Terra Contagion Has Led To A Decline Of 80% In DeFi Protocols

Terra
Terra

The collapse of Terra and its stablecoin did affect the cryptocurrency market as a whole on the 11th of May. Most of the projects which were associated with any form of decentralized finance did see their prices hammered badly due to this collapse. The forced selling of the holdings of Bitcoin which was backing a portion of the UST also went on to influence the price drop of the cryptocurrency to $29,000. Most analysts believe that the platforms of DeFi that already have liquidity pools primarily made of LUNA and UST will collapse badly.

Terra’s collapse Has Hit The Market Hard

Projects that have been hosted on the protocol of Terra include Astroport, Anchor Protocol, and Mars Protocol. As shown, Astroport, Anchor Protocol, and Mars Protocol did see their prices go down by more than 80% since the 4th of May, when the price of LUNA first started to see the correction. The protocols in question have all been focused on DeFi- which implies that they all have pretty heavy integration with the UST as the exclusive stablecoin for their liquidity pairs- along with LUNA as a major source of value locked on their smart contracts.  

Now, as long as Terra remains off its $1 peg and LUNA gets down by 98% from where it stood a week ago, it is pretty unlikely that the protocols would actually be able to bounce back and then further recover from the fallout of today. It is being reported that multiple assets in the Cosmos ecosystem were also hit pretty hard by the collapse of UST. Cosmos, and other tokens like Mirror Protocol, Kava, and Osmosis- which utilize the Interblockchain Communication Protocol- went on to correct sharply due to the integration with Terra.