Lessons for 2022. How to reduce the risk of investing in cryptocurrencies

Asset diversification, decentralized solutions, and past experience assessment help protect against crypto market shocks

The opinions of the invited authors may not coincide with the position of the editors. “CryptoNewsHerald” does not give investment advice, the material is published for informational purposes only.

The past year was marked by the collapse of a number of large crypto projects, which probably cast doubt on the very concept of centralized solutions in the sector. Each season brought news of more and more collapses. In the spring, the community and investors faced the consequences of the situation around the Terra ecosystem (LUNA). The culprit for the hyperinflation of the asset was considered to be the management of the project tied to just a few people. This small group, probably understanding the consequences, continued issuing the LUNA token until the price of the asset fell thousands of times.

During the accelerated release of LUNA, community members repeatedly warned of the coming consequences, but were not heard. Only after the maximum collapse did the asset pass into the hands of the community, which was facilitated by the separation of the LUNA and LUNA Classic (LUNC) networks. A number of successful community decisions after the split helped start a recovery in the price of the token. Staking features have been included, as well as a floating transaction tax to burn fees in order to reduce the overall supply of coins.

In the summer, users of the Celsius platform started having problems. The withdrawal of funds was disabled, and soon the company declared bankruptcy. The owner of the service, Alex Makhinsky, has gone from a respected creator of the once-revolutionary IP telephony technology and other technical developments to an object of hatred for those who lost funds on his platform.

Similar to the Terra scenario, the crypto community questioned the use of the overly centralized Celsius token (CEL). Questions were raised by the non-transparent non-automated system of accruing interest on deposits and the lack of control over own funds in the custodial architecture of the service.

Why did users, even understanding the possible risks of the platform, continue to use it? It seemed convenient to many to receive interest on deposits of coins that were more difficult to make work in another way (for example, XRP or ETC). Users were also attracted by the convenience of making a profit from coins and tokens located in different networks on the same platform, without having to install a lot of new software and configure DeFi protocols separately for each network.

The final crushing blow of the year to centralized concepts was the collapse of the FTX exchange. As in the previous two stories, the focus of the collapse was the owner of the stock exchange, Sam Bankman-Fried, whose image as the envied owner of a business empire, stadiums and a donor to the US Democratic Party changed to that of a fraudster who spends clients’ money on luxury, leaving absurd statements in an interview and social networks.

You can make a list of measures that could help users not lose money from the collapse of all the listed projects.

  • Compliance with the basics of asset storage security, use of non-custodial and decentralized solutions.
  • Use of centralized solutions as temporary with awareness of risks, application only for specific tasks.
  • Doubts about the feasibility of investing in CEL and FTT tokens due to the lack of real use cases (other than speculation) and their need for ecosystems as a whole.
  • Rejection of excessive admiration and unwarranted trust in business empires and their leaders who create a positive image for themselves through the media, advertising campaigns and opinion leaders.
  • The use of different platforms and ways of storing assets, as well as the diversification of stablecoins.

Changes in the perception of stablecoins?

The outgoing year was the year of the collapse of several stablecoins and their subsequent detachment from the price of the dollar (the so-called “depeg”). The deposits and, in many cases, the faith in new technologies of those users who held UST, HAY, USDN and other “stable” coins in the portfolio that crashed in 2022 turned out to be destroyed. The collapse of algorithmic stablecoins provokes a decrease in confidence in this class of assets and shows the need for their diversification. Solutions for insuring deposits in stablecoins from decoupling of the course appear on the market.

Similar changes in attitude to technology have affected various developments in the field of representing assets outside their native networks. In many ways, this process accelerated after the soETH and soBTC price “depeg” on the Solana network at the end of last year. At the time of writing, the value of these assets differed from native ETH and BTC by more than 90% for the worse.

A safe haven of privacy – the home of disruptive technologies?

In the past year, the difference in approaches to the development of projects has become more obvious. Against the backdrop of a market raging from sensational collapses, services that rely directly on innovation and the scientific attractiveness of technological solutions and often ignore standard marketing approaches and populism stood apart.

Examples of such assets include Monero, Firo, or the Secret Network. These ecosystems avoid high-profile IEOs and releases of NFT collections, and a number of valuable solutions from their developers are often uploaded to internal community forums and depositories on Github without additional advertising campaigns.

While the news agenda of the outgoing year was full of messages about the details of the search and detention of the former “stars” of the crypto space, such significant developments as atomic swaps between the Bitcoin and Monero networks, the launch of decentralized crowdfunding platforms on Firo and Monero were forged in the forges of less public projects. , the ability to anonymize NFT and DeFi services or individual parts of their smart contracts through the Secret Network.

The above also applies to the field of regulation. Often, the news background and the peculiarities of the distribution of messages in social networks and crypto channels created a feeling of movement in only one direction – the tightening of regulation of the entire sector and the especially strict attitude of states towards anonymous technologies, against the backdrop of the development of the scandal and persecution of the developers of the Tornado Cash mixer code.

Particularly active on the news agenda were European regulators. Meanwhile, facts remained behind the scenes that ran counter to the general news background. ATMs continue to appear in most European capitals, allowing you to exchange cryptocurrencies for euro cash. Some terminals belong to licensed services (for example, Criptonesia in Spain) and allow exchanges without the need for a KYC (Know Your Customer, “Know Your Customer”) procedure.

What projects showed growth while the entire market was falling?

For most projects in the sector, 2022 was a year of significant decline in asset prices and a rapid drop in their market capitalization. The hardest hit were the tokens of DeFi platforms and P2E projects that once shone in 2021, which lost up to 80-90% of their value from historical highs in 2022.

However, starting from the summer of 2022, several assets still managed to find their local minimum and enter the growth phase. Polygon (MATIC), a green leader in Layer 2 (L2) solutions with record-breaking low fees and efficient network bandwidth, is up more than 115% since June.

TON Coin (TON) is a rapidly growing network with the potential to integrate into the Telegram messenger. Since June, the coin has shown growth of more than 130%. The advantage of the project, however, may also be its weakness. In the long term, the coin, as before, may be extremely vulnerable to fluctuations in the mood of regulators, and the threat of exclusion of the messenger from the App Store and Google Play stores may force the management to stop all official actions to further integrate TON into Telegram and publicly consecrate this activity.

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