Over the past week, the crypto market has been dramatically impacted by the FTX scandal.
FTX was the world’s fourth largest cryptocurrency exchange. After facing a liquidity crisis, the company filed for bankruptcy and its CEO, Sam Bankman-Fried, apparently escaped to Bahamas.
In the beginning, after a tremendous amount of withdrawals threatening to sink FTX, the exchange tried to sell part of its operating business to its rival Binance. When Binance began its due diligence in order to evaluate a potential acquisition, the company backed down. Specifically, as stated by Binance CEO Changpeng Zhao: “As a result of corporate due diligence, as well as the latest news reports regarding mishandled customer funds and alleged U.S. agency investigations, we have decided that we will not pursue the potential acquisition of FTX.com,”
Within days, and even though a few months earlier it had been valued at $32 billion, FTX declared bankruptcy.
Binance owned a large chunk of FTT, FTX token, acquired because of an earlier deal with the bankrupt exchange. Once the CoinDesk report was published, Binance quickly sold its FTT and made it public via Twitter. Therefore, users started selling FTT and the price went down dramatically.
Another blow to the credibility of the Web3 world.
The many scams, what happened to Luna, and the proliferation of projects of dubious legitimacy has had a major impact on startups operating in this area. FTX has certainly added fuel to the fire.
“The scandal involving FTX is another blow to the credibility of the Web3 world. Startups, projects, entrepreneurs will have to work even harder to build their reputations: reliability and credibility have become even more important, and anyone operating in the web3 world will have to pay even more attention to this,” commented Erika Rosenstein, Managing Director of Rosenstein Capital and reputation management expert.
Regulation is key.
Web3 leaders, companies and advisors have emphasized the need for clearer regulations in order to protect users and the market.
Daniela Boback, a Web3 leading voice with her 15 years of experience in the financial industry, commented: “Do your own research (DYOR)! Probably the most used term in crypto, which is increasingly quoted again after the FTX debacle. It cannot be the task of (retail) investors/users to analyse a globally operating company like FTX in order to escape possible fraud. Even experienced financial professionals obviously failed to do so or at least did not sufficiently fulfil their due diligence duty, which frankly makes me speechless. The right level of regulation can create more transparency and prevent fraud, but this also requires a lot of education on the part of the legislator,”.
Daniel A. Strele-Ramonis, CEO at Renegade, commented: “The bankruptcy of FTX has sown again, in a very severe way, how important it is to better regulate the crypto space. People finally have to come to an understanding that regulations are in their own interest and protects them from losing a tremendous amount of funds – like in the recent FTX fiasco. The wild-west mentality has to come to an end if we want to ensure a better future in the crypto market,”.