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Chicken Little might as well have been a HODLer when he said, “The sky is falling,” as Bitcoin fell around 70% from its all-time high of US$68,672 and the entire crypto market, which once had a combined valuation of approximately US$3 trillionnow until US$1 trillion.

As the crypto attempts to arrest its freefall and its detractors and skeptics revel in the misfortune of many lose their savings, the elephant in the room is the long-term viability of crypto as an investment. The smaller, but perhaps more important, elephant is the question of which direction decentralized finance (DeFi) will take hold once the bear market clears weak and fraudulent projects from the industry.

To understand this, it is important to analyze and understand the current state of the crypto and non-crypto markets right now.

From bull to bear

From explosion of NFTs (non-fungible tokens) to block chain game receiving unprecedented valuations, we have all seen irrational exuberance on full display in the last six months of the previous bull market. At the time, there were signs that something in the market was out of balance.

There is no doubt that this has contributed to the overall growth of the crypto and blockchain industry. On the other hand, this imbalance, influenced by media hype and over-indebtedness by institutional investors in the market, was in urgent need of correction.

But unlike past market corrections, crypto has matured a lot over the past few years, and its ebbs and flows have been in step with the broader financial markets. The economic slide seen on the international financial markets, accompanied by galloping inflationwill impact the value of most cryptocurrencies.

The correlation of crypto fluctuations with traditional financial markets is somewhat unusual in that at the start of the Covid-19 pandemic, Bitcoin and most other coins decoupled from the dollar. This was the result of the entrenched belief that quantitative easing would lead to inflation and that Bitcoin and other cryptos were seen as safe-haven assets.

Quantitative easing amid the financial market slump in March 2020 driven by Covid uncertainty has certainly played a role in the recent inflation we have witnessed. But let’s not ignore or overlook companies inflating prices, the impact of Russia’s invasion of Ukraine, or global supply chain disruptions that also factored in. However, the crypto did not end up providing a hedge against this. Cheap credit and government perks fueled much of the Covid-era growth and now many companies have crypto wallets bought on credit.

As broader financial markets attempt to recalibrate before sinking deep into a recession, it is understood there will be a rebound – albeit likely slow and painful. When the eventual takeover happens, the lean, battle-tested crypto ecosystem will grow with it. It’s a safe bet, but what’s a little less clear is the role DeFi will play in a post-market world.

The role of DeFi in the future

Crypto Darwinism is already taking shape. Decentralized exchanges (DEXs) and DeFi platforms offering decentralized versions of traditional banking services have, so far, been able to weather the crypto storm relatively well. The collapse of platforms like Celsius and Anchor has started to shift attention to the need for DeFi to play a bigger role in the future.

This collapse, however, should not be seen as a failure of DeFi as a fundamental advent in the progression of blockchain applications. These platforms failed because they failed to assess risk as any traditional financial entity should have, not because DeFi ecosystems cannot offer a viable or even superior financial alternative. at TradFi.

The advantages of DeFi are clear. Above all, it facilitates fast and secure payments and transactions. Same traditional financial institutions see the value in this and have been exploring for years how to get involved in providing their own versions of crypto services.

DeFi platforms are also able to facilitate borrowing and lending compared to traditional banks. Some platforms don’t even require collateral to receive a loan. By removing the middleman, DeFi streamlines the lending process, making it easier, faster, and more affordable for users.

DeFi is already a thriving hub for investors in digital assets, offering the real potential for earn returns. Unlike traditional finance, DeFi hosts a plethora of investment options that retail investors can earn. These yield options include staking, yield farming, cash mining, and trading. DeFi is already a one-stop-shop for the average investor or borrower.

As the bear market continues, DeFi is positioning itself as an irreplaceable staple in the crypto space. With the global economy trying to stave off a recession and centralized crypto exchanges going bankrupt, the time for DeFi services to take center stage is now, ahead of the next bull run.

A more pronounced role for DeFi will certainly benefit the broader crypto market, regardless of the direction in which traditional financial markets move. This does not mean, however, that centralized exchanges have no role to play in the crypto community. Centralized platforms play the important role of allowing people to cash out in fiat currency, and that has value, assuming those platforms have cash to pay users. DeFi simply needs to be the default outlet supporting the larger crypto ecosystem. Only with DeFi driving the crypto economy can we see a return to the bull market boom.



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