Terra’s recent crash appears to have undermined investor confidence in other major layer-1 (L-1) blockchains, data shows.
The value of the blockchain imploded in the first two weeks of May and is now trading at a fraction of the billions it was originally valued at.
But this implosion likely sparked a broader investigation into other L-1 blockchains, especially those valued in the same way as Terra. Traders likely feared a similar implosion in other L-1s, given ongoing weakness in the market.
Coupled with a severe crypto market crash in the past two weeks, a majority of tokens dumped by traders came from L-1 blockchains. Even in the DeFi space, L-1 protocols saw the strongest drop in total value locked (TVL).
Terra causes L-1 pathway
Facts from blockchain research firm Kaiko shows that amid a broader crypto crash, L-1 blockchains, excluding Bitcoin, were the worst performers in the first two weeks of May. This trend also occurred concurrently with Terra’s crash.
L-1 blockchains lost an average of 43% in the past two weeks, well above losses in low-2 chains and Bitcoin. In comparison, Bitcoin lost about 22%.
According to Kaiko, Avalanche (AVAX) and Fantom (FTM) were the worst performers, dropping more than 40% each in May. Their DeFi TVL also saw declines in a similar magnitude.
But Avalanche was likely an outlier due to its close ties to Terra. The Luna Foundation Guard owns approximately $66 million worth of AVAX tokens, which it could sell.
Crypto crash is also a cause for concern
While Terra may have done more research on L-1 blockchains, the broader reasons behind their sellout remain the same. Crypto markets were sold off in droves through May amid fears of rising inflation and more interest rate hikes by the Federal Reserve.
Much of the crypto losses were caused just after the Fed raised interest rates in May. A new wave of selling pressures came after data showed that US inflation is taking much longer to cool.
The crypto market has now lost about $400 billion in May.
With over five years of experience in global financial markets, Ambar plans to leverage this knowledge for the fast-growing world of crypto and DeFi. His main interest lies in finding out how geopolitical developments could affect crypto markets and what that could mean for your bitcoin holdings. When he’s not scouring the internet for the latest news, you can play him video games or watch Seinfeld reruns. You can reach him at [email protected]
The content presented may contain the personal opinion of the author and is subject to market conditions. Do your market research before investing in cryptocurrencies. The author or the publication is not responsible for your personal financial loss.
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