One of many easiest method for traders to deleverage their positions is to show to stablecoins. Centralized stablecoins, not like their algorithmic counterparts, are proof against volatility and retain their peg even in probably the most violent market circumstances.
Over the previous two years, the market has seen stablecoins develop considerably and turn out to be some of the necessary components of the crypto ecosystem. At its peak, the market capitalization of stablecoins reached $160 billion.
The significance of stablecoins was additional cemented in 2022, when the trade noticed an unprecedented quantity of worth movement out of unstable crypto belongings. The entire worth leaving unstable belongings, sparked by the Terra (LUNA) implosion and the following liquidity disaster, made its manner into stablecoins.
The quantity of worth getting into the stablecoin market triggered the 4 largest stablecoins to surpass Ethereum (ETH) by way of market capitalization.
Originally of June, the market capitalization of USDT, USDC, DAI, and BUSD surpassed Ethereum’s market capitalization for the primary time ever. The truth that that is the primary time a gaggle of “steady” asset surpassed the worth of a unstable asset reveals the severity of the deleveraging we noticed in June.
Nonetheless, the rise in speculation surrounding Ethereum’s upcoming Merge in September has pushed pushed ETH’s worth upwards, defying the dominant bearish market pattern. Ethereum’s worth restoration led it to get better its dominance over stablecoins, with its market capitalization now standing at simply over $243 billion.
One of many largest components that led to Ethereum’s drop in worth and market cap was the drastic lower within the complete worth locked (TVL) in its DeFi protocols. The Terra (LUNA) blowback triggered huge deleveraging in DeFi, with traders pulling their tokens out of lending protocols en masse.
The 2022 deleveraging got here as a exact opposite to the DeFi increase the market noticed in 2020 and 2021 with the introduction of yield farming. With new lending protocols rising virtually each day, the overall worth locked (TVL) on Ethereum peaked in 2021 at $253 billion. This 12 months’s deleveraging triggered the TVL to drop over 70%, down to only $72 billion.
In accordance with information from Glassnode, Ethereum’s TVL might have bottomed in June. The TVL remained tied to $72 billion for a brief time frame, posting a slight restoration in mid-June and persevering with to climb up as we entered into August.