This week’s story: Crypto companies’ strategies in times of crisis
This week’s story: Crypto companies’ strategies in times of crisis
juin 27 2022
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Strategies in times of crypto crisis

The times of crisis are among the most defining moments in our lives.

This bear market is no exception, and it has already proven to be cathartic, unveiling hidden vulnerabilities of many companies and protocols. This information is crucial for all market players, who now have an opportunity to reassess their strategies and adjust them to emerge from the crisis in a stronger position.

This week the Deputy Governor of the Bank of England said that the survivors of the rout in cryptoassets could become the technology companies of the future rivaling Amazon. Coming from a high official serving at an institution that has repeatedly called Bitcoin “worthless”, the statement is remarkable, and shows that countries can readjust their crypto stance just as well as companies.

The betting season is on, and we can already have an idea of some of the strategies that companies and countries are taking.

Buy low

The most obvious flaws that crashing prices have revealed were related to the risk management of financial protocols, whether decentralized like Terra or centralized like Celsius or BlockFi.

In case of DeFi protocols, generally nothing could be done to stop the bank runs that crash the protocols and the underlying tokens, because the clients’ funds are managed by on-chain smart contracts and can be accessible by clients at any time.

In case of centralized financial protocols, also called CeFi, emergency stops can be triggered by the companies that manage their clients’ funds centrally – and that’s what Celsius did, freezing all withdrawals from the platform on June 12th. This solution is not permanent though, and the company will eventually have to find a way to avoid liquidations and to answer to its clients.

Luckily, some companies that have escaped the risk trap, are ready to step in.

FTX, a crypto and derivatives exchange and as a lucky owner of a healthy balance sheet, seems to enjoy playing Fairy godmother: it gave a $200 million and 15k BTC loan to a crypto brokerage firm Voyager Digital, and then extended a $250 million credit line to BlockFi, a centralized lending-borrowing platform. FTX is now reportedly discussing the acquisition of a stake in BlockFi (now at 80% discount vs its last year valuation), while one of BlockFi’s initial investors Morgan Creek Digital is also looking to raise $250 million to outbid FTX.

Since the bailout news, BlockFi has adopted a more client-friendly approach, raising the fixed yield on deposits and decreasing withdrawal fees.

Nexo, another CeFi lending-borrowing company, was quick to propose buying Celsuis’ distressed assets, and it may very well succeed in doing so, as Celsius is said to prepare for a bankruptcy. However, it could be challenged by no other than Goldman Sachs, which is reportedly raising $2 billion for the same purpose.

📉 Buying troubled CeFi companies can lay the foundation for a far-reaching future development of whoever wins the bidding war, and many companies realize the benefits of this strategy. However, the buying companies must be confident in crypto industry in general and CeFi lending trend in particular, and it is encouraging that so many do.

Position for the mobile

One of the most promising – and still underdeveloped – directions for web3 applications is mobile. Even if some blockchains like Celo were specifically created to facilitate mobile crypto payments, the most of the industry’s activity is still happening on computers.

A crisis can be a great time to gain strategic advantage, and it was Solana that decided to make a move into mobile. This Thursday its CEO Anatoly Yakovenko presented a software development kit called Solana Mobile Stack that will contain Android-compatible crypto wallet adapter, custody and payment solutions, as well as NFT minting feature and a better access to DeFi and crypto games. To incentivize developers, Solana will be launching a $10 million grant program.

The company did not stop at software though, and a brand new Android-based smartphone called Saga is to be released in 2023.

Solana’s move could help it stand out from competing blockchains and position for the future 📱, although some might say it must first get its recurring outage problem under control.

Gain market share

The company that has never hesitated to deploy means for client acquisition is Binance, and it sticks to this strategy.

This week the world’ leading exchange (and the many associated ventures) signed an exclusive partnership with no less than Cristiano Ronaldo. World’s most influential athlete with 440 million of Instagram followers – world’s record – will be giving its fans an introduction to web3 and create a series of NFTs available only on Binance NFT platform.

Also, in an effort to become even more attractive to users, Binance US announced a zero-fee trading on four spot pairs for Bitcoin.

Binance is also advancing on the DeFi front, recently announcing its “strategic investment” in OpenLeverage, a permissionless lending and margin trading protocol.

Bet on the metaverse

Ripple – one of the oldest blockchains that has been created to facilitate inter-bank payments and settlements – has not been heard of much this last year, notably because it has missed the whole web3 wave. Now, however, a new strategy is afoot, and Ripple is developing a new metaverse-friendly blockchain called Root Network together with an NFT project FLUF World.

Ripple Labs was not involved into DeFi and avoided many of its pitfalls, which may be one of the reasons it can now deploy its resources (and the knowledge gathered from already existing metaverses) to build a new virtual world.

Sometimes it’s better to be late to the party 😉

Develop its crypto industry

While running a country is not the same thing as running a business, in some respects these notions could be compared – notably when speaking about developing an industry.

After being crypto-skeptic for a long time, the UK has been showing increasingly crypto-friendly attitude. UK government’s official plan to make the country “a global cryptoasset technology hub” was recently followed by Her Majesty’s Treasury announcing a rational approach to crypto companies KYC (vs the draconian one pushed by the EU), leading to believe that the United Kingdom has made its decision on crypto.

Market downturns can be exceptional moments for creating wealth, as the misfortunes of some make the fortunes of others.

Goldman Sachs could buy Celsius assets at a discount and develop its crypto proposition, Binance could poach clients from other, less prosperous exchanges, Ripple could build a better metaverse, Solana could outrun other blockchains in the race for mobile market, while the UK could reinvent its City in the crypto world.

Time will tell if these steps are successful.