One of many simplest way 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 essentially the most violent market circumstances.
Over the previous two years, the market has seen stablecoins develop considerably and turn out to be one of the vital vital 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 business noticed an unprecedented quantity of worth movement out of unstable crypto property. The entire worth leaving unstable property, sparked by the Terra (LUNA) implosion and the following liquidity disaster, made its means into stablecoins.
The quantity of worth getting into the stablecoin market induced the 4 largest stablecoins to surpass Ethereum (ETH) by way of market capitalization.
At first 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 exhibits the severity of the deleveraging we noticed in June.
Nevertheless, the rise in hypothesis surrounding Ethereum’s upcoming Merge in September has pushed ETH’s value upwards, defying the dominant bearish market pattern. Ethereum’s value restoration led it to get better its dominance over stablecoins, with its market capitalization now standing at simply over $243 billion.
One of many greatest components that led to Ethereum’s drop in value and market cap was the drastic lower within the whole worth locked (TVL) in its DeFi protocols. The Terra (LUNA) blowback induced large 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 growth the market noticed in 2020 and 2021 with the introduction of yield farming. With new lending protocols rising nearly every day, the entire worth locked (TVL) on Ethereum peaked in 2021 at $253 billion. This yr’s deleveraging induced the TVL to drop over 70%, down to only $72 billion.
In keeping with information from Glassnode, Ethereum’s TVL might have bottomed in June. The TVL remained tied to $72 billion for a brief time period, posting a slight restoration in mid-June and persevering with to climb up as we entered into August.
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