What Can the Crypto Industry Do to Avoid a Repeat of the FTX Incident? Blockchain technology and cryptographic standards such as ZK Proofs can help businesses and cryptographic standards prove they are solvent, even in times of crisis.
The sudden decision of FTX is a dark time for crypto. But it’s also an opportunity to shine a light on some of the worst practices in the crypto industry. What we do know about Sam Bankman-Fried’s terrifying crypto business empire is getting worse with each new revelation.
FTX can be an outlier in terms of foreclosures and apparent fraud within the industry. But the exchange, a moment of confidence in the industry, is also a symbol of what can go wrong when crypto strays too far from its fundamental principles. So its failure is an act of natural destruction – a way that continues to emerge.
Crypto’s wild policy has limited its ability to grow (perhaps due to the fact that this year’s diffusion event did not affect the broader financial system). For better or worse, the failure of some of the most august crypto companies makes the arrival of new consumer protection and financial stability laws inevitable.
Instead of waiting for regulators to write rules that may not be effective, the company should support existing crypto tools to ensure compliance and demonstrate good faith. These technologies can ensure that operators and regulators can monitor the health of various financial institutions to prevent problems before they arise.
If such controls were adopted earlier, as they are in many digital currency (DeFi) systems, the recent epidemic of violations among centralized cryptocurrency transactions would have been avoided. Just look at FTX. At the highest level, the business has failed because of the mismatch between its assets and liabilities. His property is the FTT brand that he created.
Blockchain technology can be designed to bring limits to these private transactions by enforcing and maintaining programmatic policies that prevent over-reliance on a single token. Yet, instead of using the tools in their toolbox, corporate players have been left to do business behind the scenes, get cashbacks and hide worrying information on their bills. .
Blockchains, being properly audited, can provide a window into the economic health of a business or operation. But that alone is not enough. Perhaps in an attempt to ease investor concerns, many exchanges have introduced so-called “proof of deposit”. It’s a step in the right direction, but it’s also a false sense of security.
What should be done to prevent the recurrence of FTX?
Unfortunately, the understanding of assets provides no information about debt, which is far from being a good tool of financial stability. And that doesn’t even get into the security issues that exposing information like this can bring. Blockchain-based technology can also solve this problem by mathematically ensuring that the correct amount is locked and that the amount of debt remains within the acceptable limits.
Non-informative evidence, a proven method by which a person can prove to a partner that a given statement is true without carrying irrelevant information, completes the picture. Privacy-preserving monitoring can allow third parties to monitor exchange assets and their returns in adverse situations.
There is an urgent need for the company to get it right and do it fast. After all, using blockchain technology for financial acceptance will be more efficient and cheaper than comparable acceptance fees in banks. JPMorgan Chase (JPM), in turn, has reported in the past that one in six employees work on compliance with the law.
The process is not only expensive and can harm innovation, but it also has limitations in its effectiveness. For example, in 2017, we learned that for more than 15 years, thousands of Wells Fargo (WFC) employees had illegally produced bank statements, customer signatures, and wire transfers. But during this period, Wells Fargo was under an increasingly strict regulatory regime.
Although the regulation seems to be in the end of the policy makers, they can consider using blockchain technology to create a certification scheme that meets the criteria of the policy makers. Crypto companies that follow high technology standards will be able to advertise and show it to their employees and investors. Companies that ignore this standard and their employees will be made aware of their increased risk. The recent Crypto FTX crisis is frustrating, but also avoidable.
We can use blockchain technology to prevent similar issues in the future, while enforcing compliance and instilling market confidence. But without systemic correction, the next domino to fall could be the one that prevents the crypto-concept from delivering on its promise to create an economic system that is fair, flexible and sustainable. answer questions.
