The crypto industry is battling turmoil. Market prices are falling. Crypto lending companies that were once considered the best representatives of the industry have collapsed. All of this represents a breakdown in public trust in the movement's future.
To find a way forward, we must first address the underlying causes of this disease. This is the opposite of putting a Band-Aid on an ailment. True innovation requires a solid foundation. We want DeFi to have an honest conversation about the systemic issues that got us to where we are now.
By now, it should be clear that the TerraLab woes were more than just a nasty sideshow. The legality and longevity of digital currencies have been called into question in a series of lawsuits and investigations.
That leads to the question, 'Are our fundamentals strong to begin with? Or is this a departure where we need to rethink the way our core industry works?
Proliferating Crypto Credit Crisis
There's been a lot of analysis and debate about TerraLuna's bankruptcy. Implosion in many ways creating a contagion flooding the wider market?
The effects are being felt across the industry and among ordinary investors, prompting comparisons to the 2008 global financial crisis. We have always known that digital currencies are closely related to the wider financial system. The failure of the "most secure" encryption projects tells us a few things. It is crucial to revisit some of the fundamentals of the agreement and its relationship to credit across the industry.
Terra people question the stability and speculative nature of stablecoins. None of these are based on underlying "real" assets, but are based on the TerraUSD (UST) arbitrage mechanism depending on value.
Through this mechanism, investors are encouraged to exchange for Luna through the high-yield product UST. On the contrary, the token is kept in touch with 1 US dollar. A series of coordinated attacks caused a series of offensive UST bets and sales causing wild price fluctuations. The arbitrage mechanism was unable to balance it again, causing it to have a "death spiral" in Luna and UST. Many crypto projects and funds rely on UST as a stable currency. UST in the entire encryption ecosystem, the collapse of the domino effect.
shock wave
TerraLuna After the collapse of the US subprime mortgage market in 2008, everyone felt the shock waves of the global economy. Except no central entity stepped in to save the situation. "Too big to fail" architecture doesn't work in the crypto world.
After Terra's fallout, there was a series of mass sales and renewed calls for self-control. The full-scale outbreak of the encrypted lending crisis is basically exposed.
In response to liquidity pressures and over-leveraged positions, top crypto lenders began shifting funds. Bankruptcy woes are fast-tracked. ℃ Such centralized encrypted lending platforms have frozen cash withdrawals.
Clearly, unsustainable rates of return and insufficient collateralized borrowing are not sustainable. It creates the perfect risk for high volatility and platform failure when the market fluctuates.
What has become clear from this crypto lending crisis is the need for greater transparency and accountability in the space. This is an echo of the 2008 financial crisis. Borrowers are barely surviving through undercollateralized borrowing and overvalued risky assets. This stems from poor risk management and decision making. In addition, retail investors also paid the price.
This is a systemic failure that calls for a renewed focus on greater transparency and accountability in this area in an emergency. The lending models of these companies need to be re-examined.
other market conditions
This crypto bear market comes at a time when a series of macroeconomic factors have come together to create what appears to be a perfect storm. The BTC market is down nearly 70% from its November 2021 all-time high. Inflation in the U.S. rose 9.1%, to its highest level in four years. This is not limited to the US, with central banks around the world scrambling to tighten monetary policy. This is to curb inflation.
Clearly, the crypto market is closely linked to traditional stock markets and macroeconomic influences. The world also faces continued uncertainty from the Covid-19 pandemic. During the recovery phase, geopolitical uncertainty and state regulatory actions stemming from Ukraine`s woes have affected the digital currency`s ups and downs.
ReFi: a possible solution
One of the key innovations of digital currency is the innovation one (DeFi). It is a financial system designed as an alternative to traditional finance to "bank the unbanked."
The idea is that anyone with an internet connection can access and benefit from this alternative system. With the widespread selection of digital currencies, the DeFi supply and demand space is still accelerating.
Blockchain technology re-envisions the operating model of central financial institutions. By cutting out intermediaries, DeFi aims to disrupt the way money is managed and accessed globally. However, it is achieving "mass adoption" In this fight, we must recognize that there are still crypto barriers to entry into DeFi.
The winter of these digital currencies should remind you of this. We must avoid future storms. We must witness more choices. We must continue to work on building protocols that are easy to understand and broadly accessible. Also, we had to have a real story, which meant designing for outsiders.
ReFi: This is the future of finance
Regenerative Finance (ReFi) is a decentralized movement to create an economic system that creates a more balanced relationship between each other and our natural ecosystem. The ReFi movement aims to build a new and complete financial system. That said, people and the planet are the top priorities of the economy. Non-comprehensive, for-profit organization.
At its core, ReFi Sports is about positively impacting the life goals of individuals, communities, small businesses and others. It was built for those who work hard for a better future. This is done by funding projects dedicated to respecting the environment. It empowers communities that have been disenfranchised from the global financial system.
In short, ReFi provides financial support to projects that positively impact the world in the long term.
ReFi can help those who cannot get in or are excluded from traditional financial institutions. It does this using the following concepts
mutual trust system.
Blockchain-based mutual trust is the idea that people can lend money to each other. This bypasses the growing number of traditional financial firms that serve the few rather than the many.
ReFi brings credit to more people by developing a regenerative economic model.
Regenerative Economy and Mutual Trust System
The regenerative economy can be defined as a circular economic system. Its purpose is to change the status quo and well-being without draining capital resources.
Mutual Trust is a multilateral exchange network in which an internal currency is used as the medium of exchange. It relies on our resources and our contribution to society as a basis for rethinking its financial value. Each network is made up of members who agree on what the credit system can support.
Members are able to build an internal monetary system backed by products, services and other offerings. It does not rely on pre-existing money/asset investments.
Members can obtain almost interest-free loans through the internal currency of the mutual trust system. This borrowing applies to purchasing desired items from other members of the network. Members will repay their debts by selling their products or services to other members of the network.
Why can the blockchain mutual trust system offset risks?
When it comes to digital currencies, investors face the risk of volatility. It could be fluctuations in the stock market, political factors and inflation rates. This puts even the "safest" investments, such as stable currencies, at risk. Volatility is another external variable that clears awareness and autonomy of holders. Likewise, the circumstances of a person's business depend on external factors that are generally not within their direct control.
Mutual credit on the blockchain aims to provide decentralized credit approval through smart contracts to offset accumulation risk. Unlike traditional mutual trust systems, there is no central authority and no dynamic risk, reminiscent of traditional banks.
Instead, mutual trust on the blockchain brings stable mechanisms that address the problems and irresponsible risk management we are witnessing today. The mutual credit system is accessible and community-centric. Of course, this is all flexible and counter-cyclical. This means they are able to withstand external financial factors that would otherwise cause a market downturn.
