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The past six-odd months have been nothing short of a financial soap opera for the cryptocurrency<\/a> market, with more drama seemingly unfolding every other day. To this point, since the start of May, a growing number of major crypto entities have been tumbling like dominoes, with the trend likely to continue in the near term.<\/p>\n The contagion, for the lack of a better word, was sparked by the collapse of the Terra ecosystem back in May, wherein the project\u2019s associated digital currencies became worthless almost overnight. Following the event, crypto lending platform Celsius faced bankruptcy<\/a>. Then Zipmex, a Singapore-based cryptocurrency exchange, froze all customer withdrawals<\/a>, a move that was mirrored by crypto financial service provider Babel Finance late last month.<\/p>\n It is worth noting that since December 2021, nearly $2 trillion has been wiped out from the digital asset industry. And, while markets across the board \u2014 including equities and commodities \u2014 have been severely affected by the prevailing macro-economic climate, the above-stated slew of collapses have definitely had a role to play in the ongoing crypto drain. To this point, Ben Caselin, head of research and strategy for crypto exchange AAX, told Cointelegraph:<\/p>\n \u201cThe contagion has played a big part in the recent downturn, but we cannot ignore the wider market conditions and the change in fiscal policy as important factors playing into price. The situation concerning Celsius, Three Arrows Capital but also Terra is expressive of an over-leveraged system unable to withstand severe market stress. This should in the least serve as a wake-up call for the industry.\u201d<\/p><\/blockquote>\n He went on to add that increasing mass adoption of digital currencies in the future should be done by expanding the scope of crypto beyond its prevailing \u201csound money narrative.\u201d Caselin highlighted that the market as a whole now needs to take into account and implement financial practices that are sound and sustainable in the long run.<\/p>\n Felix Xu, CEO of decentralized finance (DeFi) project Bella Protocol and co-founder of ZX Squared Capital, told Cointelegraph that the past month has been a \u201cLehman moment\u201d of sorts for the crypto market. For the first time in history, this industry has witnessed the insolvency of major asset managers such as Celsius, Voyager and Babel Finance within a matter of months.\u00a0<\/p>\n According to his personal research data, while ailing projects like Voyager and Genesis collapsed due to the fact that they had the most exposure to Three Arrows Capital (3AC), the collapse of 3AC, Celsius and Babel Finance emanated due to rogue management practices associated with the assets of their users. Xu added:<\/p>\n \u201cI believe the first wave of forced liquidation and panic selling is now over. As asset managers and funds file for bankruptcies, their crypto collaterals will take a long time to be liquidated. On the other hand, DeFi lending platforms such as MakerDAO, Aave and Compound Finance performed well during this downturn, as they are over-collateralized with strict liquidation rules written into their smart contracts.\u201d<\/p><\/blockquote>\n Going forward, he believes that the crypto market is likely to move in correlation with other asset classes including equities, with the industry potentially taking some time to rebuild its lost investor confidence. That said, in Xu\u2019s opinion, what happened last month with the crypto market is nothing new when it comes to the traditional finance space. \u201cWe\u2019ve seen it in the 2008 financial crisis and the 1997 Asian financial crisis,\u201d he pointed out.<\/p>\n Recent:\u00a0Metaverse visionary Neal Stephenson is building a blockchain to uplift creators<\/a><\/em><\/strong><\/p>\n Hatu Sheikh, co-founder of DAO Maker \u2014 a growth technologies provider for nascent and growing crypto startups \u2014 told Cointelegraph that the aftermath of this contagion has been strongly negative but not for the reason many people would imagine:<\/p>\n \u201cA key loss here is that many of the centralized finance platforms that went bankrupt due to the contagion were active onramps to the industry. Their unsustainable and often deceptive means of attracting new industry participants brought millions of people to trickle deep into nonfungible tokens and DeFi.\u201d<\/p><\/blockquote>\n In Sheikh\u2019s view, while DeFi onboarding may come to a halt or at least slow down in the near term, many venture capital firms operating within his space have already raised billions and are thus capable of continuing to inject funds into many upcoming startups. \u201cWe\u2019ll have a new roster of companies that\u2019ll replace the lost ones\u2019 role of being an on-ramp to the industry,\u201d he said.