Celsius, 3AC demonstrated why financial infrastructure needs to be moved on to blockchain. Instead of working in the dark, more players in the finance industry must transfer their transactions to the blockchain, where every transaction is made public.
While mainstream coverage of cryptocurrency has been overwhelmingly negative in the wake of the collapse of the Terra ecosystem, the bankruptcy of Celsius, and the fall of Three Arrows Capital, these events ultimately show why more of the financial system should operate on-chain, bringing more transparency and information to market participants.
The damage was caused and exacerbated by opaque, off-chain entities in all three cases. And while the reason for the trio of events is important, it has also caused considerable damage to the overall reputation of the industry. These events have made it clear that the industry needs more transparency, which can be made possible with more on-chain data and data analysis tools.
Proponents of blockchain technologies often tout their transparency: the networks are treasure troves of open, incorruptible financial data allowing for economic activity to be measured with an unprecedented degree of accuracy. This new technology creates immutable records of all transactions where sentiment and investor behavior can be measured through the collection and study of data.
On-chain data gives us insight into market events
On-chain data analysis has become essential in the blockchain space. We can gather valuable insights into market conditions by looking at transaction data and crypto wallet balances. This is crucial for participants and investors trying to plan their next move. Data tells a story of the market’s past, and it allows every investor to make an informed decision before initiating any trades or interacting with the market.
The importance of analytics platforms has become more apparent than ever before — they are essential for learning from our mistakes and understanding weaknesses within the blockchain ecosystem. The events leading up to Celsius’ collapse and the unveiling of 3AC’s holdings were researched and analyzed thoroughly by analysts and media alike. Research has helped to paint a picture outlining where the contagion started and how it spread. This was only possible because some of that data was on-chain. If 3AC and Celsius had a full picture of their holdings on-chain — similar to a platform such as Aave, which anyone can audit and verify collateralization — fewer investors and creditors may have been duped.
Similarly, on-chain intelligence plays a role in real-time market movements, not just in analyzing the past. Data that provides users near real-time information about the movements and positions of the industry’s most important and largest players proved essential when Terra USD (UST) lost its peg. Organizations with insights into this data managed to avoid the worst of the UST de-peg.
Leveling the playing field
The on-chain analysis offers the promise of equal access to information and is not based on hype, sentiment, or technical analysis. This type of analysis can be focused exclusively on data, where the major benefit of on-chain metrics is that they explain investor behavior and network health in real-time. Additionally, on-chain data levels the playing field by making the strategies and activities of top participants public knowledge.
Transparent data is a core feature of blockchain networks. While the collapse of Luna, 3AC, Celsius, and others was treated as a validation of the belief that it is an ecosystem of “shadowy super-coders” where criminals and scams flourish, the reality is that these entities only managed to harm investors because such large elements of their operations were off-chain.
Ultimately, the antidote to crypto contagion is not regulation or law enforcement but in bringing more financial infrastructure on-chain where it can be analyzed and used by the wider public.