The recent cryptocurrency bear market has uprooted decentralized finance (DeFi) and centralized finance (CeFi) projects in the crypto space. But past performance is not always indicative of future results. For starters, Ethereum's price has already recovered 48% in the past few days ahead of the looming Merge upgrade.

At the annual Ethereum Community Conference in Paris, Cointelegraph spoke to Skale Labs' co-founder Konstantin Kladko regarding the market crisis. Sklae Labs is a decentralized network of blockchains built on Ethereum. Currently, it's comprised of 28 blockchains where one can send tokens seamlessly from one chain to another. Here's what Klado has to say about the recent contagion:

As the bear market unraveled, it turned out that once-reputable projects in the blockchain space, such as Celsius and Three Arrows Capital, actually took enormous amounts of leverage with customers' deposits to generate seemingly safe and consistent yields. Their forced liquidations and inability to pay back creditors, estimated to be in billions of dollars, then took the entire industry downhill.

Kladko explained that while supposed "decentralized safeguards" are in place to protect investors, they often malfunction under duress. "Most DeFi applications have trivial protection against crashes. An example of this is in DeFi lending, where you supposedly pledge X amount of collateral, take out Y amount of loan, and won't be in danger of liquidation until the price of the collateral falls to Z. The problem is that when the collateral price falls to Z, it usually falls so fast that you won't be able to sell."

The issue is then simultaneously compounded by market participants taking out digital asset loans to buy even more volatile