Analyst says DeFi and stablecoins held up well as crypto markets imploded

DeFi showed tremendous strength during last week’s sell-off as DEX activity and stablecoin stability prove the sector may be ready for mass adoption.

The decentralized finance (DeFi) sector faced its first real challenge during last week’s market sell-off that saw more than $1 trillion wiped from the global cryptocurrency market cap as traders feverishly ran for the safety of stablecoins amid tumbling prices. 

Despite rapidly declining token prices, the nascent DeFi sector held its own as decentralized exchanges experienced a record $11.7 billion in trading volume on May 19. Uniswap (UNI) led with $5.7 billion in volume, followed by SushiSwap (SUSHI) which saw $2.8 billion in 24-hour trading volume.

Daily DEX volume. Source: Dune Analytics

According to the recent DeFi Uncovered report from Glassnode, blue-chip DeFi tokens including, UNI, SUSHI, Maker (MKR), Aave (AAVE) and Compound (COMP) have largely mirrored the decline of Ether (ETH) over the past two weeks, “showing relatively high beta to ETH but not exceeding the decline from ATH by more than 15% from the decline of ETH.”

New users increase despite declining TVL

The pullback in prices, combined with users removing liquidity and rotating into stablecoins led to a 42% decline in the total value locked on smart contracts, which also closely tracked the falling price of Ether.

Total value locked in smart contracts vs. ETH/USD. Source: Glassnode

TVL is intrinsically tied to the underlying value of the deposited tokens and given that Ether is one of the main tokens locked across DeFi platforms, the falling TVL has less to do with users removing funds and is mostly related to the pullback in prices.

Throughout last week’s downturn, the percentage of the Ethereum supply locked in smart contracts remained above 23% while the supply on exchanges “jumped from 11.13% to 11.75%.”

Despite falling prices, new users continue to enter the DeFi ecosystem and the total number of unique 30-day traders on the top DEXs surpassed the 1 million mark for the first time amid last week’s sell-off.

Unique DEX traders. Source: Glassnode

Uniswap is the clear leader with 815,000 unique users between April 24 to May 23, while 1inch (1INCH) came second with 78,200 users and SUSHI ranked third with 10,900 users.

Stablecoins hold their pegs

Much of the strength seen in DeFi during the sell-off can be attributed to the healthy stablecoin market and the ability for major stablecoins like USD Coin (USDC), Tether (USDT) and Dai (DAI) to maintain their dollar peg “for the majority of the crash with volume-weighted average prices (VWAP) staying at $1.00 the majority of the time.”

DAI price vs. USDT price vs. USDC price. Source: Glassnode

The performance of DAI was seen as “especially positive for DeFi” according to Glassnode, as its circulating supply was able to adjust accordingly in response to collateral requirements and protocol stability. The report also highlighted that reclaimed collateral and DAI were removed from the supply as redemptions were claimed by collateral holders.

Posey said:

“This behavior allows collateral to stay healthy, liquidations remain at a healthy level, and DAI to maintain its peg.”

The one stablecoin that struggled to maintain its peg was TerraUSD (UST), which lost its peg on May 18 as the value of its collateral from LUNA fell below that of the stablecoin it collateralized. This led to “unhealthy behavior in its lending market Anchor (ANC),” causing a higher than average number of liquidations on the protocol’s native lending platform.

Overall, stablecoins performed their intended function and pegs held steady across the ecosystem with the on-chain stablecoin transfer volume reaching a record $52 billion during the height of the sell-off.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.

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Stablecoin RAI launches, a pure, decentralized alternative for DeFi

The RAI stablecoin will attempt to bring stability to DeFi markets with the long-term goal of becoming a stable global reserve asset not tied to any nation’s currency.

New Ethereum-backed stablecoin RAI hopes to be the savior of the DeFi sector by providing a truly decentralized stablecoin alternative. 

Developed by blockchain startup Reflexer Labs, RAI is not pegged to any fiat currency and its monetary policy is managed by an on-chain, autonomous controller. It’s a fork of Maker’s DAI. RAI co-founder Ameen Soleimani explained:

“RAI is an asset backed only by ETH, governance-minimized, and programmed to maintain its own price stability without needing to peg to an external price reference like the USD.”

Soleimani believes that RAI, which he dubbed “A Money God,” has far greate potential than simply improving the DeFi sector, adding:

“Our aspirations for RAI, however, are more profound — if RAI fulfills its purpose within DeFi and starts to earn global adoption, it could prove to be a viable solution to the Triffin Dilemma, and bring credible neutrality to the administration of a stable global reserve asset.”

The Triffin Dilemma consists of potentially contradictory incentives which arise when an asset, like the USD, serves both as national currency and for international reserves.

Announced today, the asset has launched on the Ethereum blockchain and is available via Uniswap v2, with liquidity mining pools set to be announced in the coming weeks. Prior to a strong liquidity pool, the team admitted that “the controller will be weaker than usual.”

While it’s a stable, it’s not pegged to the value of USD and initially, RAI’s redemption price will be set at $3.14. One immediate use-case in decentralized finance, or DeFi, the team predicts will be a method to avoid liquidation on strong price fluctuations for Ethereum and other cryptocurrencies.

How is RAI different?

Stablecoins like Tether (USDT) are centralized and pegged to US dollars, while even Maker’s DAI accepts centralized stablecoin USDC as collateral. This makes true decentralization finance acolytes concerned as centralized coins can be censored. RAI only uses ETH as collateral.

RAI’s ability to maintain a stable price despite fluctuations in the value of its ETH backing revolves around its PID Controller — a control loop mechanism similar to a car’s cruise control.

The asset has two prices, a redemption price and a market price. When the market price deviates from the redemption price, an interest rate for those who have staked Ethereum is set to oppose the price move, incentivizing users to return RAI to the target price.

Soleimani, who is also the CEO of the crypto cam site SpankChain explained that, “It works kind of like a spring: the further the market price of RAI moves from the target price, the more powerful the interest rate, and the greater the incentive to return RAI to equilibrium.”

Soleimani added that the redemption price, also known as the initial target price, does not really matter because, “RAI only cares about relative stability.”

During the testing phase conducted throughout 2020, which used Proto RAI tokens, the asset’s price managed to maintain a volatility level of 4% or lower with an average price of around $2. During the same period, Ether’s price grew by more than 250%.

Last week, Reflexer Labs announced a $4.14 million series A funding round led by Pantera Capital and Lemniscap. This round was preceded by an investment raise of $1.68 million in August 2020 led by Paradigm.

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Stablecoin Supply Doubles in 3 Months as Combined Market Cap Surpasses $20B

Stablecoin Supply Doubles in 3 Months as Combined Market Cap Surpasses $20B2020 has been the year of stablecoins, as the token supply has doubled in the last three months. The aggregate market capitalization of 28 stablecoins captures over $20 billion on October 4, 2020. While tether still dominates the stablecoin ranks, USDC has been moving closer toward the top ten crypto coins. USDC is also the […]

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Makerdao Vote to Not Compensate Black Thursday Victims Receives Harsh Criticism

Large Makerdao holders decided not to compensate the victims that were liquidated during the unexpected flash crash that took place on March 12, otherwise known as ‘Black Thursday.’ An aggregate total of 38 votes was cast and more than 65% of the governance portal participants voted for zero compensation. The day after March 12, otherwise […]

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