One of the easiest ways to deleverage a position is to turn to stablecoins. Centralized stable coins, unlike their algorithmic counterparts, are resistant to volatility and retain their peg even in the most violent market conditions.
Over the past two years, the market has seen stable coin grow significantly and become one of the most important parts of the coin ecosystem. At its peak, the market value of stable coins reached $160 billion.
In 2022, the importance of stablecoins was reinforced when the industry saw an unprecedented amount of value flow out of volatile assets. All of the volatile assets sparked by the Terra LUNA implosion and the subsequent liquidity crisis made its way into stable coin.
The amount of value entering the stablecoin market caused the four largest stablecoins to surpass Ethereum ETH in terms of market value.
The market value of USDT, USDC, DAI, and BUSD surpassed Ethereum's market capitalization at the beginning of June. This is the first time a stable asset surpassed the value of a volatile asset, showing the severity of the deleveraging we saw in June.
The increase in speculation surrounding Ethereum's upcoming Merge in September has pushed the price of ETH upwards, defying the dominant bearish market trend. The market value of ether recovered after it recovered its dominance over stablecoins, with its market value now at just over $243 billion.
The drastic decrease in TVL in its DeFi protocols was one of the factors that led to the drop in price and market cap. The Terra LUNA blowback caused a massive deleveraging in DeFi, with investors pulling their token out of lending protocols in a masse.
The introduction of yield farming in 2020 and 2021 was a complete opposite of the DeFi boom the market saw in 2022 and the introduction of deleveraging in 2020 and 2021. The total TVL onEthereum peaked at $253 billion in 2021, with new lending protocols emerging almost daily. The TVL dropped 70% this year, down to just $72 billion.
According to Glassnode, TVL ofEthereum could have bottomed in June. The TVL continued to climb up as we entered August, posting a slight recovery in mid-June and continuing to climb up as we entered into August, despite the fact that the TVL was tied to $72 billion for a short period of time.