The thunderstorms of UST and LUNA continued to ferment. What chain reactions occurred after the dominoes fell?
In fact, since the rise of DeFi, the discussion of its “composability” has not stopped. In the past, everyone cheered that protocol combinations could bring more trading opportunities and amplify investment returns, but the higher the stack of Lego bricks, the more and more connections of various products in the market, which makes the risk combination impossible to ignore.
The chain reaction triggered by the recent decoupling of the UST is an excellent window into this combination of risks. When there is a problem with a larger product, how does this internal problem affect other markets and products? To this end, PAData, a data column under PANews, observed a number of data on DeFi and spot markets before and after the UST decoupling event and found that:
1) Large UST holders are damaged: Among the top 30 non-exchange addresses with UST balance on Wormhole, the average balance of each address is about 7.04 million UST. Calculated based on the current price of $0.1767, then the average loss of these 30 addresses The amount is around $5.79 million.
2) A total of 4.04 million addresses were “victimized” on the chain, and 80,000 addresses were newly entered to buy dips or participate in arbitrage. On May 7, there were 4.04 million addresses on the Terra chain, which is equivalent to 4.04 million addresses that may be “victimized”. By May 14th, the number of addresses on the chain had increased to 4.12 million, which is equivalent to 80,000 new addresses that entered the market to hunt for bargains or participated in arbitrage transactions created by “rescue the market” thereafter. LUNA has three characteristics in the process of “returning to zero”, namely, the continuous price decline, the ultra-high intraday amplitude and the increase in trading volume.
3) Algorithmic stablecoins based on public chain tokens are affected, resulting in high volatility and a decrease in the overall market size of stablecoins. The daily deviation of USDN and USDX from the anchor price has reached -4.24% and -9.22% respectively since the beginning of this month, while USN has reached 6.97%. The total market value of the seven stablecoins within the statistical range has decreased by nearly $8.4 billion this month, a drop of about 5.15%.
4) The four effects are that it further exacerbates the decline in the scale of DeFi lock-up. Total lock-up in DeFi has fallen by $83.485 billion since May. During the same period, Terra’s lock-up value decreased by $27.498 billion, accounting for 32.94% of the total drop in DeFi lock-up value. In addition, Curve has also dropped about 12.46% of its DeFi lock-up amount.
5) LFG’s selling of mainstream assets caused a large selling pressure in the market, and other funds participated in the selling together, which intensified the downward trend of the entire market and changed the correlation between the market’s estimated leverage ratio and price trends Trend.
The proportion of liquidity before the decoupling of UST was unbalanced, and the highest loss of Wormhole addresses exceeded US$45 million
Before discussing the knock-on effects of UST decoupling, let’s briefly review the process, and the pitfalls that preceded it. It is speculated that the cause of the decoupling is that Terraform Labs removed the liquidity of 150 million UST from Curve on May 7, and 1 minute later, a new deposit address cross-chained 84 million UST to Ethereum and sold it, triggering a sell-off. Terraform Labs has since removed 100 million UST liquidity from Curve, and an unknown address started selling ETH to buy UST after UST was decoupled.
At the time of the incident, 4pool was still in the preparation stage, and the main liquidity was 3pool at Wormwhole on the Curve mainnet.
As of May 15, about 122 million UST remained in the 3 pools of UST, accounting for 98.94% of the total in the pool, and 1,314,700 UST remained in the other three stablecoins, accounting for 98.94% of the total. only 1.06%. The disparate asset ratio makes the pool basically unable to provide liquidity. It is worth noting that on May 7, the proportion of UST in the pool has remained above 55%, exceeding the theoretical ratio of 50%. The result of changing liquidity in an already unbalanced pool is obviously not UST “ending the Curve War”, but stepping into the abyss.
The first and most direct impact of the decoupling of UST on the market is to hurt UST holders. Since 3pool on Warmhole was one of the main markets of UST before this time, a reasonable guess is that it has a certain reference value to estimate the overall situation based on the losses that UST holders on Wormhole may face.
