After the Terra/Luna crash the market needs more crypto utility, less speculation

May 2022 will go down in the history books as a turning point in the roll-out of blockchain technology. It began with the dramatic implosion of TerraUSD, a leading “stablecoin”, whose value has depreciated from near $100 to practically zero in a matter of days. Holders of one of the market’s most popular cryptocurrencies are now, to borrow a term from traditional finance, left holding worthless paper. The volatility in the stablecoin landscape even unpegged Tether, the flagship stablecoin pegged to the USD, as it temporarily sank to $0.96 on May 12th before correcting. All the while, BTC itself has dropped to lows not seen since 2020, bringing into serious question the trajectory of the broader crypto/blockchain space moving forward.

Experts are now scratching their heads to answer this very question: what next? Despite the beating crypto markets have taken in recent days, a consensus is emerging that despite the volatility, crypto is simply too big to fail or just “go away” at this point in the game. According to Morningstar’s “2022 Crypto Landscape” report, market capitalization for the top 100 coins topped $1.7 trillion in January 2022 as both casual awareness in the public and capital inflows have steadily increased in-step. Rather than relegating crypto to the dustbin of history, the current instability in the market is likely to spur a shift in the types of goods and services blockchain/web3 companies provide.

More specifically, I believe that the current burst of bearish volatility in crypto markets will make investors and wallet holders begin valuing more functional uses for crypto and blockchain tech, as opposed to the recent fixation on highly-speculative forex-style trading. Though the potential for massive upside remains, the stablecoins’ dramatic crash has severely undermined public confidence in crypto’s function as a secure way to store wealth. Moving forward, I think that financial service providers for crypto holders will come out on top. Companies with tangible products and services, blockchain fintech if you will, stand to gain from the implosion of the overheated crypto trading space we’ve seen in recent weeks.

One particular niche in which I identify massive growth potential is in the area of crypto payment services. I remember the days when social payment apps like Venmo hit the market--it revolutionized how people spend money on the go. I imagine we will observe a similar trend take place over coming years, yet for seamless, fast, and cost-effective social payment services for crypto. Another area of anticipated change is the debate of centralized vs. decentralized exchanges. As the unpegging of Terra shows, fully decentralized algo-driven liquidity mechanisms can and do fail. We need a more stable, less risky alternative to prevent an entire generation’s accrued wealth from being wiped out in a matter of hours.

In an article that was actually published before the Terra/Luna crash, an opinion piece authored by Tyler Spalding agrees with this assertion and argues that the future of crypto payments will be both more tangible and more centralized; in his own words, “Beyond the idealism and technology, people inevitably use products that make their lives easier. People are predominantly going to use custodial wallets for retail payments. These products are safer, cheaper and more straightforward for an average person. People don’t care how payments work; they just want them to work.”

Relatedly, Spalding also makes an argument for centralized network mechanisms to counterbalance some of the shortcomings of full decentralization that, practically speaking, negatively impact overall consumer welfare with little upside beyond the theoretical embrace of decentralization as a value in and of itself. According to him, “The hard reality is that we’ve never had truly full-stack decentralized payments in the first place. In the future, the significant majority of crypto payments will involve custodial products and multiple centralized components.”

The bottom line is that the future of crypto will likely see an emphasis placed on greater day-to-day utility as blockchain merges with or adopts goods and services provided by traditional financial institutions. Emerging regulatory frameworks for cryptocurrencies and digital assets are expected to streamline this process and accelerate the traditional FSIB industry’s embrace of blockchain financial technology. We are already beginning to see major financial institutions in the US like Fidelity’s idea of a BTC 401k plan, and this is just the beginning. The crypto winners of the future will not be sketchy exchanges with no accountability, identifiable team, or actual product, but credible providers of blockchain fintech that work to bridge the gap between crypto and traditional finance.