Crypto chill tests the faithful

Recent volatility in global markets has exposed some serious vulnerabilities in the crypto space, showing that cryptocurrencies might not be as revolutionary as many were expecting and that it is experiencing the same risks and issues that have been seen in financial markets for decades, albeit at increased volatility.

The recent crash of the Terra stablecoin project begs the question, how ‘stable’ is crypto and how reliable is the underlying technology? 

The technology encapsulating crypto can be separated into DeFi and CeFi – short for decentralised finance and centralised finance –  and when taking a deep look at the difference between the two, the crypto eco-system becomes much more transparent.  

CeFi is a fully managed space where executives, managers and staff run and control the infrastructure that allows users to buy, sell, trade and store the technology and its subsequent token. 

DeFi, on the other hand, is an autonomous eco-system of platforms and protocols programmed into the system that allows users to do everything instead via consensus,  without centralised control from a minority. 

With that, the vulnerabilities of the technology are discernible. And suppose you have been following the turbulence and losses among retail investors in crypto. In that case, you can see the urgent need to ensure compliance and regulation to uphold this new financial system. 

In this week’s EFG podcast, Sam and Mike approach the issues in the crypto space from a traditional investor’s point of view to discuss the variation in what has been occurring and what will allow the crypto financial system to flourish going forward. Click below to watch.