May 2022 will be remembered as the crypto blood bath that changed the way the industry operates forever.
It won’t happen right away, but the ability for projects to experiment and learn from policy, governance, and technical mistakes that cost end-users a lot of money without governments and regulators doing anything about it is over. Sure, that scenario was bound to happen anyway, but the collapse of TerraUSD (UST/USTC) this week will accelerate it. There are pros and cons to that end-state.
The pros are simple enough to understand. Projects will be held to higher standards and there will be rules in place that limit what CeFi and DeFi projects can do. DeFi governance, stacking, delegation, and community intent are all going to be lumped together – the good with the bad. That’s because regulators are drowning and without GREAT Regtech, politicians will drown them more. They have no choice. The SEC was already on that road with BlockFi settling with them earlier in the year. Now politicians backed by deep pocket legacy finance will use UST to say they are making future liquidations harder to happen, thus easier to control when they do. Innovation won’t die, but chunks of it will leave the USA and other G7 countries.
The biggest minus here is that crypto projects claiming to be a “stablecoins” are going away or will be so throughly scrutinized that their ability to operate un-regulated is over – esp. the algorithmic versions like UST. Governments hate competition and stablecoins are the closest thing to a serious challenge fiat has – which is bizarre because the peg is often fiat. The example here is Facebook’s failed Libra project. Libra wanted a basket of fiat, but even that novel idea was enough to kill it, because the network effects had massive cross-border upside outside SWIFT and other legacy payment rails.
Stablecoins are Web3 bridges outside of government control – but the off ramp digital rails to the real world are still alive and well thanks to Apple, Google, and the Fintechs like Plaid and Square. Web3 projects will now have to start getting very creative with what a decentralized peg should actually be – be they be called stablecoins or something else. As the Defiant points out in their stablecoin wars commentary here – the market is making choices between USDT, USDC, DAI, & BUSD based on trust – not yield or decentralization.
One very important point not made in the DeFi community at large is that fiat pegs are the polar opposite of what decentralized money is supposed to be. They are digital fiat. They are band-aid bridges, that carry Fed induced counter-party risk. They are a symptom of Web3’s collective inability to be money. Money is the ultimate utility. Satoshi understood this, yet there are a universe of projects out there that gave up or do not care anymore.
Speculation is not value, it is perception masquerading as utility. This is what happened in the 1920’s and it is happening again in the 2020’s. Actual adoption means utility. This single point will separate the successful projects from everyone else building in Web3.
As much as I hate to admit it, maybe Libra was onto something. PAXG is another legacy approach via gold; but the Bacon Protocol (see below) is really showing the way forward, because real-estate (unlike gold) is a necessity, not a pretty HODL commodity sitting in jewelry stores and central bank vaults. Gold (like Bitcoin) has low utility, yet high perception. Bitcoiners need to think about that.
Stablecoins are Web3 bridges outside of government control – but the off ramp digital rails to the real world are still alive and well thanks to Apple, Google, and the Fintechs like Plaid and Square. Web3 projects will now have to start getting very creative with what a decentralized peg should actually be – be they be called stablecoins or something else. As the Defiant points out in their stablecoin wars commentary here – the market is making choices between USDT, USDC, DAI, & BUSD based on trust – not yield or decentralization.
One very important point not made in the DeFi community at large is that fiat pegs are the polar opposite of what decentralized money is supposed to be. They are digital fiat. They are band-aid bridges, that carry Fed induced counter-party risk. They are a symptom of Web3’s collective inability to be money. Money is the ultimate utility. Satoshi understood this, yet there are a universe of projects out there that gave up or do not care anymore.
Speculation is not value, it is perception masquerading as utility. This is what happened in the 1920’s and it is happening again in the 2020’s. Actual adoption means utility. This single point will separate the successful projects from everyone else building in Web3.
As much as I hate to admit it, maybe Libra was onto something. PAXG is another legacy approach via gold; but the Bacon Protocol (see below) is really showing the way forward, because real-estate (unlike gold) is a necessity, not a pretty HODL commodity sitting in jewelry stores and central bank vaults. Gold (like Bitcoin) has low utility, yet high perception. Bitcoiners need to think about that. 
