Breaking Things

Digital asset bear markets help to stress test blockchain applications and infrastructure, creating a more resilient long-term ecosystem

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.

Electric Capital 2021 Web3 Developer Report

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.


Oath Digital, Inc. All content is original and has been researched and produced by Oath Digital, Inc (“Oath Digital”) unless otherwise stated herein.  This report is for informational purposes only and does not constitute an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. There is not enough information contained in this report to make an investment decision and any information contained herein should not be used as a basis for this purpose. This report does not constitute a recommendation or take into account the particular investment objectives, financial situations, or needs of investors. Investors are not to construe the contents of this report as legal, tax or investment advice, and should consult their own advisors concerning an investment in digital assets. The price and value of assets referred to in this research and the income from them may fluctuate. Past performance is not indicative of the future performance of any assets referred to herein. Fluctuations in exchange rates could have adverse effects on the value or price of, or income derived from, certain investments.

Certain of the statements contained herein may be statements of future expectations and other forward-looking statements that are based on Oath’s views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. In addition to statements that are forward-looking by reason of context, the words “may, will, should, could, can, expects, plans, intends, anticipates, believes, estimates, predicts, potential, projected, or continue” and similar expressions identify forward-looking statements. Oath assumes no obligation to update any forward-looking statements contained herein and you should not place undue reliance on such statements, which speak only as of the date hereof. Although Oath has taken reasonable care to ensure that the information contained herein is accurate, no representation or warranty (including liability towards third parties), expressed or implied, is made by Oath as to its accuracy, reliability or completeness. You should not make any investment decisions based on these estimates and forward-looking statements.

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