Permissionless blockchains are a gem for researchers: the full data of a self-contained economy in a standardised format. In our research team at University of Zurich Blockchain Center, we resort heavily on blockchain analytics to understand the crypto economy. After analysing a family of long-term blockchains, it is  striking to find that in the early years, it was possible to find interrelations between activity in the blockchain and the cryptocurrency prices on what we now call Centralized Finance (CeFi) exchanges. The intuitive reason is simple: the more people use cryptocurrency, the more it drives demand, raising its relative price with respect to Fiat currencies. However, the relation between blockchain activity and price vanished in the second half of the 2010’s: most trades occurred off-chain, moving cryptocurrencies and tokens away from mediums of exchange (if there ever were such) or store of value and becoming mere sources for speculation. Decentralized Finance (DeFi) did not alter this trend, moving a fraction of it once again on-chain. In the early days of crypto, a first generation of bubbles was created, all triggered by exponential growth of user demand on scarce assets. The second-generation bubbles were not brought on by incorrect crypto-economic incentives, but due to the ecosystem attracting the wrong actors. There is no inherent flaw in the basis of blockchains and Decentralized Ledger Technology (DLT), it is just poor management of the opportunities brought by them. In the following, I will summarise some thoughts I hope will serve for introspection to the blockchain ecosystem. This, together with the fantastic material brought by the Bitcoin Suisse Research team, is food for thought, trying to find ways for brighter future days.

Not mere technologies

Blockchains are usually presented as a technological revolution, one that builds an intricated web of businesses and services on these tamper-proof ledgers without the need of central trusted parties. As a technology, different protocols are compared according to their data throughput, number of transactions per second, languages on which smart contracts can be written and the cryptographic primitives used to secure them. However, blockchains work based on a set of incentives that try to align agents’ behaviour, a goal that they do not always fully achieve. They are governed by closedknit communities in which decision-making processes have strong power imbalances. The underlying, internal principles of blockchains and crypto-financial services are complex socio-economic-technical systems. Nothing less. Too often I hear something along the line of “we do not need to know the intricacy of the engineering of our mobile phone to use it. So, neither do we need to understand blockchains in order to use them.” This is the most dangerous fallacy that will continue to drive the crypto space into failure after failure. Everybody needs a basic understanding of the social, economic and technical interrelations of a product or service to be able to make informed decisions. This is why education (and not veiled advertisement) is of primordial importance at all levels for students, professionals, and the general audience. 

It is all about human behaviour

We as humans do not act rationally and we continuously learn new behaviours. Even if we assume no wrongdoing, the Terra-Luna debacle showed in cinematic fashion the limits of simplified economic models turned into algorithms. Once rules are fixed, agents have ample time to find holes in their logic. This has happened over and over and will continue happening. The collapse of FTX and Alameda Research – only fully understood in tandem – points to both: the issue of lack of regulation, and the dangers of the proliferation of tokens that wrap each other’s value, issued without oversight. In systems that few people understand, obfuscation is so simple to achieve… To me, it is mesmerising that intelligence and analytic companies with abundant resources failed to issue early warnings of this glaring situation. It is exactly for cases like this that unbiased actors such as research units can shed light on the potential risks present in these economies.

The need to excel

The recent turmoil in crypto has hit all around the world, but – while certainly taking its toll – it has left the Swiss ecosystem still on its feet. To turn this necessary cleansing of undesirable actors into an opportunity, it is mandatory that all the members of the ecosystem excel in their area: regulation, business development, financial advice, compliance, coding, education, and research. The strength of the Swiss brand is in the hands of each member of the local ecosystem. Switzerland has a unique aura as a world-wide blockchain hub: A unique mixture of advanced yet unobtrusive regulation, multi-faceted stability, and qualified workforce. This is the moment in which we all remember the importance of different pillars, be it technology, business/economics, or regulation/governance, in a holistic manner. This is the moment in which, irrespective of our roles in practice, government, or academia, we work together supporting each other. This is the moment in which every decision, every new step is done adhering to the highest standards.