Luna, 3AC, Celsius, FTX; do cryptocurrencies need immediate regulation?
After the recent FTX-Binance saga, investors have raised the need for crypto industries regulations
This year has been dreadful for the crypto market. Tragedy after tragedy, the crypto winter has become the norm for the DeFi and Web3 markets. But how did the market get here? The Terra Luna ecosystem set a precedent for the past few months’ events. But no one anticipated the devastation that FTX would unleash upon the market.
FTX has been the crypto white knight for some time. It is one of the biggest exchanges on the DeFi market. In the most draining winter and recessions, FTX came in to save insolvent cryptocurrency entities. But at this particular moment, the savior needs rescuing. The FTX scandal has captured the attention of financial watchdogs and regulators. With such an economic juggernaut imploding in a couple of hours, restrictions are unquestionably on the horizon.
According to the old saying, when it rains, it pours, and the current condition of the decentralized financial market is a perfect illustration of this adage. Crypto regulators are closing in on the troubled financial market. FTX hasn’t helped the case considering it was a donor in the U.S. elections.
According to CoinGecko, the platform was the fourth-largest exchange by volume. Sam Bankman-Fried was a major donor to the democrats in the midterm elections and a prominent advocate for certain policies, which has become very controversial.
If you’ve been involved with the DeFi market for any length of time, you would probably be familiar with the controversies surrounding insolvency exchanges and currencies. The Terra Luna crash had a detrimental effect on the DeFi industry. Over $2 trillion was wiped out from the total market capitalization.
In actuality, the DeFi market fall might have more to do with shifting global market dynamics and the failure of a top-10 blockchain. Highly disorganized crypto firms and leverage may well have exacerbated the decline.
Four cryptocurrencies have emerged as “Horses of the Cryptopocalypse” due to the convergence of the aforementioned variables, which have dramatically rendered the market’s decline. They coincide with some of the lowest lows this asset class has seen since January 2021, signaling the end of the fourth bull run for cryptocurrencies.
The first of the black horsemen, the collapse of Terra Luna and USDT signaled the start of the crypto death. The only question remaining was, “who is next?”
The second horseman was Celsius, as it halted withdrawals and caused waves of panic throughout the DeFi market.
The third horseman was the multibillion-dollar 3AC (Three Arrows Capital), not “dumb money.” And following this was Voyager digital. However, there is usually a period of calm before a storm. FTX is the fourth horseman for DeFi’s black doom.
In the current cycle, it’s difficult to determine if the worst has passed. However, the industry has certainly been rocked, and it is probable that operators and regulators have taken note. Regulators will view their unexpected failures as a virus, a domino effect. Here, weak and failing crypto groups have to band together to defeat larger unprepared ones.
It could be years before crypto regains its footing. Alternatively, it might never rebound to the 14-year-old industry’s all-time highs. However, a definitive conclusion can be drawn from each of these cycles and the preceding months: retail investors are the first to lose.
There is a strong case for increased regulation of centralized corporations. Investor protection requires that centralized businesses, whether controlled exchanges like FTX and Binance that are not publicly traded or hedge funds like Three Arrows Capital or Alameda Research have proof of reserves.
This year, a string of crypto insolvencies has raised issues about the viability of unsecured lending in the young and unpredictable digital asset sector. If an unsecured loan defaults, creditors can seize no immediate assets. The protocols will only partially compensate creditors, so they have to restructure debts or file a lawsuit to reclaim their money.
Concerns about whether the transactions would violate antitrust laws have already been raised. Globally, regulators have the authority to stop significant mergers if they suspect they may impede market competition, and anti-competitive conduct is strictly prohibited by law.
For a long period, the demand for crypto regulations has been minimized. The decentralized market was intended to be independent of government authority. However, the present collapse of giant DeFi organizations needs investor protection legislation. Stringent regulations are certainly coming – it’s just a matter of time.
