Mr. Bones' Wild Ride
One does not simply get off Mr. Bones' Wild Ride
CeFi crypto lenders, in a move reminiscent of the classic meme, just won’t let people get off the ride.
In hindsight, it’s not surprising. Fully collateralized loans only work if the collateral can be liquidated at par. In a market meltdown, with everyone rushing for the exits, holders of collateral can’t get off the ride, and therefore neither can you.
Some obvious impacts of this market event will be:
more regulation of CeFi platforms; thankfully
more understanding of what DeFi does well
more focus on off-ramps
I’m particularly interested in the role that off-ramps can play in making our collective experience with crypto and Web3 better.
The industry didn’t pay particular attention to off-ramps over the past couple years, or even before that. The prevailing thought was once money goes in, it doesn’t want to come out. And even if it did want to come out, the focus of existing off-ramps has been helping the crypto-rich access liquidity without selling their crypto. The focus was on tax planning and finding ways to leverage crypto-assets to borrow dollars. If you got rich in crypto, you had an off ramp. If you joined the party in the last couple years, you likely didn’t think about the off-ramp until recently.
Now that retail investors got burned (badly), crypto’s off-ramp problem if front and center. Mainstream internet users are seeing the headlines and the entire industry, CeFi lender or not, is going to be painted with the same brush. “Don’t put your money in crypto, you’ll never get it back out”.
Would you put your money into a bank if you thought it would be a pain in the ass to get it back out?
Would you use load $1000 onto a Starbucks card?
Of course not. And in the same vein, crypto can’t become part of our day to day lives unless the off-ramp is at least as easy as the on-ramp.
I’ll be spending a lot of time thinking about this problem, and building for it, over the next few months. The wallets and Web3 apps that tackle this problem head on will be some of the biggest winners when mainstream consumers come back to crypto in a few years.