The digital asset markets are defined by periods of excess. There are periods of excess to the upside (bull markets), followed by periods of excess to the downside (crypto winters).
Both bull markets and crypto winters are important to the long-term growth and resiliency of the crypto ecosystem.
Bull Markets Attract Talent
Bull markets bring new entrepreneurs and capital to the space. Like prospectors heading West, entrepreneurs and capital flock to digital assets as prices rise. While 90% of these new entrants are "tourists" (quick to come, quick to leave), the other 10% are talented entrepreneurs and investors that form the foundation for the next wave of innovation.
This chart of active Web3 developers show that many of the engineers that came into crypto in the 2017 cycle stayed throughout the 2018-2019 crypto winter, building new and innovative products.
However, given the reflexivity of crypto projects/tokens, it can be difficult to separate true innovation with ponzinomic token systems during a bull market. Therefore, crypto winters play an important role in stress testing the innovations that are introduced during crypto springs/summers.
Bear Markets Break Things
Even by crypto standards, the speed and severity at which things broke in this bear market has been remarkable. Within the span of ~1 month:
A top-10 token ecosystem imploded, erasing $50bn+ of value in a few days
One of the most well-respected crypto hedge funds filed for Chapter 15 Bankruptcy
The entire multi-billion dollar crypto lending industry became insolvent
The total digital asset market cap fell by ~50%, from $1.8tn to $900bn
At Oath, our belief is that digital assets will be the foundation of a new global, digital economy. In order to build a resilient system that can scale to 1bn+ users, we must eradicate vulnerabilities and sufficiently stress test every aspect of the system. How do things perform in times of high activity? In times of low liquidity? In times of crashing token prices?
In addition to weeding out vulnerabilities, these stress tests act as a strong signal for the entrepreneurs who are building the future innovations that will lead us out of this crypto winter. Can I trust the resiliency of the smart contract platform I'm building on? Can I trust the stablecoin I'm using as a trading pair in my DeFi protocol?
Entrepreneurs now have better answers to many of these questions, and can build new infrastructure and applications that take the best features from last cycle's resilient products.
We will continue to see things break as the crypto winter marches on, knowing we're strengthening the system long-term.
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Digital assets are experiencing a clear divergence between rapidly improving fundamentals and all-time low investor sentiment. This presents an attractive opportunity to begin scaling into blockchain-related investments.
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