Crypto sentiment is at an all-time low. Over the past month, $60 billion vanished in the Luna implosion, crypto lender Celsius suspended withdrawals, and layoffs were announced by several leading crypto companies. With hype and misinformation surrounding crypto, and stark declines in tech company valuations, this moment was coming.

But it would be short-sighted to conclude that the promise of blockchain is dead. It would also be misguided to think that all innovation is transformational, free of societal costs and risks, and leads to solving real problems.

Crypto market stress reflects the natural order of things. It's happening in unique parts of a vast ecosystem, and it's still early. Here are three ways to regain focus:

1. "Crypto" is vast; definition helps.

Crypto involves a bevy of stakeholders, including consumers, technologists, miners, exchanges, issuers, wallet providers, venture capitalists, digital custodians (including banks), and regulators. It's helpful to appreciate varying viewpoints on any issue, and to remember that as an industry, crypto is relatively young. At the federal level, for example, crypto remains largely unregulated in the U.S. (although with a recent bipartisan proposal, legislative efforts are gaining momentum).

Cryptocurrencies generally fall into two categories: (i) bitcoins/altcoins (e.g., Ether); and (ii) stablecoins. Within these two types there are many varieties, but the premise is the same: digital currency that exists in electronic form, on a decentralized system, and is not backed by a government (e.g., no deposit insurance). Bitcoin is volatile; a privately-issued stablecoin backed 100 percent by cash or high quality liquid assets is designed to maintain a fixed value. Nevertheless, no cryptocurrency is free from risk, like crypto exchange cyber attacks, denial of service attacks, or software bugs.

Contrast cryptocurrencies with traditional forms of money, and blockchain-based payments with our current payment system. There is public money (cash) which is a liability of the Federal Reserve, and there is private electronic money (deposits), which are a liability of a private and regulated entity (e.g., a bank) and backed by federal deposit insurance. Unlike decentralized blockchain based payments, today's payment systems are built on manual processes, multiple intermediaries, and aging infrastructure. Crypto and blockchain innovation are one path towards modernizing retail payments by building on a surge in decentralized finance platforms and broader bank disintermediation trends.

Stablecoins are digital tokens whose value is tied to an external asset. The value of “payment” stablecoins is pegged to a fiat currency (e.g., the U.S. Dollar). Payment stablecoins are backed by reserves (cash, U.S. Treasuries). Algorithmic stablecoins, however, have no associated reserve asset. An algorithm sets rules for balancing supply and demand, which makes it a very different asset from a payment stablecoin (and more like an unstablecoin).

The Luna implosion is about the catastrophic demise of an algorithmic stablecoin. It's one of the biggest crypto failures of all time. But of the roughly 200 stablecoins in existence, it is one type with unique characteristics distinct from most crypto. This in no way diminishes Luna's impact; it highlights that not all stablecoins are stable,1and not all digital assets are the same.

To make sense of crypto headlines, first define the type: if it's an algorithmic stablecoin, read about the fall of Luna/TerraUSD. If it's a payment stablecoin, understand the varied and significant risks U.S. banking and market regulators have identified, and efforts to address these risks legislatively and through the potential issuance of a U.S. central bank digital currency (or CBDC), which some believe could offer a safer alternative to privately issued stablecoins.

Also consider ways future federal regulation and oversight could make the payment stablecoin system safer, manage risks, and support financial inclusion. Stablecoins can be used to transfer funds, near instantaneously, on peer-to-peer networks across digital wallets for potentially low fees. For more on how stablecoins could lower payment barriers and potentially disintermediate existing payment systems to provide better services, read the research of two Federal Reserve economists, who note that "[s]tablecoins have the potential to spur growth and innovation in payment systems, allowing for faster, cheaper payments."2

Second be wary of false comparisons. Celsius, a crypto lender that is not a bank (despite frequent and confusing comparisons), froze all customer withdrawals in mid-June. Celsius holds approximately $11 billion in assets for roughly 1.7 million users, who were attracted to Celsius by promises of 19 percent yields and warnings of banking system distrust by its CEO. Celsius customers can no longer access their digital assets, and Celsius has hired restructuring counsel. Celsius customers may lack any protection in a Celsius bankruptcy proceeding, as disclosed in its terms of use, unlike the protections afforded to federally insured depositors in a FDIC bank receivership.

