The chain reaction of Terra’s collapse (Luna) and its TerraUSD (UST) stablecoin spread widely across the cryptocurrency market on May 11, as prices for projects with any ties to the DeFi ecosystem took a hit.
Forced sell-off of Bitcoin (bitcoin) backing some UST holdings also impacted BTC’s current drop to $29,000, with analysts worried that DeFi platforms with liquidity pools consisting mostly of UST and LUNA will collapse.
Terra-based protocols are affected
The projects with the worst prospects are those 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) tokens have plunged more than 80% since the LUNA price first started correcting on May 4.
The protocols in question are all DeFi-focused, meaning they are highly integrated with UST as their primary stablecoin for their liquidity pair and LUNA as the primary source of value locked on their smart contracts.
As long as UST remains pegged to $1 and LUNA is trading 98% lower from levels 7 days ago, these agreements are unlikely to bounce back and recover from today’s impact.
Cross-chain communication protocols also take a hit
Assets in the Cosmos ecosystem were also hit hard by the collapse of UST. atom Mirror Protocol (MIR), Osmosis (OSMO), and other tokens that use the Inter-Chain Communication Protocol (IBC), such as Mirror Protocol (MIR), and Kava, are significantly corrected due to their integration with Terra.
The price drops for these assets were less extreme than those hosted on the Terra protocol, but their proxy to Terra did not protect them from contagion.
Manufacturers benefit from volatility
MKR prices surged 124% in trading on May 11, from a low of $1,025 to an intraday high of $2,299 before falling back to $1,278.
As the market digests the current correction and news of the collapse of funds and protocols emerges, it will be interesting to see how other stablecoin protocols like Frax Share (FXS), USDD and mStable (MTA) perform and whether crypto traders shy away from these projects For a more focused selection.
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