Breaking down Ethereum’s evolution and its impact on crypto markets Was this newsletter forwarded to you?Sign up here. |
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As of November 15, 2022 @ 23:55:23 UTC. |
Welcome to Valid Points. In today's issue, Sam Kessler explains that the real reason why the FTX failure hits so hard is not because the crypto industry was duped, but because it proved that the industry was vulnerable to being duped. For an extended version of this article, visit the Valid Points web post here. FTX wasn’t the largest-ever crypto collapse in terms of money lost. But why does it feel so much more existential? Maybe it’s because crypto is already in the midst of a brutal bear market, making yet another blow feel heavier than it would have at the market’s peak. Perhaps it’s because the key person behind the failure, FTX founder Sam Bankman-Fried (SBF), was until a week ago considered crypto’s white knight, trusted by sophisticated investors and institutions as one of the most responsible actors in the space. But, in this writer’s opinion, the real reason why FTX was such a colossal failure is not because the crypto industry was duped, but because it proved that the industry was vulnerable to being duped. This distinction, while seemingly minor, strikes at the core of what crypto is supposed to be – a foundation to build systems that are trustless. We need to do a better job of differentiating between Crypto and the Crypto Industry. |
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- Capital-’C’ Crypto will not be killed by FTX. The core technology undergirding platforms like Ethereum and Bitcoin are still working as advertised. FTX and its sister company Alameda Research used blockchains and cryptocurrency, but they were old-fashioned companies killed by old-fashioned fraud.
- As for the Crypto Industry, FTX will prove cataclysmic. We can talk all we want about the sanctity of “decentralized” and “trustless” technology, but so much of the attention and money that has poured into the space over the past several years has gone toward companies like FTX, BlockFi, Celsius and Voyager – unregulated, token-based extensions of traditional finance.
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In spite of the recent turmoil, DeFi shows promise. Decentralized finance (DeFi) – tools built on blockchains that allow people to trade and transact without centralized intermediaries – are pitched as a direct antidote to frauds like the one that seems to have been perpetrated by FTX. These platforms, which require users to trust code rather than central parties, have generally proven resilient amidst the FTX turmoil. As my former CoinDesk colleague Andrew Thurman noted on Twitter, DeFi platforms have seen big boosts in activity over the past week as their centralized counterparts have been experiencing record withdraws: |
But DeFi isn’t a fix-all. DeFi did not fall apart as a result of FTX, but this week reminded us that incumbent DeFi ecosystems are not immune to rot from the wider, oligarchical crypto ecosystem. As CoinDesk reported earlier this week, Solana’s DeFi ecosystem, already struggling amid the market downturn of the past few months, was crushed by the failure of FTX. This failure stemmed largely from the SBF-empire’s massive stake in the Solana ecosystem – not only in terms of its token holdings, but in terms of the role that FTX developers played in building out the projects at the core of the network’s DeFi ecosystem. For example, CoinDesk reported last week that Serum, a leading Solana DeFi platform, was built and maintained by FTX engineers, and suffered as a result. The FTX-Solana contagion is not the only recent example of DeFi’s corruptibility. Terra, which was ostensibly decentralized, has been accused of using venture money to rope in retail investors to fuel its $60 billion blowup. Even more credibly decentralized platforms, like Uniswap, have faced scrutiny this week. The venture firm Andressen Horowitz and centralized exchange Binance have amassed a large amount of governance power within the leading decentralized exchange’s governance system. What needs to stop, however, is hero worship. Before his spectacular fall from grace last week, SBF was a kind of crypto golden boy. Though he faced criticism in some corners of Crypto Twitter for his pro-regulation stance (which seems cynical in retrospect), when he spoke, people generally listened. Despite long-standing questions about Alameda’s relationship with FTX, savvy investors trusted SBF, poured billions into his custody and promoted his platform to retail investors. The lionization of SBF in the mainstream press, crypto press and Crypto Twitter is undoubtedly a big reason why the FTX collapse was so painful. |
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Celsius Network LLC, et al., are soliciting offers for the purchase substantially all of their assets, including their Retail Platform and Mining Business, consistent with the bidding procedures approved by the U.S. Bankruptcy Court for the Southern District of New York, No. 22-10964 (MG) [Docket No. 1272]. All interested bidders should carefully read the bidding procedures and bidding procedures order. The deadline to submit final bids is December 12, 2022 at 4:00 p.m. ET. |
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The following is an overview of network activity on the Ethereum Beacon Chain over the past week. For more information about the metrics featured in this section, check out our 101 explainer on ETH metrics. |
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Disclaimer: All profits made from CoinDesk’s Eth 2.0 staking venture will be donated to a charity of the company’s choosing once transfers are enabled on the network. |
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Ether turns deflationary for the first time since the Merge. - Data from ultrasound.money shows the second-largest cryptocurrency’s net issuance, or the annualized inflation rate, has dropped to -0.029%, indicating that the leading smart contract blockchain is now burning more ether than what’s being minted. The negative inflation rate means ether’s net supply has declined by 5,598 since Ethereum transitioned to a proof-of-stake (PoS) consensus mechanism of verifying transactions from a proof-of-work (PoW) mechanism on Sept. 15.
The Solana Foundation not only invested in FTX but also held millions of dollars worth of tokens on the exchange. - The Solana Foundation said Monday it has tens of millions of dollars in cryptocurrencies stranded on FTX - as well as 3.24 million common stock shares in Sam Bankman-Fried’s bankrupt crypto exchange. The Foundation said it held 134.54 million SRM tokens and 3.43 million FTT tokens on FTX when withdrawals went dark on Nov. 6. These holdings point to deep financial ties between Solana and FTX.
Crypto.com’s preliminary glimpse of token reserves reveals 20% in Shiba Inu Coin - As large crypto exchanges push to prepare “proof-of-reserves” audits, an initial effort revealed just how much of Crypto.com’s reserves are in the dog-inspired meme token, SHIB. Of the $2.88 billion in total assets in wallets, roughly $558 million or about 20%, are in SHIB. A Crypto.com spokesperson said, “The reason our Proof of Reserves include Shiba is because we hold customers’ balances 1:1. Thus, our Proof of Reserves are dictated by our customer holdings.”
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Consensus is a place for the crypto and Web3 communities to come together, take stock of everything that is happening, talk through difficult challenges and figure out what is needed to make this industry stronger. We want you to be a part of that conversation. Use code CFA15 for 15% off. Register now. |
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Valid Points incorporates information and data about CoinDesk’s own Eth 2.0 validator. All profits made from this staking venture will be donated to a charity of our choosing once transfers are enabled on the network. For a full overview of the project, check out our announcement post. You can verify the activity of the CoinDesk Eth 2.0 validator in real time through our public validator key, which is: 0xad7fef3b2350d220de3ae360c70d7f488926b6117e5f785a8995487c46d323ddad0f574fdcc50eeefec34ed9d2039ecb. Search for it on any Ethereum block explorer site! |
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