For a generation of alienated techies, crypto¡¯s all-for-one ethos was its biggest draw. Now panic is spreading across this universe ¡ª and that same ethos is posing what may be the biggest threat yet to its survival.
What started this year in crypto markets as a ¡°risk-off¡± bout of selling fueled by a Federal Reserve suddenly determined to rein in excesses has exposed a web of interconnectedness that looks a little like the tangle of derivatives that brought down the global financial system in 2008.
As Bitcoin slipped almost 70% from its record high, a panoply of altcoins also plummeted. The collapse of the Terra ecosystem ¡ª a much-hyped experiment in decentralized finance ¡ª began with its algorithmic stablecoin losing its peg to the U.S$., and ended with a bank run that made $40 billion of tokens virtually worthless. Crypto collateral that seemed valuable enough to support loans one day became deeply discounted or illiquid, putting the fates of a previously invincible hedge fund and several high-profile lenders in doubt.
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