<\/p>\n Misha Lederman, director of communications for decentralized peer-to-peer and self-custody crypto wallet Klever, told Cointelegraph that the recent crash has definitely damaged the reputation of the industry but believes that the aforementioned insolvencies have helped cleanse the industry of bad players, adding:<\/p>\n \u201cThis presents a huge opportunity for blockchain platforms and crypto communities with a responsibility-driven approach to innovation, in which user funds are protected at all costs. As an industry, we have to be better than the fiat debt system we aim to replace.\u201d<\/p><\/blockquote>\n A similar opinion is shared by Shyla Bashyr, public relations and communications lead for UpLift DAO \u2014 a permissionless and decentralized platform for token sales and swaps \u2014 who told Cointelegraph that the industry has been hit hard and is currently shrouded with more negativity than ever before.\u00a0<\/p>\n However, she believes such scenarios are sometimes needed since they present new opportunities to build transparent products that provide additional insurance, hedging and security for peoples\u2019 investments. <\/p>\n Sheikh pointed out that while there\u2019s rampant criticism that DeFi apps have lost billions, it is worth noting that the losses accumulated by CeFi lenders are notably higher:<\/p>\n \u201cThe fact remains that the notable blue chips of DeFi have remained mostly unscathed, yet the losses in CeFi are from industry leaders. However, as crypto CeFi is a stepping stone in people\u2019s journey to DeFi, the industry\u2019s adoption will be steeply hurt in the short term.\u201d<\/p><\/blockquote>\n He concluded that the \u201cCeFi contagion\u201d could eventually prove to be a powerful catalyst for the growth of its decentralized counterpart as well as a validation of crypto\u2019s core use case, such as being self-sovereign wealth.\u00a0<\/p>\n When asked about what lies ahead for the crypto market, Narek Gevorgyan, CEO of CoinStats, told Cointelegraph that despite the prevailing conditions, the market has already started showing promising signs of recovery, stating that institutional investors are back on the playing field and exchange inflows are on the rise.\u00a0<\/p>\n In this regard, banking titan Citigroup recently released<\/a> a report stating that the market slide is now in recession, with researchers noting that the \u201cacute deleveraging phase\u201d that was recently in play has ended, especially given that a vast majority of large brokers and market makers in within the industry have come forth and disclosed their exposures. <\/p>\n Not only that, but the study also shows that stablecoin outflows have been stemmed while outflows from crypto exchange-traded funds have also stabilized.<\/p>\n Gevorgyan believes that the trust investors had built up over the last couple of years has been somewhat dissolved due to recent events. Nevertheless, the blockchain community is still better funded than at any point in its short history, with development most likely to continue. He then went on to add:<\/p>\n \u201cThe Terra implosion triggered a meltdown that brought several CeDeFi platforms down with it. The community has become more aware of the shortcomings of the CeDeFi model. Overall, the string of insolvencies has provided the crypto market with a chance to start afresh, as DeFi2 and Web3 are continuing to become more significant. Maybe the Metaverse will take center stage in this new configuration.\u201d<\/p><\/blockquote>\n Sheikh believes that the best of CeFi has lost more than the worst of DeFi, highlighting that Bitcoin (BTC<\/a>) has continued to remain one of the most liquid assets in the world. In his view, the next wave of retail adopters will have glaring references to the problem of skipping self-custody, thus paving the path for greater focus on decentralized apps, especially as the market continues to mature.<\/p>\n On the other hand, Bashyr sees a lot of protected projects such as insurance protocols and hedged products flourishing from here on out. In her opinion, decentralized autonomous organizations (DAOs) will become more prominent and functional, providing real governance and allowing users to participate in instrumental decisions by voting on proposals that make a difference. <\/p>\nWhat do the recent insolvencies mean for the industry?<\/h2>\n
Undisputed damaged to the market\u2019s reputation\u00a0<\/h2>\n
The future may not be all bad<\/h2>\n
CeFi vs. DeFi<\/h2>\n