There’s one important difference between crypto and traditional finance: transparency, according to Blockchain data platform Chainalysis.
The report observes that the market downturn has catalyzed mass liquidations of leveraged positions across both the traditional and crypto markets resulting in exacerbated price declines, noting that in crypto, this is playing out in real-time.
The study suggests that the industry might benefit from the opportunity to leverage blockchains’ transparency to analyze systemic risk, build better systems, and design better rules for the next bull market.
Moreover, the analysis breaks down what happened from a macro perspective as well as opportunities for regulators, lawmakers, and the industry overall to ensure the ecosystem can continue to grow safely and responsibly.
The report states that crypto’s inherent transparency – especially during the current down market – is bringing some of the inherent risks of Decentralized Finance (DeFi) into the spotlight.
In this context, it notes that some projects that were hastily built or services that didn’t properly manage risk will fail, and that’s a natural process for any new technology or industry.
According to experts, due to the open nature of DeFi protocols, the market can often see where large, well-known players placed their bets and if those positions are facing liquidation.
Furthermore, the analysis concludes by saying that the market participants can use this transparency to assess the stability of the core protocols that power the DeFi ecosystem.