Crypto Lending Debacle Highlights Crucial Areas for Growth

The Intelligent Insurer #76: Lending crisis reinforces the need for insurance

Despite the ongoing turmoil in crypto markets, several industry experts believe this is the time to buy, build, and innovate as crypto could come out stronger. The DeFi lending crisis highlighted areas for improvement within the industry. Addressing these concerns will accelerate the digital asset industry’s growth.

The latest Intelligent Insurer will analyze what positives industry experts think would come out of the ongoing volatility. We will also examine some vulnerabilities in the industry the crisis has exposed and how investors can continue to protect their assets. Before that, let’s look at some exciting updates from our development team.

Insured Finance software development update

Providing users with top-notch services has always been our greatest commitment and this is reflected in how thorough we are with our platform features. Our next-gen digital asset insurance platform is primed to offer investors access to products that will give them more confidence while participating in the market.

Over the past week, we focused on addressing a few issues with the voting concept and other potential problems due to the low INFI price. We have adjusted the contracts and will have a minimum of 2M for voting. The new INFI token is already minted on Polygon ahead of the mainnet launch. Users can keep track of the token here: https://polygonscan.com/token/0x9029fB5684A6A189BD473814Bf869D55399e2

In the meantime, our platform is ready and users can check out the available testnet here: https://app.insured.finance/cover. We’re doing our best with the minimal available resources we have on hand. Currently, we have one marketing agency signed up for the mainnet launch and will push adoption from there.

We remain positive that our digital asset insurance platform will be a game-changer for the digital asset industry, providing users with a secure and positive experience. We cannot wait for the mainnet launch shortly.

Market downturn weeds out weak projects

The current downturn in the digital asset market has forced several crypto firms out of business. Others have decided to cut down their employees to remain afloat. The crash, which started with the Terra collapse, saw over $60 billion in investors’ funds disappear from the market.

While the industry put up a resistance against the massive Terra collapse, the crash has impacted top crypto lending platforms. Several big names in the crypto lending ecosystem, including Celsius Network and Three Arrows Capital (3AC), have gone bankrupt following the crash. Many investors believe that the present crypto lending crisis is responsible for exacerbating the market downtrend.

The crypto lending debacle even prompted ECB President, Christine Lagarde, to call for the regulation of crypto activities, including staking and lending. She said, “Innovations in these unexplored and uncharted territories put consumers at risk, where the lack of regulation is often covering fraud, completely illegitimate claims about valuation, and very often speculation.”

While the bear market could persist for a long time, industry experts are convinced that this is an opportunity for the market to innovate. Binance’s CEO, Changpeng Zhao, noted that bear markets present the industry with vast opportunities. The Binance boss is convinced that the present market downturn will sift out weak crypto projects, allowing the industry to grow and mature.

In a recent interview, he said, “ I’m not debating that it is disastrous. It is bad. But when this disaster is happening, there is also opportunity… This is the time where you need to work on the technology, on the product, on the adoption… Although it is painful for a lot of people, it weeds out the weak projects, and only the strong ones stay. Everyone who lasts, who survives, will be stronger.”

The best buy opportunity

CZ is not the only industry expert who believes that the digital asset industry can leverage the crash to grow. The world’s largest digital asset manager, Grayscale Investments, recently opined that the current market conditions present investors with the best buying opportunity.

In its latest Insight report, Grayscale remarked on the cyclical nature of the crypto market. The firm compared the current bear market with other market cycles in crypto history to predict when the next bull run could arrive. According to Grayscale’s analysis, the current market cycle, which began in 2020, has fared better than the previous market cycles. For one, Bitcoin’s movement in the all-time high (ATH) range last year was longer than in previous cycles.

(Source: Grayscale)

Grayscale attributed this prolonged movement to the market’s accelerated growth over the past few years. The firm noted that it is now easier for retail and institutional investors to invest in crypto assets, unlike in previous market cycles. The launch of several exchange-traded products like Bitcoin and Ethereum ETFs and rising crypto trends like GameFi and NFTs have also accelerated the industry’s growth.

Grayscale noted that each failure recorded has helped shape the industry and that the current cycle will bring forward battle-tested projects. The firm believes that the digital asset industry will come out stronger in the end, regardless of the severity of each market cycle. The report said, “Despite price declines, liquidations, and volatility, the crypto industry continues to build and innovate, pushing the boundaries of what is possible.”

The lending crisis exposes industry vulnerabilities

The latest crypto lending fiasco has highlighted a few vulnerabilities in the industry, including the problem of unchecked leverages. The lenders that got burnt in the crash had extremely high-risk assets on their balance sheets as collateral.

The problem was that these assets were overvalued, thus, the lenders felt they had sufficiently capitalized lending books. However, when the asset prices corrected, they were at risk of becoming undercollateralized. To retain solvency, the lenders had to sell their collateral and due to the large number of assets being sold at the same time, prices plunged even further.

The industry will solve this problem when project developers focus on building financial services that are trustless and transparent. Creating projects based on these core principles will allow investors to effectively assess their investment risks. More attention should also be placed on providing better risk management to prevent repeated occurrences of systematic risks.

Ultimately, despite the growing value of the digital asset industry, only an insignificant portion of it is insured. None of the affected firms had insurance solutions in place. The Celsius debacle exposed several of its misdeeds, including its misleading marketing tactics and claims that it was insured.

https://twitter.com/danheld/status/1537888185476210690?t=ORPWbVwr550tnqFohMvvMQ&s=19

Hence, there is an urgent need for more novel insurance solutions like those offered by Insured Finance. With these insurance products, investors can build their fortune without worrying that a market crash will cause them to lose everything.

About Insured Finance

Insured Finance is a decentralized, peer-to-peer insurance marketplace. Users can request customized insurance on a wide variety of digital assets, thereby ensuring full protection. Those fulfilling requests can earn premiums and earn a competitive return on their capital. Claims are fully collateralized and settled instantly.