According to statistics, among the top 30 non-exchange addresses with UST balance on Wormhole, the average balance of each address is about 7.04 million UST, the highest is 55.82 million UST, and there are 5 addresses with more than 10 million UST. Based on the current price of US$0.1767, the average loss of these 30 addresses is around US$5.79 million, the highest loss is US$4,596, and there are 2 addresses with losses of more than US$10 million.
The highest daily amplitude of LUNA exceeds 70,000%, and the affected addresses may exceed 4.04 million
Due to the design of the dual-currency mechanism of UST, after the serious decoupling of UST, LUNA will be affected first, causing serious damage to LUNA holders, but also opening up LUNA trading space for some speculators.
According to the number of addresses on the Terra chain to make general speculation, on May 7th before this liquidity event, there were 4.04 million historical cumulative addresses on the Terra chain, which can basically be regarded as having 4.04 million addresses holding LUNA. That is, approximately 4.04 million addresses may be “victimized”. As of May 14, the number of addresses on Terra’s chain has increased to 4.12 million, which is equivalent to 80,000 new addresses entering the market or participating in arbitrage transactions created by “rescue market”, which is not included in the exchange. The addresses of the transactions, if you count the latter, the number is obviously much larger.
There are three characteristics in the process of LUNA’s “return to zero”, namely, the price continues to fall, the high intraday amplitude and the increase in trading volume. From the price point of view, on May 6, the price of LUNA can still reach 77.5 US dollars, and it can still close at 64.1 US dollars on the 8th, but after that, the price of LUNA can not be stabilized, and the repeated “rescue” failed to lead to the market. Confidence collapsed. On the 9th, LUNA closed at only US$32.0, down 50% from the previous month. On the 10th, LUNA closed at US$17.5, down another 45% from the previous month. After the 11th, the price of LUNA kept moving to the right by one decimal point every day, and on the 14th it was only $0.0004588.
At the same time, LUNA’s intraday maximum amplitude and single-day trading volume have repeatedly hit new highs. Since May 9th, the intraday maximum amplitude of LUNA has exceeded 100%, on the 11th it reached 2186%, on the 12th and 13th it was as high as 37713.88% and 76377.61%, and even on the 14th, there was still 574.12%. You know, in April, the average daily maximum amplitude was only 8%. On the other hand, since May 8, LUNA’s daily transaction volume has continued to climb from US$5.11 billion to the highest single-day transaction record on the 12th, reaching US$19.38 billion, a daily increase of more than 67%. , the average daily trading volume is only 2.18 billion US dollars. This shows that the decoupling of UST has greatly opened up the trading space and profit space of LUNA, and attracted a lot of funds to participate. Of course, some have excess returns and some have losses.
Stablecoin market value “shrinks” $8.4 billion, DeFi lock-up volume drops 43%
The third effect of the irreversible decoupling of UST is to increase the volatility of algorithmic stablecoins based on public chain tokens with similar economic models, while reducing the overall market size of stablecoins. According to statistics, since May, BUSD, DAI, FRAX, USDC, USDD and USDT have remained relatively stable, but the prices of USDN, USDX and USN have all deviated from the anchor price to a large extent. Among them, the USDN issued by Waves The average daily deviation from the anchor price since the beginning of this month and USDX issued by Kava has reached -4.24% and -9.22% respectively, while the average daily deviation of USN issued by Near from the anchor price has reached 6.97% since this month. The larger decoupling has brought challenges for both these stablecoins and issuers, while also increasing market volatility.
In addition, the decoupling of UST has also caused widespread doubts about the stablecoin stability mechanism in the market. For example, once again questioned the adequacy of the reserve assets of centralized stablecoins such as USDT and USDC, and questioned the collateral of algorithmic stablecoins such as USDX. Is it affected etc. Coupled with the impact of the downward external market environment, since May, in addition to the increase in the market value of USDC and BUSD among the seven major stablecoins, the market value of the other five stablecoins has declined to varying degrees. Among them, FRAX, USDX and DAI have the largest “shrinkage” in market value, which decreased by 43.14%, 41.32% and 27.26% respectively. Overall, the total market value of the seven stablecoins has decreased by nearly $8.4 billion this month, a drop of about 5.15%.
