FTX, the second largest cryptocurrency exchange in the world, collapsed a few days ago. This fall has dealt a serious blow to the reputation of the market. Binance, the world leader in this area, invites world leaders to regulate the market.
The FTX shockwave
From a $32 billion valuation to bankruptcy in days. This is the fate recently experienced by FTX, the second largest platform in the world, right after Binance. How did Sam Bankman-Fried’s (SBF) empire disappear overnight? The cryptocurrency sector is particularly volatile and we have just had proof of that. The FTX scandal is causing a real shockwave in the cryptocurrency world. Many other platforms appear to be hot.
With its 300 employees, FTX was one of the strongest cryptocurrency platforms on the market. Many observers are already comparing this failure with that of 2001 of the electricity broker Enron, or with that of 2008 of Lehman Brothers. In its downfall, FTX drags down 130 affiliated companies. Indeed, the sudden collapse of the company caused some platforms to block withdrawals for their users. This is for example the case of BlockFi, LedgerX LLC, AAX or Hbit Limited, a subsidiary of New Huo Technology.
Was the golden age of crypto-assets just a mirage? In any case, this is what some market observers think. When cryptocurrency prices started to crash in 2022, Sam Bankman-Fried did everything to keep his head up. He even boasted that he and his company” they were immune against the crisis Now, John J. Ray III, the man who had handled the liquidation of the energy broker Enron in the early 2000s, ” makes every effort to protect the assets of investors “. He was commissioned by FTX to try to save what can still be saved.
How will the cryptocurrency industry react?
After the bitcoin crash, should we expect the end of an era for the crypto ecosystem? Sam Bankman-Fried spoke earlier this week about the downfall of his business. He said FTX had ” developed too quickly Kris Marszalek’s company Crypto.com, a Singapore-based cryptocurrency exchange (which made headlines in 2021 when it struck a $700 million deal to rename Staples Center in Los Angeles to the Crypto Arena), also seems to be in trouble.
In a YouTube live video dubbed “ask-me-anything,” Marszalek said his platform has always maintained enough reserves to satisfy every token customers hold, and “ that a proof of reserves from Crypto.com will be released in a few weeks The move was made after investors took to Twitter over the weekend to question its transfer of $400 million in Ether to the Gate.io exchange on Oct. 21, 2022. Withdrawals are accelerating on Crypto .com.
Kraken, another cryptocurrency exchange, said on Twitter on Sunday that it had frozen accounts belonging to FTX group company nebula, as well as Alameda Research, for “ protect creditors The company says it is in contact with law enforcement. Kraken founder Jesse Powell did not hold back his blows against FTX and its CEO Sam Bankman-Fried. Industry says will pass this test “.
In his opinion, ” it’s recklessness, greed, self-interest, arrogance, sociopathic behavior that drives a person to risk all the hard-won advances this industry has made in the last ten years, for their own profit For his part, Changpeng Zhao (CZ) said he plans to establish an “industry recovery fund” to help platforms around the world deal with this liquidity crisis.
Binance boss calls for more regulation
According to BBC, this is also the opinion of CZ, the boss and founder of Binance (the number 1 in the cryptocurrency sector). He recently said that “Binance is working on implementing a new reserve testing protocol developed by Ethereum co-founder Vitalik Buterin.” A way for the cryptocurrency giant to reassure investors and give a clearer picture of their solvency situation. The test protocol makes it possible to effectively verify the data integrity and status of an exchange platform.
On Twitter, CZ has committed to implementing a “ full transparency “, urging all other platforms to do the same.
In light of what happened last week, I felt compelled to define the six most important requirements that #binance and every other centralized exchange should adopt to ensure trust with our users.https://t.co/BmZsNraNs5
— CZ 🔶 Binance (@cz_binance) November 15, 2022
The Binance CEO believes he needs a third-party auditor to get permanently involved in the company’s affairs. He is pointing out that ” our third party auditor is a bit busy at the moment as he is also the FTX reserves auditor, and as you know there is quite a bit of oversight there There will be a small delay in setting up a reserve testing mechanism. However, within two weeks, Binance believes it can offer a transparent solution to its customers. This will allow the cryptocurrency leader to showcase its capabilities to its investors. of reimbursement.
After the fall of FTX, most exchanges are in the same vein as Binance. Many of them communicated promising to share their backup test in a very public way soon.
What will regulators do?
The Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) are already investigating FTX’s activities. the South China Morning Post reports that the surveys are also targeting corporate executives and their knowledge of managing client funds. Historically, the cryptocurrency industry has believed that digital assets are ” fundamentally different from those of traditional finance “. Today we see that the sector is subject to the same risks and should therefore be subject to the same rules.
Michael Barr, a senior Fed official, said on Nov. 14, 2022 that a “ tighter surveillance of cryptocurrencies was the order of the day In particular, he wants to establish a system of guarantees to ensure that companies are subject to rules similar to those of other financial companies. He reiterated his request the next day before the Senate Banking Committee in the United States. The Senator of States Sherrod Brown, a Democrat who chairs this committee, has expressed his enthusiasm for better regulation of the cryptocurrency industry.
He stated that ” my focus has always been on fraud, scams, volatility and outright theft in the cryptocurrency industry. Today, the bankruptcy of FTX and many other recent cases of instability are eye-opening the need for a global regulatory approach that protects consumers FTX was placed under bankruptcy protection on Friday (November 11) after traders withdrew $6 billion in less than 72 hours and Binance withdrew its offer to save the platform.
According to Nicolas Dufrêne, senior state official and director of the Rousseau Institute (a laboratory of ideas linked to the ecological and democratic reconstruction of our societies), “ it seems that the cryptocurrency world is at stage zero of regulation “. The FTX scandal is actually a reflection of the history of traditional finance. It took several crises for a regulation worthy of the name to appear. The technological nuance of cryptocurrencies should not make us forget their nature: they are financial assets like any other , with the same risks and the same problems.
The director of the Rousseau Institute specifies that “ the lack of capital, the solvency problems, we know them and we know how to deal with them. But by dint of arguing their exception in the name of innovation, cryptocurrency players are undermining their business “.