The Game has just started
There is never a boring day in crypto. Despite the downfall of the second largest exchange, this space continues to excite me daily. I am cautiously optimistic about its future while I am aware of the systemic and inherent risks that any emerging industry faces. I hope I haven’t been blinded by the hype and have fallen prey to the greater fool notion. Please call me out if you think I am completely incorrect about crypto so that I can stop being the bigger fool. But first, hear me out.
The following are my opinion and I hope it will give you some insight and encouragement to start exploring crypto and DeFi, it’s probably nothing.
The fall of FTX seems to have undone all progress in the crypto sector, it’s a shame. However, if you had followed the case closely, you would have seen that the failure had nothing to do with crypto or anything remotely related to blockchain. The failure of the FTX is solely due to greed and poor risk management. Apparently, this is the “Lehman” moment of crypto, and many believe it is the death of crypto. However, I choose to believe in the capitalism hypothesis. Superior (cheaper, better, faster, permissionless, more transparent) technology should triumph over inferior technology, adoption will happen, and people will vote with their resources.
Are there any wins in the FTX fall? Before the fall, sentiment for Sam Bankman-Fried (SBF) has shifted in recent months. He became the number one villain of DeFi by attempting to push a bill to regulate the front end of DeFi in favor to bargain with Capitol Hill. This is contradictory to the motivation of DeFi, as the entire purpose of DeFi is intended to be permissionless and transparent. The bill would have deviated us from that purpose, thereby killing DeFi.
As we watch the facts surface, my belief in the permissionless and a trustless system has risen significantly since the fall. FTX, despite being a crypto trading platform, the “I owe you” mechanism persists, as it does in any centralized exchange. It’s the same old debt-based banking model studied in the credit theory of money. This is a system that can be exploited provided with sufficient trust in the short term, but it is a ticking time bomb in the long term. Please refer to the world debt clock, which is continuously rising and unpayable, awaiting the day of implosion.
https://www.usdebtclock.org/world-debt-clock.html
A wise man once said, have you ever wondered why banks spend so much money on fancy office rental in the central business district or on advertisement? This is done to make sure that trust is maintained at all times, as they cannot afford for the user to lose confidence in the system.
Assuming the same bank run occurred in TradFi, if we collectively performed a bank run on a selected bank, the outcome would be the same because of fractional reserve banking, except that banks are insured by governments. When the damage is severe enough, the printing machine would be triggered thereby kicking the problem to a later date, effectively taxing the existing currency holders. That said, this is in no means a support of SBF’s alleged misconducts.
Based on the investigation done by crypto twitter, crony capitalism and nepotism are widely prevalent in FTX. On a hypothetical situation, assuming that SBF can raise funds from the lender of last resort to bail him out of this mess, the debt loop will continue, resulting in a larger debt and contributing to the next trillion dollar debt clock.
To overcome such exploitation, we should seek for sound money with a supply cap or even ultrasound money. Bitcoin was developed because the whole monetary system is predicated on trust, hence the phrase “Don’t Trust, Verify”. Crypto is more vital than ever as we desperately need a self-custody asset. Likewise, DeFi is more crucial than ever as we urgently need a self-monitoring financial system.
DeFi applications promise trustless and permissionless, but in practice, we’re probably a long way from it. Having said that, the vision is clear, and idealists and believers will not rest until we achieve the ideal state of decentralization. This is something worth pursuing.
As we are still in the early stages of the sector, venturing into crypto is not an easy feat. The amount of time and energy necessary to learn and monitor development is significant. However, if you are willing, this is totally possible. Fingers crossed, if crypto ever become widely adopted, you may lose out on its glorious days if you write it off now. Personally, I think it’s best to stay the course.
Thanks for reading, stay tuned for more crypto & DeFi content!
As part of my new year’s resolution to tell better stories inspired by my friends at work & crypto OGs, I will be sharing my experiences with crypto.
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