Ethereum’s price rally has resulted in the coin regaining its dominance over stables. Ethereum’s market cap is now more than $43 billion.
One of the easiest ways for investors to trim their positions is to turn to stables. Centralized constables, unlike their algorithmic counterparts, are resistant to volatility and hold their course even in the most violent market conditions.
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Over the past two years, the stablecoin market has grown significantly and has become one of the most important parts of the crypto ecosystem. At its peak, the stablecoin market cap reached $160 billion.
The importance of stable conditions was further reinforced in 2022 as the industry saw an unprecedented amount of value from the volatile crypto assets. All the value that had been drained from volatile assets by the implosion of Terra (LUNA) and subsequent liquidity crunch found its way into stables.
Ethereum upgrade fuels speculation
The added value of the stablecoin market has seen the four largest stablecoins surpass Ethereum (ETH) in terms of market cap.
In early June, the market caps of USDT, USDC, DAI, and BUSD surpassed Ethereum’s market cap for the first time. The fact that this is the first time a “stable” asset group has outperformed a volatile asset reflects the extent of the deleveraging we saw in June.
However, increased speculation about Ethereum’s upcoming upgrade in September has driven the price of ETH higher and bucked the bearish market trend. Ethereum’s price rally has seen it regain its dominance of the stablecoins, and its market cap now stands at just over $243 billion.
One of the biggest factors that led to the drop in price and market cap of Ethereum was the drastic drop in the total value locked in the DeFi protocols (TVL). The Terra (LUNA) retreat caused massive deleveraging in DeFi, and investors withdrew their tokens from lending protocols en masse.
Deleveraging in 2022 was in stark contrast to the DeFi boom the market saw in 2020 and 2021 when yield farming was introduced. With new lending protocols emerging almost daily, the total value locked (TVL) on Ethereum reached a peak of $253 billion in 2021. As a result of this year’s deleveraging, the TVL dropped by more than 70% to just $72 billion .
According to data from Glassnode, Ethereum’s TVL may bottom out in June. The TVL briefly remained at $72 billion, recovering slightly in mid-June and continuing to increase in August.
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Text credit: Cryptoslate
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