Late night thoughts about the FTX debacle

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It’s been a rough couple of days since the FTX debacle.

It is hard to overstate the impact this event has had, and will continue to have on the crypto industry.

Now that we are a few days removed from the event, I’d like to ramble about my thoughts and two cents.

Not about the event itself, but rather its potential ramifications, how it reflects on the current state of crypto, and how we can move forward.

The Crypto Space

Overall, it is disappointing that we seem to have taken a few steps back as an industry.

I initially believed that we were close to growing mainstream acceptance, with increasing use cases, awareness and institutional adoption. Sequoia seemed to have believed the same.

Institutions were also coming in droves, as evident from the recent institutional collaborations and plans in crypto.

However it seems like we are much further than that than I initially thought.

Despite the influx of builders and institutions, the crypto space is still seen as a casino for many participants.

While this might not be fresh news, perhaps we need many more driven, genuine and long-term builders in the space.

Quick scams, hacks, rugs and PvP will take us nowhere.

We would need a greater proportion of well-meaning and passionate builders and participants alike for crypto as an industry to grow.

This FTX debacle will definitely also be an ironclad argument for crypto skeptics to use for the near future.

Businesses that might have been even considering entering the space to experiment would likely be extra cautious at this point. Who can blame them?

Greed

These recent events and their subsequent unravelling seemed to all stem from Greed.

It is rather perplexing how a profitable business like FTX, and such an immensely wealthy man in SBF, would choose to misuse user funds to try and accumulate even more wealth for themselves.

They had all the fame, money and influence, and it still all got away from them.

At this point we probably need to accept that Greed is an innate human nature. What we need is checks and balances to counteract this risk.

Perhaps a similar revelation from the previous Terra and 3AC crises: What grows and rises really quickly tends to free-fall back down equally fast.

Lessons and looking ahead

First, a lesson perhaps repeated across various crises: Never put all your eggs into one basket.

This is relevant for your allocation towards investments, towards exchanges and projects, and other areas in life. Nothing is too big to fail, and you never want to put yourself in a position where you’re overly dependent on only one thing.

Survival is key, especially so in crypto.

A second lesson: Don’t romanticise ‘heroes’. Don’t have blind faith in anyone, any company or project.

These projects and companies are all similarly built by humans. Smart and capable humans, perhaps, but they are also similarly vulnerable to the greeds and vices of the world, and capable of making terrible mistakes.

On the broader level, as retail users and participants, we might have limited individual powers to influence the events that occurred.

But collectively, we can choose to use our assets and actions as a form of support towards values we believe in.

If we truly believe in decentralisation and transparency, we would allocate significant parts of our assets to decentralised platforms instead, while expecting more accountability and transparency from centralised exchanges.

The recent trend towards Proof of Reserves from centralised exchanges is a good start in the right direction. However, more transparency would have to be given for users to regain trust in centralised exchanges.

Closing thoughts

We need to now focus on the core fundamentals: Towards the crypto values of transparency and decentralisation, as well as other non-negotiables such as security and self-custody.

As Mario Gabriele aptly put in a personally highly recommended piece ‘The Casino and the Genie’,

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