Op-ed: why FTX does not spell the death of crypto

Jonny Fry
4 min readDec 13, 2022

By Philipp Pieper and Timo Lehes, co-founders of Swarm

Sam Bankman-Fried, the once poster boy for crypto regulation by appearing before congress and allegedly donating hundreds of millions of dollars to the Democrat Party, lost his crown and $51 billion worth of collateral from FTX’s balance sheet, leading to the collapse of the world’s second largest centralised crypto exchange in November this year. The dramatic demise of the beleaguered exchange has irrefutably eroded confidence in crypto. The episode was a cruel reminder of how light touch regulation and lack of governance will not suffice in any financial market, not least the $1 trillion crypto industry that is set to grow, as more institutions pile in. These events highlight the lack of transparency as a centralised phenomenon. As Brian Quintenz, head of policy at a16z and ex-CFTC commissioner, has said: “The evil financial trinity of centralization, leverage (collateral), and opacity keep finding ways to blow things up.”

It was those monitoring on-chain activity who pointed out strange ongoings with FTX wallets, prompting the rumour mill on Twitter to unfold and putting pressure on the FTX team for answers. Had there been more transparency and oversight, and less convolution and speculation around FTX’s operations, they would not have been able to use customer deposits in the way they reportedly did to fund risky bets. This was not a crypto collapse, but a corporate collapse. So, what now for the industry?

Greater oversight is needed for custodial exchanges in the form of clear regulation. Once seen as an inhibitor of innovation, regulation is now deemed necessary for entrepreneurs to build with confidence. Not only do we need regulation for better governance, but also for greater collateral confidence. The damage done by multiple crises this year in crypto, including Celsius and FTX, will only be repaired if the sector looks to adopt solutions to the specific issue that caused those crises — in other words, crypto needs to fix its collateral problem. Not everyone in crypto is guilty of the bad practices exhibited by a few. But the sector now has to work hard on solutions that recognise the biggest mistake that has been exposed in the past year — leveraged crises. For us, this means creating collateral confidence. The sector needs better standards and practices for bringing collateral on-chain to facilitate activities such as trading, lending and staking. While some firms are offering new ideas…

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Jonny Fry

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