State of the Industry 3Q2022 Report

Notwithstanding macroeconomic headwinds and an unsustained relief rally, Real World Asset (RWA) and stablecoin innovation persisted through 3Q2022. The broader cryptoasset market saw modest relief in 3Q2022 after slipping below a total market capitalization of $1T in June 2022, thereby marking an 18-month low. The quarter’s gradual climb marked what many believed to be a post-capitulation rally following centralized finance (CeFi) players experiencing substantial losses and liquidity issues, which was driven by industry juggernaut Three Arrows Capital (3AC), a proprietary trading firm, going belly up following Terra’s (LUNA) collapse and subsequent broader market weakness. However, the run was short-lived.

As the second half of 3Q2022 came about, hawkish commentary from Fed chairman Jerome Powell, unfavorable inflation data, and geopolitical uncertainty drove market participants to de-risk. Nevertheless, despite failing to maintain momentum, some market participants became optimistic that inflation had topped and peak pessimism was realized. For instance, CPI retreated from a 40-year high in June, while AAII’s Investor Sentiment showed sentiment jumped in 3Q after hitting a 32-year low in 2Q. Notwithstanding inflation slipping, geopolitical tensions, labor market data, and hawkish commentary from the U.S. Federal Reserve drove risk-on assets lower into year-end and investor sentiment along with it. On September 23, 2022, The AAII investor sentiment survey hit its highest level of pessimism since March 2009.

In addition to mass liquidations and unprecedented industry insolvencies, global regulators jumped at the opportunity to push for new laws surrounding stablecoins and decentralized apps (dApps), such as coin mixer Tornado Cash. While some regulators were swift to shoot first and ask questions later, others showed an interest in carefully pushing through laws to avoid potentially disrupting innovation within the world of Decentralized Finance (DeFi) and stablecoins.

When all was said and done, 3Q2022 proved that despite several headwinds, progress within the world of DeFi, Real World Assets (RWA), and stablecoins remain robust. For instance, a handful of Ethereum-based protocols announced plans for a stablecoin, and centralized stablecoin issuers took measures to improve transparency to stay competitive.

Furthermore, the demand, application, and usefulness for RWA became increasingly more evident, as exemplified by the passing of a governance vote for DeFi protocol MakerDAO to allocate $500M to U.S. Treasuries using their DAI stablecoin.⁴ Not to mention, the broader trend for several market indicators suggested that adoption remains alive & well, and the future of RWAs and stablecoins has never been brighter. In sum, builders are still building, and crypto is still standing.

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Disclaimer: The information contained herein is general information, intended for educational purposes only, and is not intended to constitute legal, tax, accounting, or investment advice. Information, opinions and views are solely of Fortunafi and none of the information contained should be used as the basis for an investment decisions. To ensure suitability, contact a licensed investment professional when making any investment decisions and do your own research.emai