Market Crash Tests Crypto’s Survival of the Fittest

Nium, cryptocurrency, Web3, blockchain

When TerraUSD or UST, an algorithmic stablecoin that was supposed to be pegged to the dollar, collapsed in May, it sent shockwaves across the crypto market, impacting economies and wiping out trillions of dollars in the valuation of bitcoin and other digital coins.

Read more: Unbacked Stablecoin’s Collapse Lost $48B; Crypto Says ‘Let’s Launch Two More’

As terrible as that may appear, Joaquin Ayuso de Paul, head of crypto and Web3 at Nium, told PYMNTS that collapse and the resulting market crash has been “beneficial to [weed out] the bad actors from an industry that is slowly becoming mainstream.”

Moreover, ensuring that players arriving on the mainstream market are resilient enough to go through the up and down cycles is key, which is why in Ayuso de Paul’s view, this downturn has been a good stress test for newer crypto firms.

“Only those that are resilient in the bad cycles are the ones that deserve to continue moving forward,” he said, echoing similar sentiments recently shared by Bank of England Deputy Governor Jon Cunliffe.

Related: BOE Official: Crypto Firms May Rival Amazon, eBay

He noted that one of the most important factors of a decentralized service or system is critical mass, and the lack of it is why Terra and other smaller cryptocurrencies ended up crashing, while larger, more stable digital currencies like bitcoin and ethereum were very unlikely “to flop with the downturn.”

Ayuso de Paul went on to compare the current slimming-down of the crypto ecosystem to the dot-com bubble burst of the early 2000s, during which many people lost significant investments they injected into tech startups.

Like digital assets, a lot of customers and end users have lost their savings and earnings due to limited or skewed knowledge of the nascent crypto industry. But Ayuso de Paul said all was not lost.

“The silver lining is that whatever is left from the crypto industry is going to be resilient to new downturn cycles,” he said.

Digital Stablecoins and Remittances

One of the major reasons why stablecoins have seen such an uptake in use in recent years is that they can be transferred almost instantaneously. This means that the likes of Circle’s USD Coin (USDC) stablecoin can facilitate real-time settlement of payments across borders, giving them a major edge over fiat currencies.

See also: The Token Economy: The Promise of Faster, Cheaper Cross-Border Payments

It is this edge that Nium is looking to tap into to streamline cross-border payments, having recently announced that it will soon integrate the open-source blockchain Stellar into its payment architecture to drive faster and efficient payments.

According to Ayuso de Paul, “Stellar does the chain and the protocol, and we take care of the crypto part with a USDC and then on the fiat side, so we do the exchange of the crypto to fiat.”

Read more: Blockchain Stellar and Payments Platform Nium Team on Payouts in 190 Countries

Overall, the company’s entry into the Stellar ecosystem marks the further entrenchment of the Stellar chain and Lumens token into the global financial infrastructure and will allow existing actors on the Stellar network to tap into Nium’s fiat and crypto disbursement mechanisms.

When it comes to remittances, the systems needed to cash out stablecoins for fiat currency are far from universally accessible.

Ayuso de Paul pointed to the use of blockchain in remittance payments as a prime example of this challenge: “Transferring crypto to crypto in Africa, for example, is seamless. It uses a blockchain and you can receive the crypto on the other end very quickly. The hardest part is to actually confer that crypto into local fiat so you can pay for services locally.”

However, the volume of remittances that utilize stablecoins to facilitate payments is growing, he noted. “It’s not yet a business that can become mainstream until the local liquidity — especially in emerging countries — becomes more prominent.”

Paving the Road for CBDCs

Besides the need for local liquidity to enable better availability of crypto-to-fiat exchange, another challenge for the widespread application of blockchain-based payment solutions is that “the current stablecoins pose a risk, especially on the geopolitical side because they’re so dependent on the U.S.,” Ayuso de Paul further said.

Ultimately, this leaves dollar-backed stablecoins vulnerable to a breakdown of diplomatic relationships with the U.S. in any country that holds a large amount of that stablecoin and could result in it becoming unpegged from the dollar.

Central bank digital currencies (CBDCs) hold the potential to overcome this problem, he said, adding that stablecoins will “win the payments market” — and ultimately, today’s decentralized stablecoins “are going to pave the road for CBDCs” in the future.

He went on to say that there will still be a market for limited-supply cryptocurrencies like ethereum and bitcoin, but that they appear to be following a different trajectory. Ether’s value will always be tied to the use of the ethereum network, while bitcoin functions more like an asset that is traded and speculated upon.

In terms of the outlook for the crypto asset market, Ayuso de Paul pointed out that bitcoin has traditionally been a bearer of the whole market, but also that it has so far behaved predictably.

Pointing to logarithmic growth curves that are used to predict bitcoin’s price movement, he suggested that bitcoin will bottom out at $18,000 or lower and won’t return to the $60,000 level until mid-2023 or even later.

Yet, despite his firm belief in mathematical models for predicting trends, he still cautioned that “it’s such a volatile environment that you never know what’s going to happen.”

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