The spectacular implosion of the FTX group this week was most likely the worst week for the crypto industry since its inception. Watching its meltdown live on Twitter (while Twitter itself is going through troubles of its own!) was both entertaining and stomach-churning at the same time. Unfortunately this blow is going to have a ripple effect in the industry and a few more players will go down.

This is a good thread with the raise of SBF and what likely happened to FTX:

TLDR: Alameda was bailed out by FTX with customer funds due to highly risky bets to put it mildly. Among other niceties, we've found that they had 1.1btc in their cold wallet and over 1.4b of BTC liabilities.

Now the "altruistic" moves of FTX trying to "bail out" Voyager are clearer, they were hoping that by merging their books they could disguise their shenanigans. There were also talks to buy Robinhood, imagine if that had actually gone down!? It would have snowballed to a nation-wide mess.

Ultimately I think this has been good for the industry, having these guys running the 3rd largest exchange in the world was a ticking time bomb. At the same time I really feel for all the FTX users that have lost their entire net worth due to the recklessness of SBF & co.

Some of my takes:

  • This mess was the result of unethical and risky business practices. Nothing unique to crypto though. This happens all the time in the financial world. Blockchain makes it easier to track it!
  • This goes against the ethos of crypto, but more regulation is needed. It needs to be workable regulation though! No point in making the life of EU and US exchanges miserable as this will just increase the number of users flocking to exchanges on grey jurisdictions where they ultimately get hosed.
  • DeFi is the future. Over-leveraging and financial shenanigans can't happen due to smart contracts.
  • This has been a good reminder that we should strive to minimize the assets deposited on exchanges. Not your keys not your coins.