Terra Crash Spilled Over Into Other L-1 Blockchains, Here’s How
Terra’s recent crash appears to have undermined investor confidence in other major layer-1 (L-1) blockchains, data shows.
The blockchain’s value imploded in the first two weeks of May, and is now trading at a fraction of the billions it was initially valued at.
But this implosion likely fuelled broader scrutiny towards other L-1 blockchains, particularly those which were valued similarly to Terra. Traders likely feared a similar implosion in other L-1s, given the 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 sharpest drop in total value locked (TVL).
Terra causes L-1 rout
Data 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 layer-2 chains and Bitcoin. In comparison, Bitcoin lost about 22%.
According to Kaiko, Avalanche (AVAX) and Fantom (FTM) were the worst performers, dropping over 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 holds about $66 million of AVAX tokens, which it could sell.
Crypto crash also causes concern
While Terra may have invited more scrutiny towards L-1 blockchains, the broader reasons behind their sell-off remains the same. Crypto markets were sold en masse through May on fears of rising inflation, and more interest rate hikes by the Federal Reserve.
A bulk of crypto losses were triggered just after the Fed hiked rates in May. Another wave of selling pressure came after data showed U.S. inflation will take much longer to cool.
The crypto market has now lost about $400 billion in May.
- CZ’s YZi Labs Commits $1 Billion Builder Fund As Binance Coin Surpasses XRP
- Expert Sees LTC Crashing to $50 Even As Litecoin ETF Approval Reaches Final Stage
- CleanCore’s Dogecoin Treasury Pays Off Big With $20M Gains as Holdings Near 1B DOGE
- Crypto Market Crash: $700M Liquidated in Bitcoin, ETH, XRP, SOL, DOGE, XPL
- GraniteShares 3x XRP ETF Can Trigger ‘Panic Buying XRP’ Says Expert
- ASTER vs HYPE Price Analysis – Which Perp DEX Token Looks Poised to Dominate Q4 Performance?
- Ethereum Price Could Soar to $6,500 as BlackRock’s ETF Nears $20B Milestone
- Cardano Price Consolidates Below Key Resistance Ahead of ETF Verdict — Is a 50% Rally in Sight?
- Solana Price Eyes 56% Rebound Amid Solana Company’s Massive $530M SOL Acquisition
- Ethereum’s Price Bullish Cycle Resumes as Grayscale Launches Spot Staking ETPs – Is $7,331 Next?
- Pi Network Price Risky Pattern Points to Crash as 14M Coins Leave OKX
Why Trust CoinGape
CoinGape has covered the cryptocurrency industry since 2017, aiming to provide informative insights Read more…to our readers. Our journal analysts bring years of experience in market analysis and blockchain technology to ensure factual accuracy and balanced reporting. By following our Editorial Policy, our writers verify every source, fact-check each story, rely on reputable sources, and attribute quotes and media correctly. We also follow a rigorous Review Methodology when evaluating exchanges and tools. From emerging blockchain projects and coin launches to industry events and technical developments, we cover all facets of the digital asset space with unwavering commitment to timely, relevant information.
