The forced selling of the Bitcoin (BTC) holdings backing a portion of UST also influenced BTC’s current drop to $29,000. Analysts are afraid that DeFi platforms that have liquidity pools primarily comprised of UST and LUNA will also collapse.
Terra-based protocols suffer
The most affected projects are those hosted on the Terra protocol, including Anchor Protocol (ANC), Astroport (ASTRO), and Mars Protocol (MARS).
As shown in the above chart, Anchor Protocol (ANC), Astroport (ASTRO), and Mars Protocol (MARS) have suffered more than 80% declines since May 4, when LUNA price started to correct.
The protocols in question are all DeFi-focused, which means they have tightly integrated with UST as the main stablecoin for liquidity pairs, as well as LUNA as the source of value locked onto smart contracts.
As long as UST is still sliding far from the $1 peg and LUNA is trading down 98% from where it was 7 days ago, it is unlikely that these protocols will be able to bounce back and recover from the current drop.
Inter-blockchain communication protocols are also affected
Assets in the Cosmos ecosystem were also beaten hard by the collapse of the UST. ATOM and other tokens like Mirror Protocol (MIR), Osmosis (OSMO), and Kava use Interblockchain Communication Protocol (IBC) which has been sharply corrected due to integration with Terra.
Even though these altcoins are less impacted than other assets hosted on the Terra protocol, their role in Terra as information relay has made them vulnerable.
Maker benefits from the volatility
Maker (MKR) was one of the bright spots to emerge in trading on May 11, when traders noticed that Dai (DAI) was the “best” decentralized stablecoin on the market.
MKR price rocketed 124% in trading on May 11, going from a low of $1.025 to a peak of $2.29 before falling back to $1,147 today.
As the market analyzes new collapses emerge, let’s wait and see if other stablecoin protocols like Frax Share (FXS), USDD, and mStable (MTA) are in action. How and whether traders will avoid these projects in favor of more centralized stablecoins.
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