The traditional banking system has moved closer to the crypto ecosystem over the past 18 months, thanks to a wave of demand from retail investors to hold crypto assets as well as institutional investors developing long-term strategies in the space.
Regulators set to set parameters around crypto assets; US President Biden has issued an executive order to create a regulatory framework around cryptocurrencies, and the Australian Treasury is reviewing its own regulatory policies to protect investors without stifling innovation.
But even without regulatory parameters, Chainalysis, which advises Commonwealth Bank on crypto risks, has observed through its global data feeds the large volumes of institutional money being invested in decentralized finance projects, including those exposed to UST. .
“You could call this a win for crypto, but at the same time it creates another destabilizing factor in the markets,” Gronager said.
“It will have cumulative effects that could cause other things, ideally not tomorrow, but let’s see.”
Terra, or UST, which is supposed to follow the US dollar one hundred percent, caused widespread panic on Tuesday after a mechanism involving the issuance and burning of a coin called Luna broke down and it was decoupled from its peg to the US dollar.
Unlike other stablecoins that are backed by US dollars or US paper, UST was backed by an algorithm that paid traders an 18% interest rate to maintain peg as well as a net security of $2.3 billion worth of bitcoins.
But the safety net was not enough to support the price of UST, which fell sharply.
“What the crypto industry is learning right now is what is enough? How much support do you actually need to back the stablecoin,” Gronager said.
“All of these projects start on a sunny day when everything is working, but when the storm comes, they can erupt, and we find out if they’ve invested enough in this problem.”
Chainalysis straddles a line between the Wild West of crypto and law enforcement who use its blockchain tracking products to hunt illegal cryptocurrency movements.
Its freshly raised capital will help the data-driven company expand its product line to include NFT analytics and grow its rapidly growing workforce around the world.