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Moving from the past to the future, today I will discuss crypto-assets and the destiny of digital finance.
The crypto dominos are falling, sending shockwaves through the entire crypto universe, including stablecoins and decentralised finance (DeFi).The crash of TerraUSD, then the world’s third-largest stablecoin, and the recent bankruptcy of the leading crypto exchange FTX and 130 affiliated companies each took only a few days to unfold. This is not just a bubble that is bursting. It is like froth: multiple bubbles are bursting one after another.
Investors’ fear of missing out seems to have morphed into a fear of not getting out.
The sell-off is exposing those “swimming naked”.[4] It has laid bare some unbelievably poor business and governance practices across a number of crypto firms. It has revealed that some investors have been acting carelessly by investing blindly without proper due diligence. And similar to the sub-prime crisis, the crash has uncovered the interconnections and opaque structures within the crypto house of cards.
This is set to dampen enthusiasm in the belief that technology can free finance from scrutiny. The crash has served as a cautionary reminder that finance cannot be trustless and stable at the same time. Trust cannot be replaced by religious faith in an algorithm. It requires transparency, regulatory safeguards and scrutiny.
Does this mean we are witnessing the endgame for crypto? Probably not. People like to gamble. On horse races, football games and many other events. And some investors will continue to gamble by taking speculative positions on crypto-assets.
Today I will argue that the fundamental flaws of crypto-assets mean that they can quickly collapse when irrational exuberance subsides. We should therefore focus on protecting inexperienced investors and preserving the stability of the financial system.
Ensuring that crypto-assets are subject to adequate regulation and taxation is one path to achieving this. Here, we need to move rapidly from debate to decision and then implementation...
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