Crypto is here to stay

The world economy is called upon to move forward while facing enormous challenges. The war in Ukraine, the massive disruption of the supply chain, and the possibility of a food crisis are just some of these challenges. At the top of the challenges is the energy crisis and the highest inflation in the last 40 years. All of this is happening as the world emerges from a pandemic that has had dramatic health and economic consequences across the globe.

The financial markets are trying to process this environment, while the authorities under the threat of rising inflation tend to tighten monetary policy. In the midst of all this, the sharp downward movement of the stock markets was inevitable. Now, the probability of a downward cycle with a significant duration has increased.

Amid the stock market turmoil, the cutting-edge technology companies fell sharply, dragging the cryptocurrencies, which suffered significant losses. The strong sales of cryptocurrencies affected stablecoins. Stablecoins are a cryptocurrency associated with an external asset, such as the US dollar or gold.

Stablecoin can be divided into four categories:

• Fiat-backed Stablecoins. Issuers maintain 1:1 fiat currency stocks. Fiat-backed stablecoins often have one dollar in reserve for every token in circulation, either in cash or cash equivalents.

• Crypto-backed Stablecoins. Supported by other cryptocurrencies through smart contracts it is over-collateralized, while it tracks the price of the cryptocurrencies backing them or tracks the price of a fiat currency.

• Commodity-backed Stablecoins. Issuers hold equivalent commodity values as collateralized by physical assets like precious metals, oil, and real estate.

• Algorithmic Stablecoins. Algorithmic stablecoins use maths and incentive mechanisms intending to maintain a fixed value that manages the expansion and contraction of the token supply.

Terra, the algorithmic stablecoin project, has collapsed this month, prompting a widespread crash of the entire cryptocurrency sector. The collapse of stablecoin Terra USD (UST) and the Luna token raises questions about the risks associated with stablecoins algorithms, indicating the urgency of regulating the market that will operate with transparent rules, limiting cryptocurrencies' risk exposure concerning what they represent.

The good news is that policymakers closely monitor the cryptocurrency market without reacting to short-term market fluctuations while creating inclusive rules. This shows that regulators have a long-term view of the crypto market, which means they see that cryptos came and are still here to stay. The ones who do not last are the speculators. Whenever there is a disturbance, the speculator leaves. Those who remain are the users and creators of crypto technology who will support more flexible, efficient, and durable financial products.

The goal is to make blockchain financial products more accessible, transparent, and efficient to take advantage of new opportunities from innovation to meet the challenges of the old type of economic systems. Cryptocurrencies are at the forefront of achieving this goal and as will be completed, their future will become more and more bright.