Credit derivatives have exploded as they explode

LONDON: Sixteen years ago, I joked that what the financial system needed was a Goldilocks crisis that was hot enough to cause investors and regulators to wake up and see the swelling risks in credit markets, but not so hot that it caused the whole system to burn down.

Since then, credit derivatives and subprime mortgage lending continued to explode until they sparked the 2008 crisis that almost burnt the financial ecosystem down until the central banks arrived with quantitative easing extinguishers. But the intriguing question is whether that Goldilocks moment has arrived for digital assets? Credit derivatives have recently exploded as much as they did, and many investors are about as clueless about its workings as they were about collateralised debt obligations in 2006.

One of the biggest catastrophes that we've seen this month was Ran Neuner, a prominent crypto enthusiast. The two algorithmic stable coins, Terra and Luna, created $50 billion of losses in three days, caused by the collapse of the two so-called algorithmic stable coin. Some argue that the sector has failed to live up to its promise of providing a reliable store of wealth or an efficient payment mechanisms, and that it should completely burn down, which is why they think this shows that it should completely burn down.

The US $2 trillion-oddcoin market has already shrunk by around 30 per cent, and it is entirely possible that it will shrink further if a crisis hits the US $80 billion Tether stable coin.