Catastrophe, Survival, and Evolution: Writing After November’s Crypto Markets

Developing wallets is not easy, but evolving in the direction of exchanges is even harder: rebuilding confidence that has been destroyed takes time. Investors have had enough of hide-and-seek; they want exchanges to do what they are supposed to do. Matchmaking, trading, clearing, and risk control, that is enough.

Public proof of reserves and Merkle trees are just the first step. We have seen the disastrous consequences of chaotic auditing and custody, and regulation departments will not allow it to happen again. Therefore, compliant custody and auditing of assets is a hurdle every existing exchange and new exchange must face; investors do not want to lose everything. Full license, qualified audit reports, and perfect custody are the prerequisites to winning back users’ trust.

The ratings of the underlying assets are also an essential part of the future. In the crypto market, retail investors often lack knowledge of the underlying asset they are trading; they rush into the market with the dream of getting rich and losing some or all of the principal they invested in. The rating can solve this problem: under a perfect rating mechanism, investors can understand the risk and potential return of the underlying asset before trading and make the most suitable choice after consideration.

For centralized exchanges, since investors trust their wallets more, with the gradual improvement of the public chain network, the solution of “faster and more solid on-chain exchanges” becomes more feasible: investors can trade with low trust or even without trust. The open interests of dYdX’s BTC and ETH perpetual contracts have exceeded $100 million, respectively, surpassing many small and medium-sized centralized exchanges. Large exchanges have also begun to try to move on-chain: exchanges such as Bybit have launched self-developed wallets, and we may see large exchanges further launch their own on-chain spot and derivatives trading platforms in the future.

Regardless of the bull market or bear market, the history of the crypto market has never been interrupted. Institutions lacking risk management and exchanges lacking compliance awareness disappeared in the bear market, providing survivors with enough space and new ecological niches to be filled.

At the same time, while “everything is waiting to be done”, the survivors also have the most complete and diverse construction foundation so far: a mature spot market and derivatives market, a comprehensive public chain network, and the tenaciously growing Defi and NFT markets, providing developers and builders with “almost unlimited” evolutionary directions and possibilities.

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