Updates on the FTX Contagion

Geoffrey Miller
Geoffrey Miller
Updates on the FTX Contagion

I've said it before, and I'll say it again: the future of crypto, and maybe of currency in general, is decentralized and trustless, without flawed intermediaries and figureheads of questionable reliability.

It's been a weird week in crypto. I want to talk about the drama surrounding the continued unraveling of centralized cryptocurrency exchanges like FTX, and how it might ultimately drive more people to adopt the Internet Computer.

Sam Bankman-Fried Jailed

I've written more in-depth about SBF's arrest over at InfinitySwap's blog, including how it may have exposed alleged bias, and perhaps even corruption and collusion, in the New York Times' prior coverage of SBF. Self-promotion isn't usually my cup of tea, but I think my article is well worth the read based on its own merits. I recommend you go check it out!

What I didn't mention on InfinitySwap is an interesting anecdote that has emerged from SBF's high school days. According to Markets Insider, SBF attended Crystal Springs Uplands, a top Silicon Valley prep school. His senior class prank? Reportedly, he forged $100 bills with his face on them and called them "Bankmans." In view of recent events, the symbolic value here is unmistakable.

People can't say there weren't warning signs.

Alleged Colluders in the Crosshairs

With SBF in jail, the question naturally arises: who's next? After all, one simply doesn't preside over what Ben McKenzie called the "largest Ponzi scheme in history" without help. While it's probably fair to expect that Alameda's former CEO, Caroline Ellison, will likely face some kind of civil or criminal allegations, she hasn't been named yet by prosecutors.

What is known, however, is that SBF engaged in reportedly dirty donations to manipulate both sides of the political aisle in the United States. The elected officials and activists who may have benefited have pledged to give away SBF's cash, as reported by NBC. The extent of their knowledge of SBF's enterprises, and whether they were aware of FTX's allegedly unethical practices, remains unknown.

Binance on the Rocks

In the wake of FTX's collapse, Binance CEO Changpeng Zhao (CZ) has stepped up to try to fill the vacuum left by SBF. It will be interesting to see whether he succeeds in assuming the role of the crypto community's new unofficial spokesperson for the public and the halls of government.

Frankly, I have my doubts.

Binance is already under scrutiny by the US Justice Department for possible money laundering. Indeed, in the span of only 24 hours earlier this week, Binance saw $1.9 billion USD in withdrawals and was forced to pause withdrawals of the USDC stablecoin. Therefore, in my opinion, CZ's recent appearance on CNBC's 'Squawk Box' to discuss how Binance will avoid a major fallout similar to FTX doesn't inspire confidence. Binance is also on the hook for at least $2.1 billion USD that's entangled with FTX.

NPR has apparently already begun vigil to watch for the possible death of Binance.

Furthermore, Binance has taken a huge credibility hit this week as their auditing firm, Mazars, abruptly ceased all work with crypto companies. This news has led to a slew of negative speculation about Binance--Mazars was working on Binance's "proof of reserves" audit, and this sudden halt has shaken an already frail investor confidence. Although Mazars has severed ties with all crypto-related companies, people have been quick to point out that Mazars made this announcement while working for Binance, having already produced "proof of reserves" reports for other exchanges (like Crypto.com and Kucoin).

Conclusion: Toward The Decentralized Future

Of course, not everything CZ has said is wrong. I wholeheartedly agree with his assertion that customers' digital assets should be backed one-to-one by exchanges - but I don't trust that centralized exchanges are capable of committing to that ideal. At present, the only exchanges that can truly achieve this, and avoid the risks of bridges, would need to leverage the Internet Computer's direct blockchain integrations.

I've said it before, and I'll say it again: the future of crypto, and maybe of currency in general, is decentralized and trustless, without flawed intermediaries and figureheads of questionable reliability like SBF and CZ.

We have the technology to do better, businesses like InfinitySwap are already pioneering putting that technology to good use, and the Internet Computer is an excellent place to build out necessary customer infrastructure. So let's keep forging ahead and not get too distracted by the failures of centralization.

Thankfully, recent metrics suggest that may be exactly what people are doing.

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  • Disclaimer: The views and opinions expressed on this website are solely those of the original author and other contributors. These views and opinions do not necessarily represent those of the Dfinity Community staff and/or any/all contributors to this site.

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