There’s a popular saying in the crypto world: real progress often happens during bear markets. This idea was echoed recently by Jon Cunliffe, a deputy governor at the Bank of England.
He noted that the crypto companies that survive this current “crypto winter” could eventually become as big and successful as tech giants like Amazon or eBay.
“A lot of companies collapsed after the dot-com crash, but the technology didn’t disappear,” Cunliffe said. His point highlights a truth many in the crypto space believe—while prices may drop and companies may fail, the innovation and technology behind crypto can still thrive.
Despite market downturns, people continue to enter the Web3 space, revamp protocols, and plan for the future. But for crypto to create the next Amazon, it needs to build tools and services that are genuinely useful to everyday people, not just crypto insiders.
Right now, the industry is highly self-referential. Much of what happens in the crypto space involves moving funds from one protocol to another, often just to chase yields.
Many of the platforms that have recently failed, including lending services and hedge funds, took big risks with little collateral. When crypto prices fell, those risky positions went underwater.
This wasn’t just due to bad luck—it was largely because of unchecked speculation and the fact that most of crypto still hasn’t connected meaningfully with the real world.
As investor Mark Cuban put it, “Companies that survived on cheap and easy money but lacked solid business models will disappear.”
Crypto gained popularity when the U.S. Federal Reserve kept interest rates low, which allowed investors to take more risks. But now that rates are rising and economic uncertainty is increasing, investors are becoming more cautious about crypto’s potential.
Still, Cunliffe insists there’s something valuable in crypto. Open-source protocols can lead to open innovation, which could produce systems with real-world applications beyond speculation. One area with growing interest is credit-based and unsecured lending in crypto.
This sector is attempting to connect blockchain technology with real-world finance and potentially offer a safer, more sustainable way to grow.
The Defiant, a publication focused on crypto news, recently explored this emerging sector of “credit protocols.”
These new tools aim to bring creditworthiness into the crypto space by developing systems that issue loans based on a borrower’s reputation—either through blockchain activity or some form of real-world identity verification.
Platforms such as Centrifuge, Maple Finance, and TrueFi are examples of this trend. They promote “unsecured” loans, which means borrowers don’t need to post crypto as collateral.
This might sound risky and similar to what led to the downfall of firms like Celsius and Babel, but there’s a key difference: these new protocols are trying to link their loans to real-world, off-chain assets.
In traditional finance, credit scores are used to determine whether someone qualifies for a loan and what interest rate they should pay. But this system is often controlled by a few big companies that have made serious errors in judgment in the past.
Crypto-based alternatives are now trying to change this by building decentralized credit scores. These use algorithms to measure someone’s trustworthiness, which could lead to fairer and more transparent lending decisions.
Some developers are even exploring the use of “soulbound tokens,” a concept introduced by Ethereum’s co-founder Vitalik Buterin.
These tokens could represent a person’s on-chain reputation and be tied to their digital identity, offering a way to prove trustworthiness over time.
Different protocols approach credit scoring in different ways. Some look purely at on-chain transaction history, while others incorporate off-chain data like bank account behavior.
The challenge, however, is that many users operate across multiple blockchains, which makes it harder to collect an accurate and unified credit profile.
Some advanced platforms are using tools like artificial intelligence and even NFTs to help establish and verify digital identities.
For now, the safest loans in the decentralized finance (DeFi) world are still over-collateralized. For example, MakerDAO, the platform behind the DAI stablecoin, only allows people to borrow if they provide more crypto than they’re borrowing.
This helps protect against sudden price drops. Maker is also experimenting with bridging crypto and traditional finance by proposing loans backed by real-world assets like property—similar to a mortgage system.
Still, critics argue that Maker’s approach isn’t very “capital efficient” because a lot of money just sits unused as collateral. In contrast, unsecured lending protocols aim to improve capital efficiency by requiring less collateral.
They do this by bringing in verification methods like know-your-customer (KYC) checks and binding legal agreements. Some, like Teller, even analyze traditional financial behavior like credit card and banking activity to assess someone’s risk.
Even though there’s growing interest and funding for these new unsecured lending platforms, many experts urge caution. Trust in these systems is still limited, and their credit scoring methods are not yet fully proven.
One ironic twist is that regulation—often seen as a threat to crypto—might actually help bring legitimacy and trust to on-chain lending. Clear rules could create a safer and more reliable environment for lenders and borrowers alike.
In the end, while on-chain credit protocols carry risks, especially when offering unsecured loans, they also represent one of the most promising areas of crypto innovation.
By blending blockchain transparency with real-world financial practices, they might help build a more inclusive, efficient, and secure financial future.
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