The implosion of the algorithmic stable coin TerraUSD and its sister, Luna token sent shock waves through the cryptosphere, crashing prices and roiling the entire ecosystem behind the coins.
The fallout reached across geographies. Stader Labs, based in Bengaluru, India, is one of many startups that have been engulfed by the crisis.
Stader, backed by investors like Three Arrows Capital, has built a lucrative business, where holders can use their token to order transactions on a blockchain in exchange for earning yield. Before the crash, almost all of the business came from the Luna coin, which like TerraUSD ran on the Terra blockchain and reached an all-time high in early April.
When TerraUSD UST collapsed from its intended 1 to 1 peg to the dollar this month and dragged Luna down with it, the impact on Stader's business was swift. The total value locked on its protocol dropped to $50 million from $750 million just before the event, according to industry tracker DeFi Llama.
Co-founder and Chief Executive Officer Amitej Gajjala said in a text message that they had a 40% hit on revenues. Stader's monthly fees had reached $6.3 million before the crash, he said.
Gajjala's experience highlights the dangers that lurk in the decentralized finance space, where cryptocurrencies holders can borrow, lend and stake coins without intermediaries like banks. Because of the nature of its link with UST, the price of Luna has fallen close to zero, causing staking of the coin on platforms like Stader to evaporate.
The Terra implosion underscores the ability to pivot quickly after a big shakeout.
Stader is already in rebuilding mode, Gajjala said. After starting in April last year focused solely on the Terra community, it started expanding into rival blocks like Fantom, Polygon and Hedera shortly before the UST crisis - a process Gajjala is now accelerating. The company will be placing bets on the following: Ethereum, Solana, Cosmos and Near.
Stader has $50 million of total value locked in Hedera, according to DeFi Llama. Stader says it has $3.6 million and $2.4 million staked in the two ecosystems, despite the fact that DeFi Llama doesn't show equivalent data for Fantom and Polygon.
Luna's market value dropped to about $840 million from more than $20 billion before the collapse of the TerraUSD, according to data from CoinGecko. Since crashing from its peg, UST has lost about $17.5 billion in value.
Gajjala said his startup has enough cash to weather the storm. Since its inception, Stader raised more than $40 million, enough to last for more than 10 years, he estimated. In January, the Economic Times reported that Stader had raised $12.5 million in a funding round led by Three Arrows that valued it at $450 million.
He is still waiting for more details from Terra's backer Terraform Labs on how the UST crash unfolded, and expressed optimism about Terra founder Do Kwon's proposal to revive the blockchain.
The ecosystem could be rebuilt if Terraform Labs can retain its community of developers and users, he said.
Gajjala said that stable coin may not be sustainable in the short run because of Algo stable coin in current form and shape. There is scope for decentralized stable coin in the long run.