A visual representation of the Bitcoin cryptocurrency.
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Cryptocurrency companies have dominated the main street of the World Economic Forum in Davos this year, a notable difference between this edition and the last in 2020.
The high profile industry presence came even as the cryptocurrency market crashed. It was triggered by the collapse of the so-called algorithmic stablecoin called terraUSD or UST, which saw its sister token luna plummet to $0 in May.
Meanwhile, global regulators are eyeing the cryptocurrency industry.
The WEF is the annual gathering of global business leaders and politicians to set the agenda for the year.
In this context, it was the perfect time to catch up with some of the big players in the cryptocurrency industry. Here is what I learned.
Thousands of Cryptos Could Crash
There are currently over 19,000 cryptocurrencies and dozens of blockchain platforms.
Blockchain is the technology behind these digital currencies and the platforms include Ethereum, Solana and many more.
Many industry executives view the current state of the market as unsustainable.
Brad Garlinghouse, CEO of cross-border blockchain company Ripple, predicted that there might only be “dozens” of cryptocurrencies left in the future. He said there are around 180 fiat currencies in the world and there is not really a need for that many cryptocurrencies.
Bertrand Perez, CEO of the Web3 Foundation, compared the current state of the market to the start of the internet age and said there were a lot of “scams” and a lot of them “delivering no value”.
Brett Harrison, CEO of cryptocurrency exchange FTX US, said there are “a few clear winners” when it comes to blockchain platforms.
You may have heard of stablecoins. These are a type of cryptocurrencies that are meant to be pegged to a real-world asset.
In practice, stablecoins like tether or USD Coin, which aim to mirror the US dollar one-to-one, are backed by real assets such as currencies or bonds. They hold a reserve of these assets in order to maintain a peg to the dollar.
You may also have heard of the debacle surrounding a terraUSD or UST. It is a so-called algorithmic stablecoin. Instead of maintaining its peg by having a reserve of assets, it aims to mimic the US dollar and maintain stability using a complex algorithm.
But this algorithm failed and caused terraUSD to lose its peg and collapse.
The crypto industry has tried to warn users to make sure they know the difference between an algorithmic stablecoin, like terraUSD, and others that are backed by assets.
The collapse of terraUSD “made it very clear to people that not all stablecoins are created equal,” said Jeremy Allaire, CEO of Circle, one of the companies behind the USDC issuance.
“And it helps people differentiate between a well-regulated, fully-booked, asset-backed dollar digital currency, like USDC, and something like that (terraUSD).”
Reeve Collins, co-founder of BLOCKv and co-founder of another stablecoin nexus, said the terraUSD saga will “probably be the end” of most algorithmic stablecoins.
Industry welcomes bear market
Believe it or not, the cryptocurrency industry welcomed the recent stock market crash, which saw major tokens like bitcoin fall more than 50% from their all-time highs.
“We’re in a bear market. And I think that’s good. That’s good, because it’s going to wipe out people who were there for the wrong reasons,” said Perez of the Web3 Foundation.
This sentiment was also shared by other leaders, who say the massive rise in prices has caused people to focus on speculation rather than building commodities.
″[The] market, in my personal opinion, has become maybe a bit irrational, or maybe a bit reckless to some degree. And when times like this come, [a] correction is normally required, and at the end of the day [is] healthy,” said Mihailo Bjelic, CEO of Polygon//descriptor please///.
The regulations are coming but the thinking has changed
Ahead of the World Economic Forum, European Central Bank President Christine Lagarde said she thinks cryptocurrencies are “worthless”.
It seemed to me that regulators and authorities were still hostile to cryptocurrencies, just as they had been in recent years in Davos.
But executives said regulators’ thinking, for the most part, had shifted to something a bit more constructive.
“I think we’ve come a long way in the last three or four years when I literally just got here in the snowy version of Davos and someone said, you know, crypto’s still a bad word here. That is no longer the I so definitely don’t think ‘antagonism’ is the right descriptor. I think ‘curiosity’,” Ripple’s Garlinghouse said.
“I think it’s constantly changing both regulators, big companies. Everybody wants to be more involved in crypto now, nobody ignores the industry anymore,” Polygon’s Bjelic said.
In March, US President Joe Biden signed an executive order calling on the government to examine the risks and benefits of cryptocurrencies. Yet, there are no major cryptocurrency regulations in the United States and other major economies.
Garlinghouse said he wanted “clarity and certainty” from regulators.
BLOCKv’s Collins, meanwhile, called Lagarde’s comments “ignorant.” He highlighted the tension that still exists between the cryptocurrency industry and some traditional finance authorities.