The stablecoin market in the Cosmos ecosystem has been a rollercoaster ride with major ripple effects. The rise and fall of the algorithmic stablecoin terraUSD, built on a Cosmos-based application-specific blockchain, was one of the most significant events of the last market cycle. It kick-started a domino effect that led to the collapse of some of the most high-profile crypto companies.
TerraUSD (UST) rose in 2022 to the top of the stablecoin market, surpassing DAI, the most popular crypto-backed stablecoin in the Ethereum ecosystem. The price of Luna, UST’s companion token, more than doubled in two years to $116 by early May 2022. To learn more about how stablecoins work, check our primer on stablecoins.
Terra became the most valued Cosmos chain and one of the most vibrant ecosystems in Web 3. However, the unproven mechanism design collapsed in May 2022. UST lost its peg and most of its value. The Terra blockchain was halted and then restarted by two blockchains: Terra and Terra Classic. The UST fiasco left Cosmos users scarred, with their trust in algorithmic stablecoins shaken.
However, the lack of liquid stablecoin options has hindered the growth of financial activity in the Cosmos ecosystem. Stablecoins are vital to a thriving blockchain ecosystem. The winds are finally changing as the tech rails to bring more stablecoin trading volume on Cosmos are being set up.
The introduction of fiat and crypto-backed stablecoins into Cosmos can help the ecosystem grow sustainably in two ways. First, it increases the available liquidity on Cosmos. Second, it can decrease volatility as the ecosystem comes to rely more on stablecoin DeFi products.
In the last few months, the Cosmos ecosystem has solved one of the remaining constraints for growth; a healthy and liquid stablecoin market. Spearheaded by the coming of native USDC via Noble and CTTP, the Cosmos DeFi ecosystem is poised for future growth.
These new stablecoins open up opportunities for developers building on Cosmos. They also come with their own challenges as they add complexity to the ecosystem. That’s where Range comes in. Stay tuned for a new Range feature that will make using stablecoins in Cosmos 10X easier and safer.