Crypto

The FTX Disaster Set Crypto ‘Years’ Back – Here’s 3 Ways It Could Reshape the Industry

the FTX collapse, once a $32 billion crypto exchange, has shattered investor confidence in cryptocurrencies. Market players are trying to assess the extent of the damage it has caused – and how it will reshape the industry in the years to come.

Sam Bankman-Fried, the former FTX boss who resigned on Nov. 11, was arrested in the Bahamas last week. He has been charged by the US government with wire fraud, securities fraud and money laundering.

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FTX has connected buyers and sellers of digital currencies like bitcoins, as well as derivatives. However, the company did more than that, allegedly tapping into customer accounts to make risky trades through its sister company Alameda Research.

“This is extremely disappointing for investors, or more devastating for investors,” said Louise Abbott, a partner at law firm Keystone Law, which specializes in crypto asset recovery and fraud.

It is clear that the FTX drama could radically reshape crypto in the years to come. Here are three big ways the industry could change.

1. Rules

On the one hand, disaster will seem certain to spur regulators into action.

Crypto as an industry is still largely unregulated, which means investors don’t have the same protections they would have when placing their funds with a licensed bank or broker.

That may be about to change. The governments of the United States, the European Union and the United Kingdom are taking steps to clean up the market.

Without regulation, investors are left without the protection they need.

Louise Abbott

Partner, Keystone Law

EU Crypto-asset markets is the most comprehensive regulatory framework to date. It aims to reduce risk for consumers buying crypto, by making exchanges liable if they lose investors’ assets.

But MICA should not start before 12 months. Keystone Law’s Abbott said it was important for regulators to act quickly.

“People need to see that action is being taken to regulate it. And I think if we are able to come up with regulation, we will build confidence,” she said. “If there is no regulation, investors are left without the protection they need.”

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The saga has delayed the adoption of crypto assets “by one or two years”, according to Evgeny Gaevoy, founder and CEO of crypto market maker Wintermute.

“Everything that failed this year, if you look at Celsius, Three Arrows, FTX now – all of these guys were taking the worst of both worlds because they weren’t completely decentralized, and they weren’t centralized properly either. “, did he declare.

For Kevin de Patoul, CEO of crypto market maker Wintermute, the biggest lesson of FTX’s bankruptcy is that “you can’t have complete centralization and lack of oversight.”

“We’re moving towards a world where you’re going to have both centralization and decentralization,” he said. “When you have that centralization, you have to have proper oversight and a good balance of power.”

2. Consolidation

I don’t think all the dominoes fell from the contagion. The impact this will have is that a lot of projects won’t actually have the funds…

Marieke Flament

CEO, Close to the Foundation

“The challenge for the whole space when you think about contagion is that FTX and Alameda were extremely active investors in that space,” Blockchain.com CEO Peter Smith said in a CNBC-hosted talk at the a conference on cryptography in London.

Near Foundation, which is behind a blockchain network called Near, was among the companies that invested in FTX. Marieke Flament, CEO of Near, said the company had limited exposure to FTX – although the collapse was still “a surprise and a shock”.

“I don’t think all the dominoes fell because of the contagion,” Flament said. “The impact this will have is that many projects will actually not have the funds, and therefore the resources, to continue and grow.”

Watch CNBC's full interview with Binance CEO Changpeng Zhao

Fears grew over the financial health of other major crypto exchanges after the failure of FTX. Since the start of 2020, around 900,000 bitcoins have exited exchanges, according to data from CryptoQuant.

Binance, the world’s largest exchange, is facing questions over the reserves it holds to secure customer funds. The company saw billions of dollars in releases last week.

Currently, there is no reason to suspect that Binance is facing bankruptcy risk. But exchanges like Binance and Coinbase deal with a sluggish market environment in a context of declining trading volumes and account balances.

Experts believe they will continue to play a role, although their survival will be determined by how seriously they take risk management, governance and regulation.

“There will be exchanges that do things the right way and survive,” Abbott said.

As for the tokens — bitcoinsbeing the oldest digital currency, may be better positioned than its smaller rivals.

“My bet would be that Bitcoin and DeFi [decentralized finance] are decoupled from the rest of crypto and are actually starting to have a life of their own,” Wintermute’s Gaevoy told CNBC.

3. Innovation

Despite the depressed state of the crypto markets and the consequences it is having on investors, the digital asset industry is expected to pull through.

supporters of “Web3“, a hypothetical blockchain-based internet, expect the crypto winter of 2022 to pave the way for more innovative uses of blockchain, rather than the speculative uses crypto is associated with today.

“What we see a lot are companies that have digital innovation arms or metaverse innovation arms,” Flament said. “They understand the technology is there. It’s not going away.”

NFTs, or non-fungible tokens, could change user relationships with properties in games and events, for example. These are digital assets that track ownership of unique virtual items on the blockchain.

Crypto enthusiasts want to remake the internet with

“Digital assets will become an increasingly important part of our lives, whether it’s a collectible, a ticket, a value, an identity,” Ian told CNBC. Rogers, chief experience officer at crypto wallet company Ledger. “Identity could be belonging… [people] using the NFTs they have to access a particular event or something.”

But for many there is still a learning curve to overcome. “Creating wallets, storing keys and going through different platforms is difficult,” Cordel Robbin-Coker, CEO of mobile game company Carry1st, told CNBC at the Slush startup conference in Helsinki. , in Finland.

Robbin-Coker compared Web3 today with the Internet in the early 90s. “It was clunky. You had dial-up, it took four minutes to connect to it, the original web browsers weren’t very intuitive,” he said.

“It’s really the early adopters that really engage at this point. But over time, companies are creating smoother interfaces. And they’re reducing the steps.”

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