The benefits of FTX's collapse

FTX's collapse is the nth vaccine against unregulated CeFi. Will Anti-vaxers finally accept reality?

Or you are, the stripes.

I was born a cynical person. Cynicism allows me to be more synched with long term trends rather than focused - and lost - into the noise of the immediate present.

And so I read the collapse of FTX as one short line in the book of crypto. One exciting line, that's undeniable, which will remain just that: a blip on my kindle screen.

Why?

Because blockchain technology has not been affected in the least. And neither has DeFi (decentralized finance), which in stark contrast to corruptible CeFi (centralized finance) has proven again to be the impassive anti-fragile space it was built to be.

DeFi's Uniswap, MakerDAO and Compound all worked and processed every trade and withdrawals. It is impossible for them to defraud anyone, it's in the code.

Thus the motto of trustless crypto: don't trust, verify. Not humans, but code.

And it will remain a blip because blockchain technology will transform the world. Because it works. Because it doesn't need to be trusted.

Who will use it and how, permissioned or permissionless, depends eventually on us all but one thing is certain: blockchain is here to stay.

FTX fallout benefits

While the story has predictably unleashed a vortex of irreconcilable reactions, let's consider some basic facts and benefits:

A) Those of us that scrupulously follow security best (or should I say: minimal?) practices are mostly untouched by the fallout. Why? Because one of the very basic rules in crypto is to never keep your money on centralized exchanges. Never. You move money in, trade, and move money out, immediately, to your private wallet of which you own the keys.

Your keys, your money. Not your keys, not your money.

The risks of keeping money on exchanges and losing it all are very clear and substantial. They have been hard tested time and time again. From the innumerable hacks, to inside jobs, to FTX-style malfeasance. So if you're one of those implementing this basic rule, you had no funds on FTX and you didn't lose anything.

Why do I say mostly? Because all coins touched by FTX/Alameda ("Sam coins") have been affected. Sol is or was the second largest coin held by Alameda. So if you held $SOL in your private wallet you've seen its price crash 40% without being able to do much.

Obviously there is also the contagion piece; everything connected to FTX/Alameda is impacted. Blockfi withdrawals have been halted.

B) Those of us that scrupulously follow winter-tested best practices are mostly untouched by the fallout. What do I mean by that? As I repeatedly written in the past few months, the only investable asset in this space right now is Ethereum (L1 and L2s).

This is why I find even more egregious what some influencers in the space still do, still now. A pre-FTX-collapse, irresponsible tweet from The DeFi Investor below, and my reply. He has 15.5k followers.

C) Those of us that scrupulously follow a plan and fact checked the long term Ethereum thesis enjoyed a significant buying opportunity these past few days, with ETH falling to almost 1000 USD. FTX gifted us with a 30% discount.

Several OG investors though believe this is not the end of it. More heads will roll, more coins will evaporate, more dips will follow. In my healthy cynicism and long term approach, these will simply be additional ETH buying opportunities.

Remember: nothing has changed in the Ethereum technology, ecosystem, value proposition, core values, number of developers, investment thesis. Nothing. ETH is still the same world-changing, earth-shaking innovation it was a week ago.

With one significant exception: one piece of the ETH post merge composition has silently morphed. ETH has factually become ultrasound money. Which is to say, deflationary. Something worth celebrating.

D) The FTX fallout will hopefully spur regulators' action, which we dearly need. This might be the most crucial benefit of FTX's implosion. CeFi operators like FTX must be fully regulated as financial services / institutions.

Unregulated CeFi is in fact the biggest threat to the crypto space, and to DeFi in particular. CeFi must be regulated, as we in DeFi have been repeating and advocating for, for a very long time.

I am not a fan of Elizabeth Warren but I fully concur with her take below. FTX was surely smoke and mirrors.

The real problem is political and regulators' inaction. The hope is that this collapse will force them to get their acts together and legiferate.

Brian Armstrong couldn't be clearer in replying to Elizabeth Warren:

Two other poignant contributions:

Which brings us to the loud and repeatedly "told" simple truth: the SEC is one of the key culprits in all of this saga.

What next?

We still don't know how to legally launch a new blockchain in US. We still don't know what constitutes a security and what doesn't. What we know is that Gary Gensler effectively trapped public enemy #1 Kim Kardashian and saved us all.

The road ahead is simple: clarity and regulation.

Everything that can be regulated, must be (CeFi).

Everything that cannot be regulated, shouldn't be (DeFi), for it's regulated by code.

We need:

1. CeFi regulation - and, any crypto actor wishing to sit at the regulators' table should go through a solid background check before being allowed to. CZ took one day to find an 8bn hole in FTX's books (allegedly). Why wasn't this discovered by regulators in the first place?
2. Stablecoin regulation
3. Crypto definitions (what is a security? What are NFTs? And..)
4. DeFi freedom: we want to be free to operate in a financial world where trust is not needed, nor a pre-condition. We don't want to need to trust the next SBF.

Crypto for many is about freedom. Freedom from having to trust people. Freedom from being under the whims and fickleness of another human being your life might depend upon. Or a dictator. Or a corrupt financial institution.

There will be many mistakes made along this journey. But the mission is bigger than any of the participants. And that's what many came into this space for.

FTX was a blip.

Nothing stops here.