The impact of the 2022 crypto bear market is still reverberating within the industry, and unsecured credit conditions have yet to fully recover from the panic-driven collapses that swept through lending institutions like BlockFi, Celsius, Voyager, and ultimately FTX.
Three years later, the privacy-focused clearing protocol Cycles is attempting to lay the groundwork for the resurgence of a sustainable credit market.
In May, the company launched a pilot version of Cycles Prime, which acts like a decentralized clearinghouse, allowing crypto trading firms to net settle and clear outstanding payments without the need for collateral or custody. The pilot is limited to institutional crypto trading firms looking to reduce credit usage without a central counterparty.
In an interview with Cointelegraph, Cycles CEO Ethan Buchman stated that since 2022, "unsecured credit conditions have tightened significantly," and that "businesses that previously operated on credit increasingly require collateral or pre-funding."
Buchman said, "The crisis of 2022 drained liquidity from many ecosystems, leading to a sustained decline in many tokens and decentralized finance (DeFi) volumes." He added, "While some major projects may see significant recovery in 2024/2025, others have not, for example, USDC only regained its historical market cap from 2022 earlier this year."
Similar to traditional finance, the crypto industry has also become "more alert to unsecured credit risks," he said, making it more difficult to redevelop the credit economy.
Although many in the industry have drawn parallels between the crypto sector and traditional finance (TradFi), especially as more traditional financial assets move on-chain, Buchman emphasized that the crypto industry cannot fully replicate traditional models.
He said, "Many in the crypto industry believe that the only way to redevelop the credit economy is to bring in large balance sheets from traditional finance that can take on more risk. This is a common practice in traditional finance, centered around central banks printing money to buy securities during crises."
According to Buchman, a better way forward is "network-aware clearing methods."
"The growth of a sustainable credit market relies on a solid foundation of risk management and clearing at the core of the system, especially during times of stress, which can enhance capital efficiency and liquidity savings." In his view, "liquidity is essentially a network topology problem."
Others in the industry have also pointed out the liquidity issues within the crypto sector. Arthur Azizov, founder of B2 Ventures, referred to it as "silent structural risk," citing the 2022 crypto market downturn as an example and mentioning the "illusion of liquidity" in the market.
This issue resurfaced in 2025, most notably when Mantra's OM token plummeted by 90% in April. Bitget CEO Gracy Chen stated that this collapse exposed "critical" liquidity issues within the industry.
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Original article: “Cycles Launches Decentralized Clearing Protocol, Aiming for Sustainable Crypto Credit After 2022 Liquidity Crisis”
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