The fallout from the 2022 crypto bear market still reverberates across the industry, with unsecured credit conditions not fully recovered from the panic crash that engulfed lenders like BlockFi, Celsius, Voyager and, ultimately, FTX.
Three years later, privacy-preserving clearing protocol Cycles is attempting to build a foundation for sustainable credit markets to reemerge.
In May, the company launched a pilot version of Cycles Prime, which acts like a decentralized clearing house, enabling crypto trading firms to net and clear outstanding payments without collateral or escrow. The pilot was reserved for institutional crypto trading firms that want to reduce credit usage without central counterparties.
In an interview with Cointelegraph, Cycles CEO Ethan Buchman said, “Unsecured credit conditions have tightened substantially” since 2022, and “business that used to be done on credit increasingly requires collateral or pre-funding.”
“The 2022 crisis sapped liquidity from many ecosystems and led to the sustained decline of many tokens and DeFi volumes,” said Buchman. “While some major projects recovered substantially by 2024/2025, others have not, and we’ve seen, for instance, USDC only recover its 2022 all-time high market cap earlier this year.”
Much like traditional finance, the crypto industry has become “much more conscious of unsecured credit risk,” he said, which has made it harder to regrow the credit economy.
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Crypto can’t rely on TradFi models for everything
Although many in the industry have drawn parallels between crypto and TradFi, especially as more traditional financial assets move onchain, Buchman emphasized that crypto can’t take all of its cues from tradition.
“Many in crypto think the only way we can regrow the credit economy is to recruit large balance sheets from TradFi that can warehouse more risk. This is the general approach of TradFi, anchored in a central bank that prints money to buy securities in times of crisis,” he said.
According to Buchman, the better path forward is a “network-aware approach to clearing.”
“The growth of sustainable credit markets depends on sound foundations of risk-management and clearing at the heart of the system, enabling greater capital-efficiency and liquidity-saving, especially in times of stress.”
In his view, “liquidity is fundamentally a problem of network topology.”
Others in the industry have also pointed to crypto’s liquidity issues. B2 Ventures founder Arthur Azizov called it a “silent structural risk,” referencing the 2022 crypto downturn as one example of the market’s “liquidity illusion.”
The issue resurfaced in 2025, most notably with the 90% collapse of Mantra’s OM token in April. Bitget CEO Gracy Chen said the crash exposed “critical” liquidity issues in the industry.
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