The FTX Implosion Serves As A Stark Reminder Of The Technological Promise Of Blockchain

From the ashes of the 2008 financial crisis, a generation skeptical of a rigged system turned to blockchain technology for a new way with the potential to correct the mistakes of the past.

At the vanguard was Sam Bankman-Fried (known as SBF), founder of crypto exchange FTX and crypto trading fund Alameda. He publicly embodied the philosophies of financial inclusion, both through lobbying for open access to crypto and signing a “giving pledge” to hand over the entirety of his wealth to philanthropic causes. An eloquent and articulate contributor and spokesperson, Sam became a poster boy of just about every major financial publication and a major donor to U.S. political causes.

On the morning of Nov. 6, rumors of insolvency began swirling around both FTX and Alameda. The rumors turned to panic as whispers spread of huge losses and a balance sheet hole of over $6 billion. As customers ran for the door, FTX disabled withdrawals, exacerbating speculation. SBF took to Twitter 48 hours after the leak to announce FTX had agreed to a “strategic transaction” (meaning buyout) by Binance for a reported $1 fee – later revealed to be a non-binding letter of intent. At the time of writing, the acquisition has been abandoned, plunging customers' funds back into uncertainty.

At this stage, the precise cause is unclear beyond the horsemen of greed and complacency, perhaps vices of which we have all been guilty on the road to this moment. Such profligacy is evidenced by FTX Ventures leading high-value investment rounds in projects Aptos and Sui as recently as September. But perhaps this is missing a broader point.

“Hero” and “villain” are convenient narrative devices for ordering chaos in moments like this – remember Lehman Brothers and AIG. However, I argue there must be no new messiah. The only escape from false prophets is for technology to precede trust at every level, not vice versa.

Despite this setback, leaders in the space should continue building toward these stated philosophies and rebuild trust by delivering the value that blockchain-distributed systems can bring to an increasingly uncertain world. I do not think there will be a time when we can place full trust in centralized exchanges, but there might be a time when we don't have to.