Aftermath of 2022 Crypto Bear Market Persists: Cycles Seeks Sustainable Credit Markets
The fallout from the 2022 crypto bear market continues to impact the industry, with unsecured credit conditions remaining tight months after major lenders like BlockFi, Celsius, Voyager, and FTX collapsed.
Three years on, privacy-preserving clearing protocol Cycles is aiming to rebuild resilient credit markets. In May, the company launched a pilot version of Cycles Prime, a decentralized clearing house designed for institutional crypto trading firms.
Cycles Prime allows crypto trading firms to net and clear outstanding payments without requiring collateral or escrow, targeting institutions seeking to reduce credit usage outside traditional central counterparties.
In an interview, Cycles CEO Ethan Buchman highlighted the significant tightening of unsecured credit conditions since 2022, noting that credit-dependent business increasingly demands collateral or pre-funded payments.
The 2022 crisis severely depleted liquidity across ecosystems, Buchman explained, leading to prolonged declines in token valuations and DeFi volumes. While some projects showed substantial recovery by late 2024, others lagged, such as USDC which only recently surpassed its 2022 market cap peak.
Buchman stressed that the crypto industry has become “much more conscious of unsecured credit risk,” hindering the organic regrowth of the credit economy, unlike traditional finance which often employs different risk mitigation strategies.
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Crypto Cannot Simply Replicate TradFi Credit Models
Buchman cautioned against crypto wholesale adoption of traditional finance (TradFi) credit models, which often rely on large balance sheets, central counterparty guarantees, or central bank interventions.
Instead, he advocated for a “network-aware approach to clearing,” arguing that sustainable credit markets necessitate robust risk management and clearing mechanisms integrated within the crypto ecosystem.
“The growth of sustainable credit markets depends on sound foundations of risk-management and clearing at the heart of the system, enabling greater capital-efficiency and liquidity-saving, especially in times of stress.”
Buchman added that liquidity challenges in crypto fundamentally stem from “network topology”—the inherent structure and connectivity of the blockchain networks.
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