Few were prepared for the dramatic collapse of crypto exchange FTX on November 11. The incident has left hundreds of thousands of customers without access to their funds, and the ripple effects have wiped billions of dollars from the market, as well as casting doubt over the integrity of other crypto companies.
FTX was so deeply embedded in the cryptosphere that many firms (including crypto lenders Genesis and BlockFi) have spent the last week hurriedly calculating their own financial exposure to the collapse, in fear they may be dragged down in the swell. Others, however, have sensed opportunity in the crisis and are readying plans to prevent further contagion. “We actually think this is a very good cleansing period,” said Changpeng Zhao, CEO of Binance, during a Twitter Spaces Q&A earlier this week. “The weak projects are gone, and the industry is much healthier.”
Zhao, who goes by CZ, says he has a plan to navigate the fallout of the FTX saga and rebuild trust. With one of Binance’s main competitors no longer in operation, the company’s voice as the world’s largest crypto exchange has become all the more influential. In a series of tweets published since November 8, CZ announced that BINANCE will publish a transparent “proof of reserves,” to demonstrate it keeps enough cash on hand to fund withdrawals, and launch a recovery fund to help prop up legitimate projects in distress.
On November 15, he followed up with a blog post setting out best practices for exchanges, which can be boiled down to: Don’t gamble, don’t borrow, and don’t cheat. “We cannot let a few bad actors sully the reputation of this industry when it’s still in its infancy,” CZ wrote.
In the past week, many other crypto exchanges have followed suit. Bitfinex, Crypto.com, Huobi, OKX, and KUCOIN have all either released or promised to release proof of reserves. Some, like Kraken and Coinbase, sought to highlight that they have been publishing accounts for a while now. Practically all of them have either pledged support for CZ’s recovery fund or promised further investment in crypto startups.
The mood among the exchanges is subdued but optimistic. They hope that more transparency will allow them to continue to appeal to crypto newcomers, while limiting the risk of being accused of FTX-style accounting.
“This has been a major setback for the crypto industry,” says Blair Halliday, UK managing director at Kraken, an exchange that currently processes $600 million in crypto transactions per day. “[But] we believe sensible industry measures, such as proof-of-reserves audits, will be a crucial starting point to regaining the loss of trust in the ecosystem.” Similarly, Paolo Aroino, CTO at Bitfinex (which hosts $100 million in daily trades), says only the exchanges with a track record for responsible governance will survive, but that “the cryptocurrency industry will emerge stronger” from the ordeal.
However, there are industry leaders who believe that the FTX collapse should be seen as an opportunity for a deeper reevaluation, and a return to the founding principle of the cryptocurrency movement: decentralization.
