The recent bear market in cryptocurrencies has wiped out cryptocurrency projects. decentralized finance (DeFi) and of centralized finance (CeFi) in the cryptocurrency space. But past performance is not always indicative of future results. To get started, Ethereum price has already recovered 48% in the last few days before the impending Merge update.
At the annual Ethereum community conference in Paris, Cointelegraph spoke with the co-founder of Skale Labs, Konstantin Kladko, about the market crisis. Sklae Labs is a decentralized network of blockchains built on top of Ethereum. Currently, it is made up of 28 blockchain networks where tokens can be seamlessly sent from one chain to another. This is what Klado has to say about the recent contagion:
“The market is acting this way because there is no regulation. So pretty much everything bad that happened on Wall Street 100 years ago [durante el Crash de Wall Street de 1929] is happening now on the blockchain. And unfortunately, while the big players have the opportunity to quietly exit when the market goes bad, it’s often too late for the smaller players.”
As the bear market crashed, It turned out that once-reputable projects in the blockchain space, such as Celsius and Three Arrows Capital, actually leveraged heavily on customer deposits to generate seemingly safe and steady returns. His forced liquidations and inability to pay creditors, estimated at billions of dollars, then sent the entire industry downhill.
Kladko explained that while so-called “decentralized safeguards” exist to protect investors, they often malfunction under pressure. “Most DeFi apps have trivial crash protection. An example of this is DeFi lending, where you supposedly pledge X amount of collateral, take out Y amount of loan, and you won’t be in danger of liquidation.” until the collateral price falls to Z. The problem is that when the collateral price falls to Z, it tends to fall so fast that you won’t be able to sell.”
The problem is then simultaneously compounded as market participants borrow digital assets to buy even more volatile assets and are then forcibly liquidated at prices well below the theoretical liquidation price (due to the speed of the sale). , leading to a DeFi “supercrash”. As for the repercussions, neither path seems particularly attractive for a decentralized industry. As Kladko explains
“If these market problems continue, it is possible that regulators like the Securities and Exchange Commission of the United States will eventually intervene. They may introduce regulations that make it difficult to trade cryptocurrencies. Or there could be a higher level of self-regulation, such as an administrative body to monitor DeFi developments in the same way that the Medical Associations monitor doctors and the Bar Associations monitor lawyers.”
But even though Kladko advocates for better regulation to protect investors, he sees the current bear market in cryptocurrencies as rather mild. “It doesn’t look like a crypto winter,” says Kladko. “It’s true that some of the wildly speculative companies and outright Ponzi schemes went bankrupt, but for the moment, things look like they’re going to get better.” For starters, the Ethereum meltdown could seem like a major catalyst for the next few years. So hopefully there will be less speculation and a lot more growth of mature and significant projects.
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