Over the last couple of weeks, we’ve seen selloffs of both stocks and cryptocurrencies. However, we shouldn’t be surprised. And as with stocks, we need to look beyond the short-term volatility of cryptocurrencies to their long-term value.
Over the long term, digital assets, and their underlying blockchain technologies, are set to form the foundation for the online transfer of value. This foundation is as transformational as the original internet of information was to become. Through this lens, it’s clear that established financial organizations need to bridge traditional financial infrastructure with that of decentralized financial (DeFi) infrastructure to leverage the best of both worlds.
The idea that digital assets would be immune to the pressures faced by traditional financial assets was always a myth. Instead, the fact that cryptocurrencies and traditional stocks are now similarly impacted by inflation and world events reflects the increasingly mainstream role that these currencies, and their underlying utility, are playing in the global financial system.
Of course, we can’t ignore how all digital assets, including cryptocurrencies, have also been affected by fear and skepticism spurred by the questionable practices of Terraform Labs, which saw the collapse of its TerraUSD stablecoin and its sister token Luna. At the same time, it is important to put this in perspective. The biotech industry didn’t disappear because of the Theranos scandal, and Web3 is not going under because of Luna. If anything, the success of snake-oil sellers speaks to our deep desire to see these ideas come to life.
As we move forward, bridging between traditional financial systems and Web3 blockchains and services will be critical to building trust, compliance, and risk management infrastructure into DeFi solutions. Blockchain is a transformational innovation in providing immutability along with a new set of financial rails built on top of Web2.
Equally important is getting traditional finance, with its wealth of experience and systems, involved. A new generation of software is emerging, which is bridging traditional financial compliance and risk management with the ability to transfer value digitally.
Despite the short-term devaluation of cryptocurrencies, all signals point to them moving from the edge and into the center of everyday commerce and finance. This is the time for traditional institutions to start reinventing themselves for the new world by bridging their existing Web2 infrastructure and applications to the promise of decentralized finance and the tokenization economy of Web3. The BCware team has been building the foundations for this world since 2018.