About the editor: Spencer Noon is Co-founder & General Partner at Variant Fund.

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Network Coverage
Coverage on Stablecoins.

• Early in the day on May 9, UST’s peg started rapidly dropping, and fell as low as $0.30 over the next 48 hours. The market cap of UST was $18b; nearly $14b of stablecoin market cap vanished in about 2 days. This massive destruction of value in the Terra ecosystem is causing many stablecoin holders to be cautious. In early May, Tether’s USDT price fell as low as $0.95 and had its biggest depegging in over a year.

• Due to all of these outflows and the massive depegging of UST, the total market cap of decentralized stablecoins has dropped ~46.9% in the past 4 days and continues to decline as more capital floods out of UST. DAI is becoming the most prominent decentralized stablecoin once again.

• USDT’s peg has been stressed over the past few days, but this has not caused large USDT outflows. BUSD and USDC held stable pegs and saw value inflow. Looking at a border time horizon, the total number of circulating custodial stablecoins has continued to grow with about 30b new tokens 2022.

• It’s been a difficult week for the Terra ecosystem, as prices for its native token, LUNA, fell to as low as a few cents due to issues with UST, the ecosystem’s algorithmically-baked stablecoin. Zooming in on UST, the price spread first started to widen on Monday, May 8. This activity dropped slightly, before beginning to widen even more severely on Wednesday, May 10, with the widest price spread to date coming in the late hours of Wednesday, May 11.

• The market price of UST, based on Astroport swaps, moved rapidly in big swings during this time period. All DEXs have finite liquidity depth that impacts market swap rates, providing a view on the intrinsic value of UST using point-in-time data.

• Finally, the chart below looks at all available tokens that were swapped on Astroport. Here, the intrinsic value/purchasing power of UST on the Terra network fell drastically, as a factor of swap return vs. external market price.

• Price dynamics and market depth were tested during the UST depeg. (Left) Curve’s prices have reliably maintained parity with major centralized markets. (Right) During the initial spike down, Curve’s UST v2 (Wormhole) pool offered orders of magnitude deeper liquidity than other markets.

• The image below shows examples of various depegs and the pool imbalances at which these stablecoins lost value. Even at a pool amplification factor (A) of 100, spot prices dip only after the pool has less than 0.3 3CRV (Fiat-redeemable stablecoin) per stablecoin. Higher A values allow for more leeway.

• Since October 2021, Curve has averaged over 10b USD in monthly volume. Just in May, 2022, users swapped over 10b USD in the first 12 days alone.