During the fallout of economic hardships, watchdogs often create an illusion of having the situation under control to ease the public’s panic. Resolutions birthed out of such crises, like the New Deal following the Great Depression, offered both regulation and poverty alleviation. On the flip side, the Great Recession offered less relief after countless people lost their homes, though Congress managed to display an image of passing necessary financial reforms. In comparison, the crypto economy didn’t react favourably to its own collapse over the past few years, displaying its inherent setbacks.
Stablecoin value diminished, non-fungible tokens (NFTs) proved worthless and the community was left questioning the responsibility of crypto leaders. These leaders turned to governments for damage control, resulting in lawsuits, prosecutions, and pleas for favourable regulations. Lawmakers, however, remained skeptical.
Critics argue that the potential of crypto was overstated, negating the claim that this technology could form the basis of a more just and fair financial system. After the experience of countless newcomers witnessing their tokens become worthless with no reassurance from protocol designers, confidence in the system dwindled. For some, it seemed almost as if crypto’s actual drive was to facilitate shady transactions undercover of the legal radar.
But what if the crypto-world had reciprocated differently? Could a more trust-invoking infrastructure have been built?
Crypto’s potential to facilitate more democratic and innovative forms of online governance has always been its most shining quality. However, in the face of mishaps, the notion of decentralized governance often clashes with the reality of a few insiders controlling power and accountability.
Taking examples from the aftermath of the Terra-Luna collapse in 2022, Ethereum co-creator, Vitalik Buterin, presented ideas like deposit insurance for crypto protocols. While provisions like these deemed vital, users’ faith in the protocol’s adherence remains unstable due to unguaranteed protections.
Additionally, essential transparency demands regarding contracts on core protocols often go unmet. Traditional stock markets require regular disclosures from all listed companies. Why then, should the information readily available on crypto ledgers not mandate greater transparency from DeFi?
Crypto projects already have diverse tools and innovations in place that require attention and support to impact change. From independent, decentralized court systems for arbitration to reversible tokens for transaction errors, these innovations have the potential to instil significant trust in the system.
Lastly, but crucially, the decentralization design must cater to those with the most to gain and the least margin for error, instead of serving the speculators. With an economic system already rich in luxuries for the wealthy, crypto must stand true to its goal of broadening access to ownership and power.
In conclusion, while crypto may still have a long way to go to catch up with traditional finance in terms of trust and stability, its potential for innovation and democratization remains intriguing. For a system based on internet protocols, designing better policies should be integral to every improvement. Relying solely on markets and investor incentives is not a complete solution. Recognising that the crypto ecosystem is a commons and must be designed as such, is key to steering a better future for crypto. The story, as they say, is far from over.
Source: Coindesk
