecosystem were also hard hit by UST’s collapse. ATOM and other tokens like Mirror Protocol (MIR), Osmosis (OSMO) and Kava that utilize the Interblockchain Communication Protocol (IBC) corrected sharply due to their integration with Terra.

ATOM/USDT vs. KAVA/USDT vs. MIR/USDT vs. OSMO/USDT 4-hour chart. Source: TradingView

The price declines for these assets was less extreme that those hosted on the Terra protocol, but their proxy to Terra has not protected them from contagion.

Related: LUNA meltdown sparks theories and told-you-sos from crypto community

Maker benefits from the volatility

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

MKR price spiked 124% in trading on May 11, going from a low of $1,025 to an intraday high of $2,299 before settling back down to $1,278.

MKR/USDT 4-hour chart. Source: TradingView

As the market digests the current correction and news of fund and protocol collapses emerge, it will be interesting to see how other stablecoin protocols like Frax Share (FXS), USDD and mStable (MTA) perform and whether or not crypto traders will shy away from 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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