Saturday, January 28, 2023
  • In Africa alone, millions of crypto traders have lost their hard-earned money. Its ripple effect has caused Africa’s crypto adoption rate to regress significantly
  • Essentially it involved the application of traditional systems to the crypto ecosystem. FTX is among the few centralized finances that deal with cryptocurrency
  • Trading volume within DeFi centres has received a substantial boost of 11% in under a month

If you are an avid reader and follower of the latest crypto trend, there is a specific headline currently mainstreaming. Everyone is talking about the ‘impending crypto collapse’, of which each article has a somewhat valid argument. It is a fact that the FTX crash has crippled various crypto exchange platforms to the point of digital assets, and even the entire mechanism of blockchain technology has undergone serious scrutiny.

The crypto adoption rate in Africa, which appeared as an unstoppable force, is forced to slowly release the gas peddle while contemplating stepping on the brakes. This gap has left a big hole within the crypto ecosystem. 

Many experts have estimated the forthcoming doom of the age of digital assets. Some still believe that since this is not crypto’s first crisis, it can survive. Although if too much focus dwells on the concerns, we need to see the other side of the coin. Many are yet to ask how decentralized finance is affected by all this. Will it also fall, or will it rise?

The Damage is significant

There’s generally a universal saying that dictates; you never know the value of something till it’s gone. Truly the crypto ecosystem has first-hand experience with how accurate this term truly is. The crypto collapse has brought about close wounds and fear among crypto traders.

Crypto Crash

The crypto collapse is more severe than anticipated as the entire crypto ecosystem feels its effect.[Photo/CoinYuppie]

The entire blockchain network may not collapse from this setback, but the Damage took its toll. Many have attributed the impacts of the FTX collapse to Mt Gox failure, and experts are generally preparing us for the worst. Various crypto trading platforms have suffered severely from this setback. Millions of crypto traders are yet to receive their reimbursement, and Sam Bankman Fried doesn’t appear to have the means.

Also, Read Centralized Finance is finally losing its battle against the DeFi system.

In Africa alone, millions of crypto traders have lost their hard-earned money. Its ripple effect has caused Africa’s crypto adoption rate to regress significantly. A feat that has astonished many crypto traders, what was once renowned for its 1200% crypto adoption rate is now slowly declining.

The crypto collapse is mainly caused by FTX’s lack of transparency and strange behaviour. Crypto volatility is already an issue in the crypto ecosystem. One that crypto trades don’t take lightly, adding another unsure variable into the mix caused a massive. As a result, FTX lost almost all its crypto traders within less than a month. Blockchain technology has suffered a significant blow but not all in vain.

FTX was not a Decentralized Finance project

In today’s day and age, most beginner crypto traders often associate all digital assets with decentralized finance. Accurate as it may be, digital assets and decentralized finance were each variation of blockchain technology, although they branch out into two. The first aspect is centralized finance which is the application of a centralized authority to govern and handle all blockchain-reated transactions.

Essentially it involved the application of traditional systems to the crypto ecosystem. FTX is among the few centralized finances that deal with cryptocurrency. During its glory days, FTX thrived in the DeFi ecosystem, and many thought it would. It pioneered managing stock trading and the crypto ecosystem, providing both services in one platform. This same ingenuity initiated Sam Bankman Fried’s grand march to greatness.

Also, Read Africa’s crypto ecosystem affected by FTX collapse

Another well-known CeFi crypto exchange platform is CoinDCX which allows users to use their crypto investment apps. Its flexibility of fiat conversion is also why CeFi gave DeFi a run for its money. With blockchain technology, the Web2 ecosystem will slowly transition into a compatible Web3 environment.

Due to this, centralized finance systems offer more flexibility and practicability than DeFi when it comes to converting fiat into crypto. The consistent conversion of fiat to crypto requires a centralized entity as such organizations, such as FTX, survived for so long. the crypto ecosystem highly needed its functionalities.   

How does this crisis affect DeFi?

Only some crypto traders have asked or even considered where DeFi lies amid this crisis. Fortunately, the answer is a mixture of both good and bad news. This is due to the immense functionalities FTX offers, which DeFi will require some help with.

Over the past few weeks, crypto investors have opted to flock around crypto’s decentralized finance systems for refuge. According to CryptoCompare, the trading volume within DeFi centres has received a substantial boost of 11% in under a month. Crypto traders have accrued up to $62 billion in the few weeks of the crypto collapse.

Lending protocols such as Aave and Compound are seeing more robust user and transaction growth to the point they are considering an upgrade within their blockchain technology. Whether we like it or not, the crypto crash has greatly favoured DeFi operations. However, this is merely one side o the coin.

Is DeFi up to the task?

The crypto ecosystem may partly survive thanks to Defi systems, but its current capabilities still need improvement. It is an act that many crypto traders may find hard to swallow, but FTX has various abilities that most DeFi networks lack. DeFi is still lacking in multiple ways, and until developers address its flaws, it will simply be a transition from one disaster to the next.

DeFi

Crypto investors are now opting for Decentralized finance systems or DeFi to secure their digital assets.[Photo/Protocol]

Smart contract risk, technological gas, and slow-moving decentralized algorithms are a few demerits DeFi systems have. Its blockchain technology may be just as sophisticated, but without the necessary functionalities built-in, the crypto ecosystem will more likely experience a downgrade if implemented. 

Also, Read The link between decentralized finance and African trade.

The crypto collapse may not necessarily afflict DeFi, but for it to step up and replace CeFi, there is various factor to consider. The first aspect is to gauge the applicability of Defi in its current state; immutable, decentralized, transparent and permissionless state. The second factor is finding more means to ensure digital assets are accessible through DeFi systems. The crypto ecosystem may be experiencing some setbacks but restricting the accessibility of digital assets is a far worse fate than the crypto collapse.

Building decentralized applications that ensure usability is the next step. The critical factor of any venture is business continuity. Its ability to accommodate new crypto traders is a crucial factor. Providing the necessary facilities to accommodate the crypto ecosystem, such as wallets and educational materials, should be at the forefront of all designs. The last and vital concern to consider and ensure is whether or not it’s an upgrade from CeFi. Succeding, where FTX failed, is an unemphasized factor. DeFi systems must ensure that if its goal is to take over where CFi failed, bringing something better will sway crypto traders to it.

Conclusion

The crypt collapse somehow affected DeFi systems. It has enabled it to gain massive profits but left a significant challenge for its counterpart. Will DeFi fill the shoes of the CeFi industry, or will CeFi find new ways to ensure wits are mainstream? All in all, the fact remains if we are not careful, the crypto ecosystem may collapse beneath our feet.

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