FTX Collapse Was Good for Crypto: The Silver Lining Explained

The FTX collapse has had difficult implications for the crypto and venture capital industries. In addition to the crypto meltdown, the collapse has led to significant contagions across the sector. Companies like Genesis is on the verge while millions of its creditors face billions in losses. 

FTX customers will never see their cash

The most difficult part for the FTX crash is that the company’s customers will likely never see their money again. It’s completely gone. As a result, stories have been told of people who have seen their life savings disappear just like that. 

At the same time, the FTX Token price has collapsed, erasing billions of value within a few weeks. FTX customers and token holders are the only people we should feel sorry about. Another group are non-profit organizations that were promised millions of dollars by Sam Bankman-Fried.

On the other hand, we should not feel sorry for monied venture capital firms like Softbank, Sequoia, Blackrock, and Kevin O’Leary who have lost millions of dollars. In fact, I believe that these investors are to blame for the whole crisis. 

They invested in a company without doing their due diligence. Also, they did not ask for any board seat. By investing in the company, they made it more attractive to individual investors who plowed their funds to the exchange.

The silver lining for the FTX collapse

There is a big silver lining for the FTX collapse. First, we should all be happy that the company collapsed when it did. Listening to Sam Bankman’s interviews, it has become clear that he was running a scam, where FTX’s customer funds were being used to bail out Alameda Research. So, the earlier the company collapsed the better.

Second, the collapse will lead to more regulations in the industry. Fortunately, regulators have a template on how this will work. Following the collapse of Lehman Brothers, policymakers in the US created the Dodd-Frank regulations for the banking industry. 

As part of these regulations, Too Big to Fail or systematically important banks like Goldman Sachs and JP Morgan were required to set aside adequate reserves to deal with a major crisis. They were also subjected to strong annual stress tests. Such strict regulations should be applied to the sector while keeping in mind users’ privacy.

Another silver lining of the FTX collapse is that it will draw more users to Decentralized Finance (DeFi) products like Uniswap, PancakeSwap, and dYdX. These platforms have emerged as being safer than centralized ones because of their open-source. When Satoshi Nakamoto created Bitcoin, his goal was to move away from centralized finance.