The UST decoupling event and the market downturn further exacerbated the decline in DeFi lock-up. According to statistics, since May, the total locked amount of DeFi has dropped from $194.60 billion to $111.12 billion, a decrease of $83.485 billion, or about 42.90%. Among them, in the same period, due to the shrinking of the token value, Terra’s lock-up amount decreased from $28 billion to $520 million, a decrease of $27.498 billion, or about 98.14%. Importantly, the total drop in Terra’s lock-up amount accounted for 32.94% of the total drop in DeFi lock-up value, which is equivalent to Terra dropping nearly 1/3 of the lock-up value in the entire DeFi market. It is also worth paying attention to the changes in the lock-up amount of Curve, which is closely related to UST and stablecoins. During the same period, Curve’s lock-up amount dropped from $18.99 billion to $8.59 billion, a decrease of $10.400 billion, accounting for 12.46% of the total drop in DeFi lock-up.
Moreover, according to the changes in the liquidity share of various stablecoins in Curve, UST has the greatest impact, and its liquidity share fell from 4.9% on May 8 to -74.36% on May 15, while other stablecoins were affected. Not big, only the liquidity share of USDN fell to -11.04% on the 12th, but then returned to more than 0%. Other stablecoins basically saw a small general decline in their liquidity share on the 12th, but then they all basically recovered.
In addition, the size of the lending market in DeFi has also been affected. Since this month, the deposits in the three major lending markets of Compound, Maker and AAVE have dropped from $29.834 billion to $21.962 billion, a decrease of $7.872 billion, or about 26.39%. The outstanding borrowings also decreased from $15.356 billion to $10.141 billion, a decrease of $5.215 billion, or about 33.96%.
From the perspective of loan assets, from May 10th to 13th, the loan amount of USDT, USDC, and UST increased significantly compared with their earlier stage. For example, the loan amount of USDT reached 198 million US dollars on the 11th, and the daily chain ratio An increase of 80%; UST’s loan amount on the 10th reached 2.57 million US dollars, a daily increase of 446.81%. It is not difficult to see the impact of the continued decoupling of the UST on the lending market and carry trade.
The market selling pressure suddenly increased, and the leverage took the lead to deviate and then fell synchronously
After the decoupling of UST, the foundation launched a series of “rescue” measures, which brought a fifth impact to the market, that is, the selling of mainstream assets caused a large selling pressure in the market, which intensified the downward trend of the entire market. . According to statistics, from May 8th to 14th, a total of about 805,000 BTC was transferred to the exchange in the whole market, of which about 212,300 BTC was transferred to the exchange on May 9, which is a very high transfer level recently. Second, 10 More than 120,000 BTC were transferred to the exchange every day from the 12th to the 12th. In addition, 5.772 million ETH was transferred to the exchange during the same period, of which more than 1 million ETH was transferred to the exchange every day on the 11th and 12th.
According to Glassnode’s monitoring of the balance of Luna Foundation Guard, its balance has changed from a peak of 80,594.75 BTC on May 8 to 0 BTC on May 10. Regardless of whether these funds are sold and used to “rescue the market”, even if all of them are sold, it will only account for about 1/10 of the recent inflow of BTC on exchanges. This may indicate that in the context of the recent changes in the external market environment and the tightening of monetary policy leading to global liquidity crunch, after the decoupling of UST, there are other funds participating in the sell-off.
Moreover, after the decoupling of UST, the sudden increase in market selling pressure accelerated the decline of BTC and ETH, changing the correlation trend between the market’s estimated leverage and price trends. It is worth noting that before this event (from mid-late April to early May in the black box), the market’s estimated leverage ratio deviates from the price trend, that is, when the currency price goes down, the market leverage ratio increases instead, which is different from the previous two. The trend is basically the same and the trend is different. This means that at that time the market was either anticipating a downward price movement, or confident that the price trend would reverse, and there was a weak balance in the market. However, the unexpected outburst of UST decoupling tipped the balance, with price action exceeding expectations, a sharp drop that made market leverage likewise fall, and investors more likely to suffer larger-than-expected losses.
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