TitanSwap Monthly Report April
Starting with the recent market situation, let’s talk about LUNA.
Recently, the market has experienced historic volatility and disruption. The exchange rates of two stablecoins, UST and USDT, have been in the spotlight. In just a few days, two of the top 10 digital assets by market capitalization (LUNA and UST) evaporated by almost $40 billion. UST lost its peg to the U.S. dollar entirely, while LUNA saw its price drop to $0.00001 due to an over-inflated supply. Although Luna Foundation Guard (LFG) urgently used 80,394 BTC reserves to defend the remaining USD peg, it was unsuccessful. Market sentiment emerged at the same time with concerns about the quality of Tether’s (USDT) peg to the U.S. dollar amidst the momentum of news related to the UST’s decoupling from the U.S. dollar. USDT fell to a low of $0.9565 at one point but recovered gradually over the course of 24 hours. Bitcoin traded down 21.2% at one point to $26,513 under the weight of LFG’s sale of $3.275 billion worth of bitcoin amid spreading fears over the stablecoin. This was the lowest price since December 2020 and put most market participants under financial pressure.
LUNA’s Spectacular Splendor and Reflective Fall
The rise in the value and share of stablecoins can be seen in the market over the past few years, accounting for a large portion of the total market capitalization of digital assets. Stablecoins have gained over $135 billion in value between USDT, USDC, BUSD, DAI, and UST. Although there are various forms of stablecoins, they are usually of three types.
- Collateralized (USDT, USDC, BUSD)
- Encrypted Hyper Collateralized (DAI)
- Algorithm-based (UST)
The algorithms for UST and LUNA are designed to allow users to convert 1 UST to $1 worth of LUNA (and vice versa), regardless of the market price of either asset. This means that when there is market demand for UST, the supply of LUNA contracts (and the price often rises). Conversely, when demand for USTs falls in price, the supply of LUNA can (and does) over-inflate. The UST-dollar peg began to break on May 9, when LUNA was trading at about $60. Over the next 36 hours, the LUNA price fell below $0.10 while the UST traded between $0.30 and $0.82. This caused the agreed redemption mechanism to go into overdrive, and users in turn exchanged 1 UST for $1 worth of LUNA for arbitrage out of panic, thus increasing supply and further depressing prices.
Stablecoin Price Instability Proliferation
While there has been enough disruption, the largest stablecoin by market cap, Tether (USDT), is also starting to come under pressure. Despite the size of UST’s market cap ($21B), USDT is considered by many to be $83B in size and is currently of extraordinary importance to the market as a whole, being the main quote pair on many exchanges. Between May 11 and midday on May 12, USDT traded below $1, reaching a low of $0.9565, before recovering over a 36-hour period to USD 0.998. During this period, other major stablecoins USDC, BUSD and DAI traded at premiums of 1% to 2% as investors switched their holdings to assets they saw as less risky in terms of falling price contagion. Tether, on the other hand, announced during this period that its redemptions remained open and actively traded during the height of price pressure. And looking at the supply of USDT, you can actually see that over $7.485 billion of USDT has indeed been redeemed in one week.
The other mainstream stablecoins also saw interesting changes in supply, and market preferences under pressure can be observed in these changes. USDC reversed the supply contraction trend that had been in place since late February, expanding by $2.639B. Given the growth of USDC over the past 2 years, this may indicate a shift in the market’s preference for stablecoins from USDT to USDC.
Another stablecoin that saw a huge change in supply was DAI, which saw a 24.4% decline in supply. DAI is an over-collateralized stablecoin backed by other digital assets housed in the Maker Protocol. The supply of DAI will contract as debt holders close out their positions by paying off and destroying DAI. This process can be free and clear or enforced in the event of a vault liquidation. Yet despite the high volatility of collateralized assets, the increased demand for DAI that has occurred, and liquidation events, DAI has managed to maintain a strong peg to $1.
What has happened in recent times has been historic in its nature, but in many ways fits the profile of a digital asset bear market. Multiple large cryptocurrency projects have proven to be unstable, eventually collapsing under their own weight. Such events are typically triggered by the downward price pressure of a bear market. As stablecoins become increasingly integrated in the market as infrastructure, the shockwaves of decoupling events, especially in the largest stablecoin, USDT, will have a widespread impact. LUNA/UST, worth about $40B, was destroyed under the dual dynamics of UST and USDT decoupling. At the same time, this event will attract the attention of regulators with greater speed and urgency.
The unique nature of the digital asset market in its current development process dictates that there are various risks, but we should face them and learn from our experience, rather than being deterred from moving forward. Whenever there is a large-scale market movement or event, the price of the currency often changes drastically within an instant. In this process, the profit is bound to be made by a very small number of people, and most of the project parties and users suffer losses. It is worth thinking about whether TITAN, as a decentralized platform, can do something to minimize the losses of project owners and users. In the process of the network step by step towards Web 3.0, network technology engineers built and contributed to the underlying foundation, but with the tools, fair, reasonable and sustainable rules need to be established with the participation of governance experts, but it seems that this part is still far from enough. Technology has driven progress, but to go far requires the introduction of more professionals for the construction and improvement of rules and regulations. Therefore, the responsibility and obligation of the platform itself should be to use technology to establish solid security, a smooth transaction experience, and use leading concepts to govern and maintain a healthy ecology.
Recently, in terms of technical implementation, we have optimized the parsing of data streams on the chain to reduce the server load and improve the data processing speed; optimized the Metamask processing logic at the front-end level to improve the user experience; optimized the limit order function to improve the stability of transactions when the price fluctuates drastically; and fixed the problem of inaccurate display of coin prices due to some rare cases. In terms of product features, NFT is a very promising area in the current development of blockchain technology. Combined with the previous research and brewing of the wallet, the two complement each other, TITAN assists users to easily and quickly view the NFT assets in their hands is believed to be a meaningful and interesting task, worthy of common expectation.