Algorithmic stablecoins UST, AMPL, RAI fall in the market downturn, while centralized stablecoins remain solid

The market crash has caused the number of stablecoins on the exchanges to hit an all-time high, but algorithmically stable token holders are in trouble.

Centralized stablecoins have remained resilient during the crypto market downturn, with two of the stablecoins now making it into the top ten crypto assets by market cap.

Tether (USDT) and USD Coin (USDC) currently rank third and tenth, respectively, after maintaining a solid base in their dollar despite the sharp market decline.

According to the Münzenko, USDT and USDC now represent 80% of the total stablecoin capitalization of $ 102 billion. The total supply of all stablecoins has increased by almost 190% in the last 90 days.

Leading decentralized stable token projects like MakerDAO’s DAI held prices through most of the bearish price moves, with the exception of May 19 – the DAI hovered between $ 0.996 and $ 1,015.

Algorithmic stablecoins did not do as well, however, with some losing value after the price of the underlying collateral fell.

At the time of writing, Terra USD (UST) has dropped to $ 0.92, THORChain describe its degradation as a “stress test”:

“Terra is being subjected to a stress test. The stamped / burned UST creates a price reflection on LUNA and the decline is a measure of the uncertainty. “

USD / USDT. Source: TradingView

UST is created by burning its base coin LUNA. The value of UST is determined by supply and demand, but is intended to be maintained by creating arbitrage opportunities for LUNA holders. If the price of UST rises above a dollar, LUNA holders can sell tokens with a $ 1 peg to UST, which allows them to spot an opportunity and drive the price of UST towards $ 1.

LUNA holders can also mine stablecoins to maintain the stability of the pegs. However, in times of market volatility, this doesn’t always work as expected. LUNA’s price fell 70% during the market downturn since last Wednesday (April 19th) when it traded as low as $ 16.

In a tweet on May 23, Terra co-founder Do Kwon confirmed that the Terra economy and the elastic supply protocol are undergoing extremely stringent testing conditions.

He added that none of the fundamentals of the token were changed, claiming that the project “significantly reduced the risk of surviving one of the worst crypto market crashes.”

The Ampleforth (AMPL) token, which offers supply elasticity, also trades under its one dollar target. AMPL hit $ 0.48 on May 23, its lowest level in over a year. It’s now up to $ 0.6.

AMPL / USDT. Source: TradingView

There are three states for the Ampleforth Protocol: expand, shrink or balance according to demand and change dynamically to adapt the supply. Likewise, in times of high market volatility, this mechanism can have a negative impact on the token’s ability to hold its peg.

The Ethereum-backed stablecoin RAI, which launched its mainnet in February, outperformed its rivals and swung close to its algorithmically generated price target of $ 3 during the downturn. Algorithmically, RAI sets an interest rate that is used to counterbalance the volatility of the RAI price and stimulate traders to move RAI towards its target price.

RAI / USDT. Source: TradingView

Tweet On May 23, Raoul Pal, founder of Global Macro Investor, commented on recent concerns about the ability of stablecoins to hold their prices in volatile market conditions like other stablecoins.

“I’m just not sure why I’m risking stablecoins, they are extremely similar to money market funds, except that they are traded as tokens. No guarantee. Money market funds move the financial world. Stablecoins also get the crypto world going. “

Mr. Teacher

According to Cointelegraph

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