Investors flee USDC after asset Freeze

8/13/2022, 07:18 AM
Investors flee USDC after asset Freeze
The recent sanctions placed on Tornado cash and addresses linked with it have led to serious concerns amongst market participants over censorship resistance of the top stablecoins.
The centralized nature of the top stablecoins means their issuers can freeze transactions as they please, which has led investors to seek out alternatives that are censorship resistant.

Delphi Digital According to Delphi Digital, the prices of governance tokens issued by decentralized stablecoin projects have significantly surged as investors switch over to them.
The chart above shows that FLEX, SPELL, and LQTY, have all spiked considerably, with the former two gaining almost 40% since the sanctions. However, the latter gained 21% in the same period.

This shift in market sentiment is likely due to the fact that USDC tokens make up a sizable amount of the collateral supporting DAI and FRAX stablecoins. Consequently, the actions of Circle, the backers of the USDC stablecoin, have led to a loss of confidence in the top stablecoins.

Overall, the recent developments have underscored the importance of censorship resistance in the world of cryptocurrency. Decentralized stablecoins are surging as investors seek out projects that cannot be censored by centralized bodies.

As the crypto world becomes more competitive, investors are increasingly seeking out alternatives to the big three centralized stablecoins. With fears of censorship growing, decentralized stablecoins are becoming more popular, as they offer a more censorship-resistant option.

Curved Finance, an automated market maker (AMM) focused on like-priced assets, has seen a decrease in the percentage of USDT in its 3-pool since the announcement of Tornado’s sanctions. The proportion of USDT has fallen from 29.60% to 22.13%, indicating that investors are using the pool to exchange their USDC for USDT and other dollar-pegged assets.

With investor fears growing over stablecoins censorship resistance, the stakes are set to grow higher with the sub-sector. Decentralization is now more important than ever, as censorship contradicts crypto’s key principles.

Investors are seeking out alternatives to the big three centralized stablecoins, and the USD-pegged LUSD for Liquity is one such option. Liquity only accepts ETH as collateral, and LUSD has been gaining popularity as a more decentralized choice.

Consequently, stablecoins collateralized by digital assets like ETH, BTC, and not other stablecoins have gained significant transactions. Several influencers like Tetranode have also taken to social media to discuss them. The growing fears over censorship with centralized stablecoins have provided the decentralized option with an opportunity to gain market share.

However, the competition amongst decentralized stablecoins is set to get fiercer. Aave and Curve, two leading protocols in the DeFi space, are both launching their own stablecoins. With so many choices available, it remains to be seen which stablecoin will come out on top.