Citibank, one of the largest companies in the world, covered the cryptocurrency market in a recent report. According to the bank, concerns about stablecoins after the collapse of Terra UST are deepening the decline in the altcoin market.
Citibank says altcoin market volatility “scares” investors
Citibank said in a report Tuesday that the collapse of TerraUSD (UST) led to exits from Tether (USDT). Terra UST had lost price stability in early May. On this date, the cryptocurrency market continued its downtrend. Minted in support of the stablecoin UST, LUNA triggered a larger market-wide crash. It also caused growing anxiety and fear among investors. According to the bank, this leads to more exits from stablecoin giant Tether (USDT). According to the research, these fears have definitely made the crypto market dips worse.
Citibank states that transaction volumes and active addresses increased during the Luna (LUNC) crash. According to the bank, these metrics point to user adoption. However, these gains were then quickly reinstated. Part of the report reads:
Interim data point to a decline in trading volumes and futures. However, it does not indicate a general decline in investor interest in the region.
Funds from LUNA, UST and USDT move to this stablecoin
According to the bank, there were concerns about USDT withdrawal after Luna’s collapse. However, this did not happen as expected. While some funds have flowed into the more “transparent and centralized” USD Coin (USDC) stablecoin, others have left the market entirely.
According to the report, the total locked value (TVL) of the DeFi market in US dollars decreased. But while taking into account the value lost in the Anchor protocol, especially after the collapse of UST and LUNC, the value for Ethereum (ETH) remained stable.
DeFi refers to lending, trading and other financial transactions that take place on a Blockchain without the need for traditional intermediaries. In a study published Tuesday, Morgan Stanley (MS) said that “quantitative tightening is the crypto equivalent” due to instability in crypto markets, a stablecoin collapse and a drop in leverage in DeFi.
How successful are algorithmic stablecoins?
As Kriptokoin.com, we have covered the details of the Terra ecosystem collapse in this article. Terra UST’s mechanism uses an algorithm to fix the price to $1. The price is stabilized on the LUNA. These algorithms usually link two coins together (LUNA-UST) and then adjust their prices based on the supply and demand of investors.
To recall, USDD, the newly released stablecoin of the Tron network, has this mechanism. It even caused some concerns among the community. However, the Tron team has announced that it will increase its reserves for USDD.
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