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A couple of weeks ago, FTX, the second largest crypto exchange in the world originally valued at $32 billion, filed for bankruptcy. The near-instant crash of the giant centralized exchange sent shivers down the spine of the crypto community and took down many others. projects with it to all-time lows.
In the wake of the FTX’s crash, a large-scale hack followed, and many investors have lost their portfolios and users are losing their trust in centralized exchanges and crypto as a whole. It’s been a bad year for crypto – we’ve been in a bear market and just when good omens were starting to show, like crypto’s involvement in the World Cup, the bear struck again.
With the increased negative sentiment toward centralized exchanges, crypto pioneers like BingX are standing up to the challenge of rebuilding trust in crypto as the currency for the free through transparency and accountability.
In the rest of this piece, we discuss what caused the FTX crash, its effects, how we move from here, and how BingX is rebuilding crypto trust by providing one of the most transparent exchanges you can trade with today.
FTX’s sudden collapse resulted from a combination of several factors – mismanagement of users’ funds, a lack of transparency, panic, and a bailout deal that didn’t come through. Let’s see the details quickly:
Sam Bankman Fried, a.k.a, SBF, was the founder of the crypto exchange, FTX and quantitative trading firm/crypto venture, Alameda Research.
Naturally, as both companies had the same founder, there were already suspicions that they were strongly linked in their operations. Indeed, FTX was created to provide the funds Alameda needed to run.
However, how deep their ties ran was still a mystery to the crypto community.
Binance, the largest crypto exchange in the world, had invested in FTX in December 2019. Eight months later, in July 2021, Binance sold its stake back to FTX and was paid in BUSD (Binance’s native token) and FTT, the native token issued by FTX.
In the first week of November 2022, CoinDesk published news on a leaked document that revealed Alameda Research was holding an unusually large amount of FTT and could use them as collateral to borrow real customer funds on FTX. And FTX could simply print more FTT out of thin air.
As a result of the news, Binance announced that it will be selling any remaining FTT it held off its books. Remember the large amount of FTT Binance was still holding after it sold its stake in FTX?
Binance’s announcement incited massive panic and customers began to sell their FTT tokens and also withdraw their funds from FTX. And in just 72 hours, $6 billion in withdrawal requests had been made.
FTX did not have enough cash to fulfil the requests. At the same time, the price of the FTT token fell by over 90% and other companies that FTX & Alameda had invested in using FTT, started to feel the heat.
To save FTX from sinking and being able to fulfil customer requests, SBF reached an agreement to sell FTX to Binance. However, just a day after, Binance announced that it was pulling out of the deal due to shady revelations on the company’s finances that had just come to light.
On November 11, FTX, Alameda and over 100 other affiliated companies filed for bankruptcy, marking the total bust of the crypto empire.
This year, many crypto projects have failed and with the recent FTX crash, the community is feeling uneasy. To rebuild trust in crypto, several things need to be put in place. Let’s check some of them out:
One main reason why crypto exchanges and crypto projects fail is that their backends were not fully transparent. Usually, shady finances and inappropriate schemes would have been ongoing for a while until they bust.
To rebuild trust in the industry, crypto pioneers need to offer more transparency so that users can see what’s going on and bad signals can be spotted early.
The big names in the crypto industry need to shift from ‘competing’ to ‘collaborating’. The idea behind crypto and blockchain is decentralization. Crypto exchanges need to work together for the good of the community as a whole. And each time a major project fails, it sends ripples that affect the whole industry.
Crypto is for everyone and investors want to diversify their portfolios with different fun projects and tokens. As more projects are born, collaboration should be the watchword so everyone can keep an eye out for each other.
In the spirit of collaboration, we have set up a relief fund for partners affected by the FTX collapse.
To help customers regain trust and know the right platforms to choose, crypto exchanges are promising to start publishing ‘Proof of Reserves’ t show that they actually have enough assets to support customer withdrawals, should they happen.
That way, customers won’t have to hope that the exchanges they trust do right. They’d be able to see for themselves that everything is fine.
As an extension of ‘Proof of Reserves’, crypto exchanges and crypto tokens that are strongly tied to real assets (mainly stablecoins), should embrace scheduled audits to keep their customers’ minds at ease.
This has been a bone of contention in the industry for a long time with some companies refusing to do audits to show that they have enough assets to back their tokens in circulation.
In the midst of the FTX crisis, the company reported a hack that cleared out about $600 million of users’ funds. One of the strong points of crypto and blockchain is security and how difficult it is to hack.
To encourage more adoption and involvement, new security measures should be put in place to protect the industry from bad actors. With those, more people will trust that their funds are safe and won’t have to panic.
Another major challenge that the crypto industry needs to solve is the matter of education. More people need to know the basics and what to look out for in crypto projects so they can choose the right assets to invest in and can do so with proper risk management.
Many people just go with the hype and what other people are talking about without really knowing the ins and outs of the tokens they’re buying. Solving this will force more high-quality innovations and only the hype will go to the best projects that deserve them.
BingX was founded in 2018 and has quickly grown to the world’s leading social trading platform trusted by over 3 million users worldwide.
Security is in our DNA – We have partnered with CertiK, a leader in blockchain security to ensure all our customers and their funds are heavily protected.
We are also industry-standard and regulatory-practice compliant in Canada, and very recently, proudly in the U.S.A.
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