FTX Trauma Recovery: Reflecting On Crypto's Past And Present To Figure Out Its Future

«I told you so» – probably the first thing you hear from that crypto-skeptical colleague after the news about FTX goes viral. The man never misses a chance to express incredulity towards digital money, and now he's having his moment. The sad thing is, this time it is really hard for you to argue. It feels like you've been scammed. What if he was right from the very beginning and you got into the thick of a huge scam called crypto?

Wait, wait, wait.

First of all, why would you trust an opinion concerning the finances of someone who probably thinks that savings in his state bank account are fully backed and safe? And even more so – why would you argue with them? He is probably also pretty sure dollars are backed by gold and people in government care about us and always do the right things — they just know better. Save your breath for more rewarding activities: Try casting pearls before swine, or help Danaïdes fill their basin, Idk.

Secondly, set despondency aside. I know we all are in some need of therapy by the end of 2022 – or a retreat in a really remote place at least. It’s been a tough year for crypto enthusiasts: the community just recuperated from the Terra collapse and accepted the extended winter we are living in, not to mention geopolitical developments, and now Sam Bankman-Fried just stabs us in the back. But if after all the stuff the crypto sector went through during the years of its existence, we are still here, hodling and trading, maybe this time we will survive again?

Obstacle or opportunity

What SBF really did — besides bamboozling and plundering a huge number of people — he showed us what we did wrong in our attempts to create a safe digital financial world. The most important thing now is to draw the right lesson from this incident. It requires understanding how we get there to not repeat history.

It is key to recall that the history of cryptocurrency began with people’s broken trust — Bitcoin was created as an answer to the financial disaster. It was a reaction to the 2008 financial and monetary crisis whose hardships spurred a lack of trust in the banking system. A great example of upheaval paving the way for new ground-breaking solutions.

And the core idea behind Bitcoin is inherently the refusal to trust individuals. Because people lie. People pursue their selfish goals. They did, they do, and they will do.

You must not make any idols

”Сrypto savior” – sounds funny now. Barely we can call SBF a savior of anything but his own skin today. But a year ago, few seemed to mind when Sam proclaimed himself one. He made deals to rescue other crumbling cryptocurrency businesses, propped up the BlockFi platform, and tried to save Voyager Digital, with a large loan. The picture looked perfect.

Alameda and FTX's close ties looked suspicious from the very beginning: it’s not that hard to guess that the simultaneous running of a cryptocurrency exchange and a quantitative trading firm creates great room for abuse. But who will dare to question the conscientiousness of the genius philanthropist?

“Sam ran the shop, Sam ran everything, we all trusted him, and believed him. It was a dictatorship, in a good way, a benevolent dictatorship.” — an early employee of Alameda.

People love seeing faces behind companies, but somehow after so many frauds and disappointments, we still struggle to realize that the real person is never here, never in the media. What we see is a picture, a mask, a side of one’s personality in the best case.

Let’s go back to the early times of crypto once again. 14 years after Bitcoin's launch no one still knows who The Creator of the first crypto, the mysterious Satoshi Nakamoto, was. He started a new world, left us in possession of his wisdom, and never sought anything but anonymity. That's how it started – and you see how it's going. The initial idea was to remove the third party from the money-exchanging equation, and yet we somehow managed to start making idols of it.

Restoring faith in crypto

FTX traumatized us all. I bet everyone in crypto has trust issues now – I especially do not envy those crypto novices, who hopped on the ship less than a year ago. But I deeply DO envy those who will enter the sphere starting now. Because what we see today is the unprecedented increase in transparency and ethics level among both CeFi and DeFi sectors.

Founded in 2019, FTX was one of the largest crypto exchanges, at its peak in July 2021, had over one million users and was the third-largest cryptocurrency exchange by volume. Today it is probably the largest by number of users robbed. Suddenly, it turned out that neither a large number of users nor the well-known founder, which always flashes through the media, means anything. The crypto community woke up — to trust, we need proof!

Trusting someone is not bad but trusting easily is a matter of thought. Probably, every self-respecting crypto exchange has already, if not published the Proof of Reserves, at least announced the intention to do so. The balance sheet of FTX was also published recently (leaked, in fact) — a great example of what one shouldn’t look like.

Let’s talk about savings

What is more interesting, is the banking issue.

“Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve.” – Satoshi Nakamoto, circa 2009.

State banks do not just take money from savers and lend it to borrowers — a bank can lend more credits than the number of actual deposits on its hand. Which is a good reason not to trust this financial system. By opening a savings account in the state bank you unintentionally become part of this whirlpool of deception.

And now we see a wave of this Proof of Reserves movement, raised by the FTX collapse, bringing us here – to the rise of the crypto savings era. The biggest players in crypto lending enter a new level of transparency – just the other day we watched HEXN.IO revealing its full balance sheets. The list of the company’s addresses, the value of its assets, and liabilities — all the data is now freely accessible and regularly updated.

HEXN.IO Proof of Reserves page

I bet Satoshi could hardly have imagined the bank deposit system being implemented into the crypto world. Moreover, becoming more trustworthy and lucrative than ever. Maybe the post-FTX world isn't that bad, huh?

Concluding thoughts

The work of understanding how we let the FTX happen, and how to avoid it in the future has barely begun. The web of obligations and relationships is quite visible in crypto, which allows us to easily follow the chain of events, but there are still a lot of details to be divulged.

While skeptics are gloating over the FTX collapse, seeing it as a failure for the crypto industry, we should choose a more productive path and consider it an unprecedented development opportunity and a chance to review our transparency standards for companies we trust with our money.

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