I've seen some concern voiced over counterparty risk in private credit contagion into public markets. Counterparty relationships are not uniformly visible across the financial landscape, so it is conceivable someone accepts a counterparty position on an instrument where crypto is pledged as an asset. This instrument is presented as a different asset obscuring the crypto, a tower of downstream instruments are constructed on top of that original instrument, and tranches leak out into a bunch of other more tradfi instruments.

I've yet to see evidence that this is widespread in practice. Though admittedly there is a lot that can go on in private credit that is out of reach from public analytics.

Even if there was contagion risk however, I don't expect extinction level financial system damage. Total global crypto valuation at peak was around $1T USD depending upon who you ask. Global software industry alone is around $10T USD. If crypto goes to zero tomorrow, it would be life-alterting to many people, but most of the world would go on about their lives.

More value has been erased from global equity markets this year than any hypothetical crypto-to-zero scenario, and while the consequences won't be pleasant, in the developed world if you have saved up 1-7 years of living expenses you will barely notice the recession currently inbound.