A highlight from Featured Story | Crypto Lenders Caused Crypto Contagion Last Year. How Is the Industry Rebuilding?
This episode of Markets Daily is sponsored by Kraken. It's Sunday, September 10th, 2023, and this is Markets Daily from CoinDesk. Hi, I'm Michelle Musso here with your featured story. On today's show, we're taking a dive in how crypto lending contributed to last year's collapse and what could be done to fix it. And just a reminder, CoinDesk is a news source and does not provide investment advice. Today's piece comes from Mauricio Di Bartolomeo, the co -founder of Ledin, a digital currency lending company. We'll be using Wondercraft AI to read the story. The piece is titled, Crypto Lenders Caused Crypto Contagion Last Year. How is the industry rebuilding? Loans are as old as money. Throughout history, whether seeds or gold, every form of currency has had its lending market. Now Bitcoin, with its decentralized and transparent nature, has staked its own claim in the financial landscape. And just like the currencies that came before it for Bitcoin to truly thrive, it also needs a robust lending market. However, thus far, most attempts to create a Bitcoin credit market have failed spectacularly, with disastrous repercussions. The demand for Bitcoin and digital asset lending services surged during the 2020 run -up, with tens of billions of client assets flowing towards both centralized and decentralized lending platforms. Fueled in part by lax macroeconomic monetary policies and the crypto sector's explosive growth, this environment allowed bad actors to operate recklessly, misleading consumers without facing significant checks and balances. This lack of oversight ultimately led to the collapse of the digital asset lending industry beginning in 2022, including the cascading bankruptcies of lenders including BlockFi, Celsius, and a unit of Genesis. Although accusations of fraud in some of these cases will be a matter for the courts to decide, the sudden domino -like collapse of dozens of digital asset lending firms highlighted an underlying flaw. Their operating structures were inherently unsustainable. These structures lacked a crucial ring -fencing of lending risk. And lenders did not provide the transparency needed for clients to understand their credit underwriting process, or the concentration risks in their lending activities. This outdated structure, coupled with insufficient risk management, was akin to dry wood, eagerly awaiting a spark. And Terraluna, 3 Arrows Capital, and FTX were an entire box of matches. Meet the all -new Kraken Pro, the powerful, customizable, beautiful way to trade crypto. It's Kraken's most powerful trading platform ever, packed with trading features like advanced order management and analytics tools, all in a redesigned, modular trading interface. So head to pro .kraken .com and trade like a pro. Not investment advice? Some crypto products and markets are unregulated. The unpredictable nature of the crypto assets market can lead to loss of funds and profits, maybe subject to capital gains tax.