Celsius is just one example of a crypto firm performing bank-like activities while remaining outside the bank regulatory perimeter. The Celsius news underscores that millions of consumers participating in a largely unregulated federal system, often replete with misinformation, may not fully understand the consequences of their investment decisions. This reality doesn't mean that digital asset innovation is doomed—it means we need much better consumer, investor, and prudential protections in place with regulatory oversight.

2. Focus on positive use cases.

In March 2022, President Biden's Executive Order on Digital Assets emphasized the importance of promoting U.S. leadership in digital assets and related technologies; equitable access to safe and affordable financial services; and technological advances that promote the responsible development and use of digital assets. With over 24 federal offices and agencies tasked with varying action items, however, it is not yet clear how these goals will be met.

The Bretton Woods Committee's Future of Finance Working Group Digital Finance Project Team, co-led by Senior Deputy Governor of the Bank of Canada Carolyn Wilkins and former president of the Federal Reserve Bank of New York William C. Dudley, recently authored a paper that identifies three potential positive use cases in the emerging crypto and blockchain ecosystem:

  • Easier digital identify verification and data privacy (addressing high compliance costs incurred by financial institutions);
  • Low-cost, timely, secure, and scalable payments (improving cost, speed, safety, and transparency); and
  • More inclusive and efficient financial services through decentralized finance (e.g., improving access to financial services for the unbanked and underbanked and increasing the efficiency of capital markets activities).

These use cases underscore "the need for lawmakers and regulators to protect consumers, investors, and the overall financial system through guardrails that can support, rather than stifle, economic transformation.”3

Longer-term, sophisticated crypto market watchers are encouraged to: (i) delve further into each of these use cases, including World Bank data and industry developments; (ii) track regulatory and legislative developments whose application could impact the realization of these use cases; and (iii) consider advocating individually or as part of a trade group4 to participate meaningfully in these developments.

3. History is a useful guide.

Like the early days of the internet, different parts of the crypto ecosystem today suffer from fraud, high costs, meteoric growth, and interoperability challenges. Over time, investments in crypto companies, together with sensible regulation, will help create the infrastructure and economic foundation that allow crypto and blockchain innovation to mature responsibly, and potentially overcome these challenges. Just as the failures of the early 2000s did not signal the demise of the internet, nor do recent catastrophic events in the history of crypto represent the fall of blockchain.

Today's payment system needs modernizing. With appropriate guardrails and ongoing dialogue between public and private sectors on both risk and responsible innovation, blockchain-based technology has the potential to solve real problems.

As crypto-literacy increases and as innovation and regulation develop, the risks and potential promise of digital assets will come into increasing focus, requiring an even greater need to discern the details, and to promote balanced discussion.

The views expressed in this article represent only the views of the author, not of any DWT attorneys or clients. This article is intended to provide general information, not legal advice.


1  To add further nuance, not all payment stablecoins are backed entirely by cash or high quality liquid assets. In 2021, New York’s attorney general fined Tether $18.5 million and said the company had lied about its reserves, calling it “a stablecoin without stability.” Tether currently has 70 billion coins in circulation, making it more than three times the size of TerraUSD before the recent crash.
2  Stablecoins: Growth Potential and Impact on Banking ( at 7.
3  DFPT_BriefII.pdf ( at 1.
4  The following trade groups and views reflect a wide variety of interests on digital asset and CBDC-related issues: Crypto Council for Innovation – Unlocking the promise of crypto (; Blockchain Alliance - Chamber of Digital Commerce (; Digital Assets Archives - Bank Policy Institute (; Bringing the Disinfectant of Sunlight to the Digital Asset/Crypto Industry, President Biden’s Executive Order to Develop Consumer and Systemic Protections Is Welcome | Better Markets; Digital Dollar Project.