Why Crypto Crashes Are Like Nascar Crashes

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In case of an accident on the track, drive in the smoke!

There’s a very small chance you know this is a quote from the 1990s American sports action movie Days of Thunder, which starred Tom Cruise in the driver’s seat. What does a Nascar racing movie have in common with what crypto is experiencing these days? More than you think.

Nascar racing cars are not that different from each other, but small details can make a huge difference in performance. Support teams are all experts in their own fields, but slightly better skills can deliver huge efficiency gains during quick shutdowns where every nanosecond counts. And while the pilots are arguably the stars of the show, it’s their leadership that really pulls the whole operation together to achieve glory and glory.

In crypto, all teams take turns in the same industry, playing by the same rules, with the goal of reaching the finish line before everyone else. Many blockchains or applications are similar at a high level, but small changes and tweaks create advantages in scalability, decentralization, or security. The developers are working around the clock to make these changes and fix critical bugs to take market share from competing blockchains. And the founders or co-founding teams are the ones who run the organization with their eyes on the prize.

If you’ve ever watched a Nascar race, you know that collisions happen all the time. And anyone who’s been around the block in our industry knows that projects that once seemed invincible can come crashing down suddenly and quite dramatically. After an accident, it is important to analyze what caused it and what we can do to prevent it from happening again or at least find out how we can reduce the damage.

There are two big crashes in Days of Thunder, with two very different outcomes. Approaching the crumpled and wrecked vehicles ahead on the track, the crew chief orders Tom Cruise to drive through the smoke. The first time our hero does this, he ends up in the hospital. The second time, it leads him to victory.

The story continues

Crypto has also had two big crashes this year, starting with the Terra-Luna collapse in May and now the ongoing FTX debacle. During the first crash, everyone was unprepared, inexperienced and fearful. Many businesses have had a near-death experience and some have not survived the smoke. Those who survived either cherished the lessons learned and worked to improve their game on every level, or they carried on with their same old routine, ruling out the chances of another black swan event occurring right after another.

Then Celsius lost a tire. BlockFi couldn’t stay away. Others have accumulated. And finally, the SBF car flipped over and covered the track in a thick cloud of smoke.

Were all still driving through the smoke, and it was dark with no end in sight. Who will clear the smoke and come out unscathed? Which cars will come out with just a few bumps? And which ones will crash and burn? We won’t know until the end, but looking at how some companies reacted to Terra-Luna’s first collapse, we can make an educated guess.

What could happen next

Centralized exchanges will struggle to move forward since they made virtually no material changes after the first crash. Most of them continued as usual, lending assets using poor risk management and controls. The few centralized lending platforms that still exist are also going through tough times because they haven’t re-risked enough under the false assumption that a second black swan event wouldn’t follow soon enough.

The strongest players include blockchain projects that manage their cash wisely without chasing short-term returns, focusing on development and expanding their track. Independent custodians that prioritize strengthening their core infrastructure to provide a safe haven for all other players also stand a good chance of getting away with it unscathed.

Amidst all this uncertainty, one thing is clear: the combination of blockchains and strong custodians will lead the race. Where these two overlap is in staking. Certainly, the on-chain staking backed by the security that only a fully licensed and independent custodian can provide will help the best projects and their dedicated communities weather the tough times ahead and potentially even thrive once the smoke clears.

Bitcoin and its proof-of-work model will always be the gold standard in this industry, but proof-of-stake blockchains are likely the ones that will thrive as they garner more interest due to native return characteristics and as a ground. fertile ground for rapidly expanding developer communities. The role of independent custodians is to provide secure access to parties wishing to contribute to these blockchains through staking solutions in a way that ensures that all stakingrs retain full control of their own assets and private keys.

Full transparency of on-chain transactions is the only way forward from now on. If a staking is performed without providing the transaction ID of a successful on-chain delegation to a validator, this is not true staking but should be considered a loaner solution. And if we as an industry have to learn from our past mistakes, opaque mechanisms that don’t verifiably prove where and how your assets are deployed can turn ugly in the blink of an eye.

The only way through the smoke is in chains.

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