Editor’s note: Emily Parker is Executive Director of Global Content at CoinDesk, a media, events, index and data company, and former policy adviser to the US State Department and editor/writer at The Wall Street Journal. She is the author of “Now I Know Who My Comrades Are: Voices from the Underground Internet”. The opinions expressed in this commentary are his own. Read more opinion on CNN.
Over the past year, as crypto companies imploded and losses mounted, a white knight emerged. Sam Bankman-Fried, the 30-year-old CEO of crypto exchange FTX, has helped bail out struggling crypto companies like BlockFi and Voyager. In an industry whose reputation has been tainted by scammers, hackers, and sheer greed, Bankman-Fried seemed like a relatively nice guy. He even claimed that he wanted to give away almost all of his money.
And then, like that, it was over. The former billionaire lost 94% of his fortune in a single day. On Friday, FTX filed for bankruptcy and Bankman-Fried resigned as CEO. The contagion has already started. Crypto lender BlockFi, one of the companies Bankman-Fried tried to save, has now suspended customer withdrawals. So who is going to save crypto now?
The answer is nobody, because crypto shouldn’t need a savior. The whole point of crypto is that it’s supposed to be decentralized and transparent. The rise and fall of Bankman-Fried shows how far the industry has come from this ideal. Today’s crypto world is one of the opaque entities run by larger than life personalities. There is perhaps no better example than FTX and its leader.
It wasn’t supposed to be like this. Bitcoin, the world’s first major cryptocurrency, emerged in the wake of the 2008 financial crisis, which caused deep disappointment among bankers and politicians. In light of the distrust of financial institutions, the basic idea was that this new system didn’t require you to trust anyone at all. Bitcoin transactions are recorded on a decentralized ledger known as the blockchain, which anyone can see and no bad actor should be able to fraudulently alter.
But Bankman-Fried’s empire, it turned out, was far from transparent. Everything seemed to be going well until my colleague Ian Allison, a reporter at CoinDesk, wrote an article last week revealing that Alameda’s balance sheet of Bankman-Fried, which is FTX’s sister company, was largely made up of FTT, a token created by FTX. . This raised questions about the stability of FTX’s sister company and drew attention to the surprisingly close ties between FTX and Alameda.
It’s worth pointing out that Alameda’s financial weaknesses were revealed by a journalist, rather than a publicly available blockchain.
Shortly after, another larger-than-life crypto personality entered the chat. Changpeng Zhao, CEO of the world’s largest crypto exchange, Binance, has publicly announced that the exchange will liquidate its FTX holdings. Binance then signed a letter of intent to acquire FTX, a plan which Binance abandoned soon after.
Then more disturbing information came to light. The Wall Street Journal reported that FTX loaned more than half of its clients’ money to Bankman-Fried’s other company, Alameda. In other words, he used one company’s customer deposits to pay for another’s risky bets.
Bankman-Fried said he takes full responsibility for his mistakes. In a long Twitter thread this week, he wrote“I was CEO, which means *I was* in charge of making sure things ran smoothly. *I*, in the end, should have been on top of everything. I clearly failed in that. I’m sorry.”
This very statement is a perfect illustration of how a decentralized technology like cryptocurrency is not meant to work. The idea of a decentralized ledger is to remove a single point of failure and reduce the risk of human error. And yet, FTX would be far from the first player in the crypto space, led by an extraordinary personality, to suddenly deflate. Other examples include Alex Mashinsky, the founder and CEO of crypto lending platform Celsius, and Do Kwon, who co-founded the company that created TerraUSD, a so-called algorithmic stablecoin that was to trade at $1. . Both of these projects imploded last year, resulting in billions of dollars in losses. Both figures had many followers, many of whom learned the hard way that these supposedly powerful rulers had no power to return their money.
The personality cult problem is not limited to crypto. We also see it in social media, another supposedly leaderless and decentralized technology. Twitter is now subject to the whims of owner Elon Musk, the richest man in the world.
In the case of crypto, many have long pointed out the risk of powerful centralized exchanges like FTX, with some people preferring to hold their own coins instead of storing them on an exchange. Another option is to use blockchain technology to provide greater visibility, which Bankman-Fried now promises to do. In his lengthy Twitter feed on Thursday, he said its priority would be “radical transparency” or “giving transparency as close to the channel as possible: so that people know *exactly* what is going on there. In FTX’s case, of course, it’s probably too late.
For the crypto industry, the lesson here is to stop looking for saviors. Bankman-Fried’s meteoric rise wasn’t just based on his own doing – he was driven by many others. He’s raised millions of dollars from top-tier investors, garnered media attention and, with few exceptions, just hasn’t been questioned much. The bottom line is that so much hope and responsibility should not rest on one individual. It goes against everything crypto is supposed to stand for.