Let's move on from FTX’s collapse and get back to the basics

Published at: Nov. 15, 2022

Pundits are calling the collapse of the FTX exchange the end of cryptocurrency and venture capitalism related to it. But it’s not. Some of them anointed Sam “SBF” Bankman-Fried “The King of Crypto” — and then summarily killed the king. But, in reality, crypto never had a king. The end of FTX may mark the end of Americans using unregulated exchanges, and it certainly is the end of exchange-native tokens, but crypto itself hasn’t changed one bit.

In reality, the FTX collapse is a symptom of a deeper problem, which is traditional finance’s “profit at any cost” mentality. For all the lip service paid to FTX as a regulated entity, at the end of it all, the exchange fell to profit-driven fraud like so many of its traditional counterparts. The stain FTX left behind has no more to do with real crypto than Enron had to do with real oil in the ground.

That brings us to SBF and his roots at quantitative trading firm Jane Street. SBF was a quant trader who asked why you’d ever use a decentralized exchange and then answered his own question by mishandling billions in customer funds.

However, SBF didn’t fail because of his background. Warren Buffet, no fan of crypto, has an oft-repeated quote that applies here: “You only find out who is swimming naked when the tide goes out.” It turns out that SBF was trunkless in that turquoise Bahamian water. He either miscalculated the risk he was taking or ignored it altogether, overleveraging FTT — his company’s own loyalty point masquerading as a $4 billion market cap store of value — and lost big on that bet.

It’s time we, as the crypto industry, drop the 10x mentality of seeking to gain enormous profits and focus on the fundamentals that brought so many of us to this world. Crypto was never about the next memecoin or the next x-to-earn application, and absolutely not about minting your own tokens to fund risky business practices. It was about financial self-sovereignty and cutting out the middlemen.

It’s time to get back to this maxim.

Crypto is not a game of exponential gains and speculative bets. Crypto is about recapturing the 3% rent that the financial services industry exacts on businesses and consumers around the world, daily. Crypto is about programmability and exploring what thousands of smart developers do when you give them an honest-to-truth API for money.

The promise of crypto isn’t just profit — it’s a system where access to financial services isn’t determined by geography, race, gender or creed. It’s a system free of the middlemen that siphon dollars out of our pockets at every turn, and where greedy actors can’t treat our life savings like their bankroll at the roulette table. By embracing FTX, we just found a new gambler to back.

Crypto winters are always a turning point for digital assets. While the winters destroy value and decimate lives, each winter also leaves us with the legitimate innovations of the last bull cycle. We can choose to let speculation and trading continue to drive our industry, or we can work to disrupt credit card companies, destroy payday lenders, and bank the unbanked.

We can continue to be personality obsessed, or the adults in the room can finally stand up.

It’s time we as an industry mature our processes, systems, expectations for returns, and our goals. There’s a trillion-dollar industry waiting to be created, rewiring the world’s financial system. Financial infrastructure and enterprise software might not be as exciting to some, but it’s marginal efficiencies that will eventually bring crypto to every household in the world, a penny per transaction at a time.

JPMorgan’s recent entry into DeFi is a notable silver lining to this whole cloud. JPMorgan didn’t race to crypto to make multi-legged options bets. They have plenty of ways to make money through trading. No — their first foray was in an on-chain lending pool, using a high-speed, low-cost network like Polygon to show how, in the near future, you won’t need data centers, mainframes, or hard lines to perform sophisticated financial transactions — you’ll just need the blockchain. Public, regulated entities like J.P. Morgan are proving that the TradFi system can be upgraded in a thoughtful, compliant and auditable way.

It’s time that we focus on a future where sophisticated enterprises using sophisticated software and processes remove the intermediaries from online transactions. A future where people can borrow money at prime +1% instead of the predatory rates that banks charge. A future where folks are paid every second of the working day via a smart contract instead of once every two weeks.

The industry is ready. There are sophisticated tools for monitoring and accounting for your assets (instead of using homegrown enterprise systems with backdoors). There are forward-thinking operators who can design a compliant flow of funds models and audit practices to ensure digital assets remain safe as use cases scale. There are best practices for wallet management and for custodians who are legally obligated to protect your funds and not lend them to others for unhinged trades.

The industry is ready to mature, and if we really want others to opt out of the current, broken system and adopt digital assets, it’s time for us to mature with it.

Pat White is the CEO of Bitwave, a back-office digital asset platform that offers accounting, finance and tax services. He previously founded and served as the CEO for companies including Synata, an enterprise search engine, and worked as a chief architect at Cisco. He holds a degree in computer engineering and computer science from the University of Southern California.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.