Contamination only affects companies with ‘poor balance sheet management’ – Kraken Aus boss

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The crypto contagion caused by Terra’s infamous implosion this year only spread to companies and protocols with “poor balance sheet management” and not the underlying blockchain technology, said Jonathon Miller, general manager of Kraken Australia.

Speaking to TBEN, the Australian crypto exchange head argued that sectors such as Ethereum-based decentralized finance (DeFi) revealed their fundamental strengths this year by weathering tough market conditions:

“Some of the contagion we saw with some of the space lending models, [was in] this traditional financial lending model sits on top of crypto. But what we didn’t see is some sort of catastrophic failure of the underlying protocols. And I think that has been recognized by a lot of people.”

“Platforms like Ethereum didn’t fail when volatility hit. You didn’t see decentralized markets, decentralized lending models, DeFi in general, fall. There was no contamination there. What you saw was poor balance sheet management from closed store lenders,” he added.

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Miller’s comment comes despite CoinGecko reporting a 74.6% drop in market cap in DeFi in the second quarter of 2022 following the collapse of Terra and an increase in DeFi exploits. Although the crypto data aggregator also noted that the industry managed to keep most of its daily active users.

Miller also added that blockchain projects only encountered problems when the design of their underlying protocols was “obviously bad”, such as in the case of Terra’s algorithmic stablecoin TerraClassic USD (USTC).

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“I think that’s a trade-off. There is a problem with the management of the treasury, not a problem with the blockchain,” he said.

When asked about how Kraken has progressed through the crypto bear market this year, Miller suggested that the company was well prepared to deal with the volatility. He noted that the company has survived many recessions in its 11-year history, notably not wasting a lot of money on marketing during last year’s bull run.

“We’re in a slightly different position than maybe some of the other exchanges that have spent a lot of money on advertising. We have a very strong word of mouth business model,” he explains.

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Miller was also optimistic about the current state of the Australian crypto sector, stating that there are many “bullish underlying signals from companies still building products”.

He pointed to major banks such as ANZ recently testing the use of their own stablecoin on Ethereum, and major payment giants such as Mastercard joining the Blockchain Australia Association, indicating their strong intention to get involved in crypto and blockchain.

“So you know, institutions that are taking advantage of the underlying technology, maybe some heat from some of the speculative features, which we’ve seen through 2022, which might even be a good thing.”