FTX Underscores How Much We Need Web3 and More DeFi
Coindesk addresses something we’ve been saying for a week – crypto shouldn’t be judged by the FTX collapse, and the path forward requires the kind of radical transparency that only Web3 will make possible. Through this, the industry can self-regulate more openly and more exactingly than any external government body ever could.
We’ve seen some other centralized exchanges responding to pressure recently to disclose their reserves, notably Binance and Crypto.com. While reserves don’t reveal corresponding liabilities, this is a positive development in the space toward self-regulation and applying decentralized financial practices to centralized institutions.
FTX’s collapse highlights the need for more decentralized approaches. It’s notable, for example, that both FTX and Celsius Network, another centralized institution that collapsed in July of this year, repaid their decentralized finance (DeFi) loans first because they were publicly visible before eventually declaring bankruptcy. This is clear evidence of the need for data-rich, transparent accounting and compliance systems that protect participants while also preserving an individual’s privacy.
Best practices that apply to DeFi and centralized crypto projects alike, in addition to self-disclosures of reserves and liabilities, might include on-chain asset registries or mandatory transaction posting. For exchanges, a hybrid approach might avoid an exchange custodying users’ funds while still offering recovery via centralized institutions (or support for social recovery).
Regulation can only go so far in closed systems and walled gardens. Transparent code and public accountability can go much further in helping Web3 transition to a better future. By embracing the transparency of DeFi while continuing to invest in privacy-preserving technologies like zero-knowledge protocols, we can avoid situations that may lead to overreaching regulatory crackdowns while also creating safer environments for retail users and Web3 projects supporting real-world use cases.
I’ve been thinking about these issues of trust and fairer financial systems since I was building my first projects as a coder growing up in Ukraine. I believe in Web3 because I want to build systems that are not easily corrupted or subject to takeover by a bad actor. I want citizens of the entire globe to be able to control their own assets and data rather than having to trust an untrustworthy bank or getting shut out of the system entirely because of their native nation’s economic status.
After the events of the last week, I believe more than ever that the world needs Web3 to build a better digital infrastructure for the planet. FTX is not crypto. Let’s not judge the entire industry by its failure.