A classic quote from the great philosopher Friedrich Wilhelm Nietzsche for those who keep building: “What doesn’t kill me makes me stronger.”
In May 2022, Terraform Labs’ LUNA cryptocurrency and TerraUSD (UST) stablecoin crashed, causing a huge shock to the cryptocurrency industry.
FTX reportedly has more than 1 million creditors, most of whom are retail investors who were convinced that FTX would not collapse and had kept their assets public. Taking a look at Mt. Gox in 2014, whose creditors were still unable to claim compensation, FTX may be a reiteration of that mistake.
It can be said that FTX succeeded and failed thanks to Alameda Research. An investigative report led careful users to discover serious problems with Alameda’s balance sheet, which then led to a deeper dive into his unclear and unexplained financial dealings with FTX.
When the crypto tide ebbed, it became evident who was swimming naked. After the madness, the market is in a mess.
FTX Collapse as an Opportunity to Reflect on the Problems and Reinvention of the Cryptocurrency Industry
Cryptocurrency cannot be blamed for FTX’s failure. It does not mean that the rise of Bitcoin (BTC) and the cryptocurrency industry was a mistake. Thinking should be given to the business models that cryptocurrency exchanges run and how to effectively decentralize governance etc.
The overturned cart in front is a warning to those behind. The implosion of the exchanges is mainly attributed to their non-transparent funding disclosure. Major cryptocurrency exchanges including Binance, OKX, and Huobi Global have been seen to announce their fund reserves to prove their safety, and ensure the interests of users.
Cryptography Industry has its Twists and Turns, but its Future is Promising
While 2022 is a particularly difficult year for the crypto space, it will continue to grow, evolve, and seek a way out amid skepticism.
With the COVID-19 pandemic raging and the global “wave of rate hikes”, the crypto winter could be harsher and longer than expected. Although you cannot accurately predict and estimate how long it will last, it is possible to overcome difficulties together.
Here are some deep lessons from the fall of LUNA to the collapse of FTX:
- A legal framework needs to be created to protect users and still promote innovation.
- The entrepreneurs trying to build a better Web and a more inclusive financial system for everyone need to be given support.
- Middleware like FTX need not dominate the industry.
- Enterprises that want to build in Web3 using public Blockchains need to be supported.
- While self-custody is a feature for some, it is a significant impediment to Web3 adoption for others, hence the need for users to access trusted service providers in this space.
By Audy Castaneda
