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The FTX Fraud Has Nothing To Do With Crypto

The FTX Fraud Has Nothing To Do With Crypto

By now, we all know what happened to FTX. It's considered by some as "one of the largest financial frauds in the history of the United States" and has led many to doubt the future of the ecosystem.

But let's not stay with the tabloid headlines, and let's explore in depth why what happened with FTX has absolutely nothing to do with crypto.

Let's first go over what happened to FTX. He was endorsed by celebrities, bankrolled political campaigns, and advertised at the most significant sporting events. SBF, its CEO, was practically a celebrity and a mastermind raising capital leading FTX to be valued at $32 billion. You probably already knew this.

On November 2, CoinDesk wrote an exposé showing that Alameda Research - FTX's sister company - was overexposed to FTT, FTX's native token, and raised questions regarding its reserves and liquidity capacity.

A few days later, Binance, another centralized exchange, decided to liquidate around $500 million worth of FTT tokens citing the recent revelations as the reason.

Because of this, investors began to liquidate their FTT tokens en masse and withdrawing their funds from FTX. $6 trillion, to be exact. The rest is a chronicle of a death foretold. FTX did not have the funds it should have to allow the withdrawals. The liquidity they supposedly had on their books was false, and the funds from the investors they should have in reserves were not available.

And this fact has led many to think that investing in digital assets is risky or, even a little further, a scam.

But what happened with FTX has nothing to do with crypto. It wasn't a blockchain or smart contract issue; it wasn't even a regulatory problem.

FTX resembles a Ponzi scam like Bernie Madoff's or even the fall of some banks in 2008 due to their overexposure to subprime loans. But it's not crypto.

Why? Because we are talking about a centralized, restrictive institution in which only a few had participation and knowledge of the assets, in which the information needed wasn't transparent, and in which the owners of the assets (the users) did not have actual possession of them. And that is not crypto, even though it works with tokens.

Crypto, at its core, is designed so this kind of issue doesn't happen. It's decentralized, assets are verifiable at all times on the blockchain and cannot be changed on a book, and most important of all, users genuinely have their assets and can see them at all times on the network and move them when and as they want. Users don't depend on the fact that tomorrow, when they want to move their assets, a third party wants to return them because they are genuinely theirs.

Crypto was invented to prevent events like FTX from happening. That is why today, more than ever, we need decentralization, transparency, and assets that are verifiable on-chain at all times.