Will the Market Crash affect Web3?

The market plummeted for a not so surprising reason.

People have been predicting this to happen for a while so let’s quickly break down what happened and the effects it has on web3.

So… Why?

Coffeezilla dives in depth to explain how and why this crash is happening. If you want an easier to follow explanation read below.

This crash happened because of Algorithmic Stablecoins. A Stablecoin is a cryptocurrency that is pegged to the price of a currency — all of the stablecoins that we will be referring to are tied to the US Dollar.

Stablecoins are meant to keep at a stable price and act as a tradable currency without any volatility.

For each Stablecoin, there is an equal amount of dollars stored in reserves. This ensures that if anybody holds a stablecoin, they can do so with the security that there is always an equal amount of dollars ready to withdraw.

Algorithmic Stablecoins are built with the same intended goal of eliminating volatility and price fluctuation, but remove any need of a reserve.

Algorithmic Stablecoins function by tying their value to another cryptocurrency rather than a dollar.

It would take a full deconstruction to understand the complexities of how Algorithmic Stablecoins work so we’ve linked a comprehensive video below.

In comes UST and LUNA. UST is an Algorithmic Stablecoin that has its price tied to the cryptocurrency LUNA — both created by Terraform Labs.

It’s noteworthy that Algorithmic Stablecoins have NEVER worked and likely never will. However, this didn’t stop LUNA’s market cap from reaching a whopping $18 Billion.

On May 11th, 2022 UST — the stablecoin that is supposed to stay exactly at $1.00, fell as low as $0.13.

All we know is that there was a sell off of over $100M UST that lead to this crash.

No surprise, panic ensued and the market crashed.

There are additional reasons to why this heavily affected BTC and there is no exact culprit for who caused the crash.

Web3 will Survive

So what does this mean for web3. There is a distrust of everything within a 10 mile radius of cryptocurrencies and rightfully so.

A lot of people lost a lot of money and it is because there is little regulation in this space.

This should have been avoided with Stablecoin regulations and LUNA should never have gotten that big .

The dumpster fire permeating crypto will have a couple side-effects:

The Fire

LUNA and UST are likely dead. Terraform Labs has lost all trust in the mainstream and will likely never recover.

The Skepticism

The general public will be extremely weary of web3 and crypto until there’s an opportunity for sustainable mainstream adoption.

Utility is coming

Crypto is just a sliver of Web3. This crash has not stopped anybody from building. There are some amazing web3 projects in the works that don’t even use cryptocurrencies!

Innovation is bred by shedding layers and until we reach core utility.

What this means for Tokn Music?

Nothing. This market crash has had 0 effect on our mission, trajectory, and value proposition.

Building in the web3 landscape may seem scary as an outsider, but volatility is expected. This is a developing industry that already has billions of dollars pouring in regularly.

This was bound to happen eventually and we’re glad it’s out of the way. People SHOULD be skeptical of web3. There are a lot of unknowns and everybody should be doing research before investing.

Tokn Music is continuing to prioritize user security, legal compliance, and the execution of our value proposition to ensure an easy to understand user-experience.