Research: Ethereum is recovering its dominance over stablecoins Andjela Radmilac 9 hours ago 2 min read
Ethereum’s price recovery led it to recuperate its dominance over stablecoins, using its market cap now standing at only over $243 billion.
2 min read
Updated: August 13, 2022 at 2: 35 pm
Cover art/illustration via CryptoSlate
Among the simplest way for investors to deleverage their positions would be to turn to stablecoins. Centralized stablecoins, unlike their algorithmic counterparts, are resistant to volatility and retain their peg even yet in probably the most violent market conditions.
In the last two years, the marketplace has seen stablecoins grow significantly and be probably the most important elements of the crypto ecosystem. At its peak, the marketplace capitalization of stablecoins reached $160 billion.
The significance of stablecoins was further cemented in 2022, once the industry saw an unprecedented level of value flow out of volatile crypto assets. All the value leaving volatile assets, sparked by the Terra (LUNA) implosion and the next liquidity crisis, made its way into stablecoins.
The quantity of value entering the stablecoin market caused the four largest stablecoins to surpass Ethereum (ETH) with regards to market capitalization.
At the start of June, the marketplace capitalization of USDT, USDC, DAI, and BUSD surpassed Ethereums market capitalization for the very first time ever. The truth that this is actually the first time several stable asset surpassed the worthiness of a volatile asset shows the severe nature of the deleveraging we saw in June.
However, the upsurge in speculation surrounding Ethereums upcoming Merge in September has pushed pushed ETHs price upwards, defying the dominant bearish market trend. Ethereums price recovery led it to recuperate its dominance over stablecoins, using its market capitalization now standing at only over $243 billion.
One of the primary factors that resulted in Ethereums drop in cost and market cap was the drastic reduction in the full total value locked (TVL) in its DeFi protocols. The Terra (LUNA) blowback caused massive deleveraging in DeFi, with investors pulling their tokens out of lending protocols en masse.
The 2022 deleveraging came as a whole opposite to the DeFi boom the marketplace saw in 2020 and 2021 with the introduction of yield farming. With new lending protocols emerging daily, the full total value locked (TVL) on Ethereum peaked in 2021 at $253 billion. This years deleveraging caused the TVL to drop over 70%, right down to just $72 billion.
In accordance with data from Glassnode, Ethereums TVL may have bottomed in June. The TVL remained linked with $72 billion for a brief period of time, posting hook recovery in mid-June and continuing to climb up once we entered into August.