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  • December 7, 2022
  • Article
  • Harvard Business Review Digital Articles

Why Decentralized Crypto Platforms Are Weathering the Crash

By: Shai Bernstein and Scott Duke Kominers
  • Format:Electronic
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Abstract

In the past year, crypto markets dropped from $2.9 trillion in value to around $800 billion. In the wake of the collapse, crypto lenders and exchanges have been accused of fraud and other wrongdoing. What went wrong? One factor is competition. In theory, competition should always benefit consumers. But in some situations, as competition intensifies, companies hide underlying costs and risks in order to offer attractive products and win customers. Because it’s so easy to move assets in crypto, competition incentivized this practice, and a lack of transparency in centralized crypto finance allowed unproductive companies to thrive by offering products that appeared attractive in the short run but were unsustainable in the long run. Unfortunately, these companies amassed significant assets before their business models eventually unraveled. This problem hasn’t affected all crypto markets, however: decentralized exchanges, which have more transparency, have held up while centralized exchanges have flamed out. Though generally smaller and less advanced than centralized exchanges, these decentralized protocols may offer a way forward for crypto markets.

Keywords

Crypto Economy; Cryptocurrency; Financial Complexity; Financial Crisis; Decentralization; Decentralized Markets; Decentralized Autonomous Organizations; Finance; Market Design; Financial Services Industry

Citation

Bernstein, Shai, and Scott Duke Kominers. "Why Decentralized Crypto Platforms Are Weathering the Crash." Harvard Business Review Digital Articles (December 7, 2022).
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About The Authors

Shai Benjamin Bernstein

Entrepreneurial Management
→More Publications

Scott Duke Kominers

Entrepreneurial Management
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More from the Authors
  • Progressive Decentralization: A High-level Framework By: Jad Esber and Scott Duke Kominers
  • Ribbit Capital and the Gauntlet Investment Opportunity By: Shai Bernstein and Allison M. Ciechanover
  • Distributing a Billion Vaccines: COVAX Successes, Challenges, and Opportunities By: Eric Budish, Hannah Kettler, Scott Duke Kominers, Erik Osland, Canice Prendergast and Andrew A. Torkelson
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