Crypto Isn't Dead - But CeFi Might Be

Anything can change in a moment, and the crypto industry is no stranger to that.

Blink and you might have missed it, but in just a few short days that for many have likely felt drastically longer, we’ve witnessed the unraveling of a crypto empire before our eyes.

In less than a week, turmoil across the crypto space has seen major players like BlockFi and potentially Genesis implode thanks to the ripple effect encountered following the collapse of Sam Bankman-Fried’s FTX empire.

While it may feel like doomsday for a lot of spectators right now, some are taking the opportunity to step back and notice how this might already be playing out a little differently from what early panic might have suggested. 

In a few short years, the crypto industry has seen immense growth - with a large part of its adoption taking place within centralized financial intermediaries such as FTX - a crypto exchange - and BlockFi & Genesis - crypto trading platforms.

With millions of users and billions of capital accumulated across these firms in just a couple of years, many retail crypto investors had placed a bet with their funds being somewhat “secure” on their platforms. 

Due to concerns around FTX’s insolvency last week, the platform saw a mass exodus in user numbers and with it, a sharp drop in assets under management - particularly with its native token FTT taking a 94% plunge amidst the chaos. By Friday, then-CEO SBF announced the company’s intention to file for bankruptcy. 

As the history books could have predicted, several firms either directly linked to the FTX empire or loosely impacted through market activity began to crumble, with huge players like BlockFi declaring bankruptcy and Genesis freezing activity this week. 

The doom these firms are currently facing within the Web3 space does not speak the future for all of crypto though, with many pointing out one significant and distinguishable characteristic among these names compared to many that remain unaffected across the space: centralization. 

DeFi is about to radically change the face of finance for good. Join RadFi2022 on December 8 to find out how.

A commonality between many of these major players affected by the fall, is their inherently centralized nature. Exceedingly different yet deceptively similar in appearances to decentralized finance (DeFi), CeFi is a term used to refer to projects within the crypto space that hold central authority over their user activity. 

The liquidity issues that have amounted to insolvency & bankruptcy across the collapsing CeFi firms can be heavily credited to the control, power, and governance enabled by their centralized infrastructure, which in turn, leaves them subject to manipulation. With a decentralized approach, as there’s no central authority puppeteering the show, asset ownership and accessibility begins and ends with the asset owner, making DeFi alternatives in the crypto space trustless and, in theory, immune to the greed & bad intentions held by would-be intermediaries. 

In fact, this distinguishable difference has held such significance in the space as of late, that while doomsday unfolded - creating new YTD lows for major tokens like BTC - tokens tied to decentralized exchanges (DEXs) saw a surge of interest. As centralized exchanges are further proving their unreliability, decentralized exchanges, impressively, have been seeing a direct influx of migration.

Although early, these trends suggest a clear and conscious shift is already taking place among many in the Web3 space, and much like the detoxification of eliminating unhealthy habits in the physical world - a long-needed departure for CeFi from its digital counterpart could finally be underway. 

The irony in CeFi’s immense popularity in recent years is its inherent contradiction to the birth of the industry it is meant to support. Bitcoin evolved and established a new era of finance around the idea that it needed a radical change - one that specifically eradicated the dependency on central authority and intermediaries following the scandals that unfolded during the 2008 economic crash. 

While centralized applications have been at the forefront of recent glamorized attempts to drive global adoption, too many have been riddled with the same old tricks traditional finance fooled us with one too many times before. This time though, market trends suggest a different outcome might already be unfolding. 

It’s been 7 days since the first bankruptcy filing was declared, and although we can try to predict market migration on early activity, a true shift to DeFi will be a little (or a lot) more complex than that. 

To sustain a mass migration, existing DeFi protocols need a lot of work to accommodate more user-friendly applications & experiences fit for CeFi’s wider demographic. 

While some of the more popular Web3 networks like Ethereum & Solana have improved their foundations over the years, they’re still riddled with scalability and usability issues that pose major concerns for wider adoption. 

That said, the industry is young and there is certainly room for evolution. 

One network becoming increasingly notable of late thanks to its years of testing, fast-growing community and impressively innovative technology is Radix, a smart contract platform specifically built for DeFi. The team behind Radix has spent 9 years building solutions for the problems faced by DeFi, with a core goal to decentralize the global economy for good by arming developers with a full stack of tools to obsolete the financial technology that underpins finance today. 

Unlike competitors in the space, Radix aims to cover all ground and wants to give finance a radical facelift. With an intuitive programming language - Scrypto - set to eradicate the blockers faced by Web3 developers and unparalleled technology set to dramatically improve user products, the infrastructure Radix is building has been designed to support the needs of a DeFi ecosystem capable of playing host to the $400 trillion global financial system. While projects like Ethereum were early trailblazers, their shortcomings have been exposed - namely with endless hacks and transaction fee costs - as their network has grown. 

With over 130 “early bird” projects already on the network, Radix’s smart contracts aren’t even due to launch in production until Q2 2023 with the release of its next major milestone: Babylon.

It’s clear that at the end of this bear market, the crypto space will need to undergo drastic improvements if it’s ever to become mainstream. While the earlier networks work hard to keep afloat, radically new solutions like Radix wants to pave the way toward the real, decentralized future of finance. 

Interested to hear more? On December 8 at RadFi2022, Radix will unveil the future of finance. Sign up to join the virtual event here.

 

Image sourced from Shutterstock

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