Crypto enthusiasts rely on creative destruction

At the beginning of this year, an Irish company decided to organize an annual tech conference called Collision in Toronto to celebrate the "Day of the Sun" of the cryptocurrency, as it was said in the blurb by inviting its luminary to talk.

hoppla. When the collision finally took place this week, 35,000 participants appeared, but eight of the approximately one dozen top crypto spokesman suddenly left because they cited "family" and "health" reasons.

and instead of sunbathing in the sun, crypto enthusiasts confronted the winter. The market capitalization of the sector has shrunk by $ 2 trillion or 70 percent since last November; The Bitcoin price fell under $ 20,000, the stable terra and luna coins have been imploded; Crypto loans such as Babel and Celsius have stopped the withdrawals; and hedge funds like Three Arrows Capital face Margin Calls.

In addition, the slaughter would be even worse if Sam Bankman-Fried, the 30-year-old billionaire and founder of the FTX cryptoplattform, crypto loan such as Voyager and Blockfi were not saved with big loans. This reflects the steps that John Pierpont Morgan undertook during the American banking crisis of 1907 to save other lenders because there was no central bank.

All of this is extremely embarrassing for crypto evangelists. And it inevitably triggered crypto critics such as Bill Gates and Warren Buffett. It has also led to some regulatory authorities say doubts about whether private cryptocurrencies really have a social benefit - future.

This week, officials of the Monetary Authority of Singapore said that they planned to deal with crypto "relentlessly hard" - and thought that private digital money could soon be replaced if the central banks spent their own digital tokens. This is particularly important in view of the fact that the MAS KRYPTO used to be very warm. The establishment strikes back.

But I would not bet that private digital money will actually die - mutation seems more likely. After all, the crypto world has already experienced a few big bankruptcies, but - like the proverbial hydra - it has always reacted to the growth of new heads. And the industry still has a large pool of actors who are not only convinced of the revolutionary potential of their distributed Ledger (or "web3") technology, but also believe in the idea of ​​creative destruction.

"There will be more victims in the next few weeks, but this natural emigration is healthy for the industry because it eliminates the excess," said Brian Shroder, US chief of the Krypto exchange Binance, at Collision. "Amazon was created from the Dotcom bubble (and the crash) and we want to be an Amazon." Or, as Edith Yeung repeated from the cryptofonds Race Capital: "This is the third time that I see it [Type of Crypto Crash]. This is a good thing for the industry."

Maybe that's just a desperate rotation. But if you look closely, you can already see the creative destruction. The imploding companies are those that have one or all of the following features: high leverage, resistance to regulation, excessive complex innovations and high expenses for expansion. Others are better.

take Binance yourself. A reason why Shroder, unlike other speakers, felt confident enough to appear on the stage in Toronto, is that Binance's business is not dependent on margin trading or crypto loan. That makes it less susceptible than some competitors. (Although it is confronted with official investigations by the United States because of its earlier advertising for the Terra, which has no longer existed.

Another important factor is that Binance recently raised $ 200 million of fresh capital that used it to diversify in new niches. Therefore, it hires more staff, says Shroder, even as competitors such as Coinbase Slash Workers.

or think of circle, the company that operates the StableCoin USDC. In recent years, USDC has attracted much less attention-and inflows-than his rival Tether, sometimes because the creators of the latter have taken a defiant anti-establishment attitude that was popular with libertarians while frightening the regulatory authorities. (Last year, the New York supervisory authorities agreed with the company after they had accused of having given misleading information in his books.)

In contrast,

In contrast, Circle tried to calm the supervisory authorities by presenting tested accounts about his request to receive a banking license, and the mainstream finance actors rewinded.

But while this made the USDC less attractive for crypto players, its market capitalization has increased to $ 56 billion due to strong inflows from USD $ 48 billion. Tether, on the other hand, recorded drainage that has reduced its market capitalization of $ 83 billion to USD 67 billion, and if this trend continues, it could be put in the shade by USDC. "We see a general escape towards security and quality," assures Jeremy Allaire, founder of Circle.

By pointing out these nuances, I don't try to choose future winners. Like Gavin Wood, the co -founder of Ethereum, in Toronto: "We are still in relatively early days of this development [Web3] Technology".

But the crucial point is as follows: just as no one expected in 2001 that Amazon would be a global giant two decades later or that the power of the Silicon Valley would continue to grow, the crypto world could be radical differently than what we see now. This is the promise of the future of Web3 - and the current danger.

gillian.tet@ft.com