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In Search of On-Chain Stability: an Update Since the de-peg
Beili Baraki
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Key Takeaways
16 min read
  • The USDC de-peg event had varying degrees of impact on different stablecoins. Some exhibited greater resilience during periods of de-pegging while others, such as DAI and FRAX, closely mimicked USDC.
  • The correlation matrix analysis showed strong positive correlations between DAI, USDC, and FRAX implying that holding the three different assets offered no real diversification. The price distribution correlation between DAI and USDC persisted even after USDC's recovery.
  • The stablecoin market is dominated by USDT, USDC, and BUSD in terms of the number of tokens locked across DeFi. However, their usage has been subject to fluctuations and disruptions in recent months, with USDT recently coming on top.
  • Some users leveraged lending pools to mitigate risk during the USDC de-pegging event. This suggests that the selling pressure on USDC during the de-pegging period could have been significantly higher, resulting in a larger de-peg, had it not been for the availability of lending pools.
  • Over the past month, Smart Money wallets have been gradually increasing their USDT holdings while USDC continues its downward trajectory. Although, USDC remains the most dominant stablecoin held by Smart Money, with USDT trailing in second place and DAI occupying a distant third.

Introduction

Lately, the stablecoin market has faced some big challenges due to recent events like the banking crisis and heightened regulatory oversight. These events have caused considerable fluctuations in the market, with different stablecoins displaying diverse reactions.

This report looks at how the stablecoin market changed during the crisis, exploring how different stablecoins reacted with varying degrees of correlation. It also investigates the role of lending pools during the USDC de-pegging event. Furthermore, It delves into the correlations between specific stablecoins, the effects of these correlations on risk management, and the changing usage trends across the DeFi ecosystem. Lastly, the report underscores the...