The recent cryptocurrency bear market has crowded out decentralized finance (DeFi) and centralized finance (CeFi) projects in the crypto space. But past results do not always indicate future results. To start with, the price of Ethereum has already recovered 48% over the past few days ahead of the impending Merge upgrade.

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At the annual Ethereum community conference in Paris, Cryptooshala spoke with Skale Labs co-founder Konstantin Kladko about the market crisis. Sklae Labs is a decentralized blockchain network built on Ethereum. It currently consists of 28 blockchains where you can seamlessly send tokens from one chain to another. Here is what Clado says about the recent infection:

“The market behaves this way because there is no regulation. So pretty much everything bad that happened on Wall Street 100 years ago [during the 1929 Wall Street Crash] now happening on the blockchain. And, unfortunately, while the big players have the option to silently walk away when things go wrong in the market, it’s often too late for the smaller players.”

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As the bear market unraveled, it was revealed that once-reputable blockchain projects like Celsius and Three Arrows Capital were in fact using massive leverage with client deposits to generate seemingly safe and stable returns. Their forced liquidation and inability to repay creditors, estimated at billions of dollars, then brought the entire industry into decline.

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Kladko explained that while purported “decentralized guarantees” exist to protect investors, they often do not work under duress. “Most DeFi applications have trivial fail-safes. An example of this is DeFi lending, where you supposedly pledge X amount of collateral, take out Y amount of loan, and are not in danger of being liquidated until the price of collateral changes. drops to Z. The problem is that when the price of collateral drops to Z, it usually drops so fast that you can’t sell.”

The problem is then simultaneously exacerbated by market participants borrowing digital assets to buy even more volatile assets and then forcibly liquidating at prices well below the theoretical liquidation price (due to the speed of the sell-off), leading to DeFi.” super disaster.” In terms of implications, neither path looks particularly attractive to the decentralized industry. As Kladko explains:

“If such market problems continue, then regulators such as the US Securities and Exchange Commission may eventually intervene. They may introduce rules that make it difficult to trade cryptocurrencies. Or there could be a higher level of self-regulation, such as an administrative body that controls DeFi, develops in the same way that medical associations control doctors and bar associations control lawyers.”

But despite Kladko advocating better regulation to protect investors, he sees the ongoing crypto bear market as being milder. “It doesn’t feel like a crypto winter,” Kladko says. “It is true that some of the wildly speculative companies and outright Ponzi schemes have gone bankrupt, but for now, the situation looks like it will improve. For starters, Ethereum Merge may indeed look like the main catalyst for the next few years. So hopefully there will be less speculation and a lot more growth of mature and meaningful projects.