As Newton once said, “for every action there is an equal and opposite reaction”, crypto is not immune to this theory, with every significant event, there will be many damaging repercussions.
So what are these significant events, and how will they force changes to the landscape?
Greed, poor risk management, a lack of transparency, centralised governance and a lack of regulatory control are all factors that have triggered cascading insolvencies. Terra Luna, Voyager, 3AC, Celsius, and now FTX are just a handful of crypto related businesses/projects who managed billions in digital assets and all ran into liquidity issues in 2022.
A common theme across all these significant failures has been excessive risk. In simple terms, these platforms/projects had excessive borrowing/leverage, liquidity mismatches and a clear disregard for significant downside risk exposing users funds. This then triggered more informed and educated investors to rush to the door in an effort to recover what they could, leaving bag holders and creditors wondering what had happened.
With billions in losses and reputational damage that could take years to mend, its clear now more than ever that tighter regulation and increased transparent reporting of centralised digital asset exchanges needs to happen. Or…..blockchain could be used for its intended purpose of returning sovereign control to society by users managing their own keys and assets.
Whist for those who have been in the space for years it may not feel like it, it’s clear from the inefficiencies and failures we have seen in 2022 that the digital asset space is still extremely early. Education on interacting with digital assets in a safe manor is as paramount as holding irresponsible operators accountable and preventing further losses of unsuspecting users.
So whats the end game?
I, like many of my colleagues, moved into blockchain full time once we understood the concept of decentralisation and saw how blockchain could revolutionise existing models whilst supporting and rewarding the community, users, individuals, the underprivileged, the little guys or generally the people in society who need it most. This was the idea, the dream, however, thus far this decentralised eutopia hasn't played out.
I always believe water finds its level eventually, the blockchain space is no different, eventually it will find a equilibrium between regulation and decentralisation, this for me is the tipping point, the point where we use blockchain in our day to day without even knowing it. All we can do in the meantime is keep building long term products that solve real issues whilst striking a balance with regulation expectations. The rest will fall in to place…….Eventually.