Coins falling from the sky

What a week, right? FTX, one of the biggest exchanges in the world, went from a reputable player that innovates the crypto space, to now rumors floating around that its ex-CEO is on the run, joining folks like Do Kwon and the guy from 3AC.

What happened made me incredibly sad. I am a big proponent of cryptocurrency (after all, I built a wallet for Solana with Saifu) and am pretty active in the space. FTX was my favorite exchange, and I am very grateful that I was able to move 95% of my assets from FTX, roughly a day before withdrawals got halted (with the rest not movable due to open positions that were in the negative and didn’t want to close them off yet), but I still lost a good amount of money that’s now in eternal limbo, never to be seen again.

Now there is more news - BlockFi halts withdrawals as well. Do you remember the time when ‘halting withdrawals’ was still unheard of? How the times have changed.

Even though I got off fine this time around (I did lose a sizable sum on the UST collapse that was in Binance’s UST Earn product), I couldn’t help but notice a feeling of uneasiness. What if I hadn’t read Reddit or Crypto news on that particular day? 1/3 of my funds were on FTX, and that would have been gone now. In just 2-3 days! Crazy.

But this also means that I can’t let my guard down. Instead of reading about crypto because I’m interested in it, I am now reading to make sure I am avoiding the next bomb.

We’re not doing so great right now

With FTX and CEXes collapsing, one thing I constantly read is “not your keys not your crypto”, and “just put it into a ledger and don’t touch it”, both of which are absolutely true. But as a fan of crypto, I want to actually do stuff with it, you know? What’s the point of a hyper-modern globally distributed digital currency network, if it has the same utility as a collection of rocks that you have in your closet, that may appreciate in value in the future? Let me lend it out to get a bit of interest, stake some here and there, interact with protocols, borrow quickly against it when I go on vacation and need a bit of extra cash - you get the idea. But honestly, I don’t feel comfortable doing much of that currently.

The DeFi world is a mess. Weekly rug pulls left and right, Smart Contracts get hacked, flash loan attacks, some guy finds an exploit to drain millions (and brags about it on Twitter), and poof - everyone’s money is gone. There are more reputable players like Aave that have been okay, but with even behemoths like Wormhole getting drained of funds, I’m not confident that it’ll stay this way. Venus, for example, an Aave clone on BSC, had rumors of price manipulation to forcefully liquidate users. The temptation to make big money is just too big for some.

The CeFi world is a mess (obviously). Don’t think I need to explain more considering recent events but - players like Blockfi/Celsius/Hodlnaut imploded out of nowhere, and FTX went up in flames. The money I had on Binance Earn (in UST) evaporated overnight (not Binances fault, I know). All while CEOs go publicly on Twitter to guarantee that yes, everything is indeed ok and there is no need to worry, only to a couple of days later disable withdrawals and turn the company with all user assets into a coffin.

I practice risk management and am very careful with what I do with my money: I don’t have my stuff in one place, and I avoid almost all DeFi protocols besides Aave. I only stake my stuff through native staking that’s at the core of the chain’s consensus mechanism, and never through third parties (like Lido). I evaluate CEXes very carefully and read everything I can find on how assets are handled and protected.

I am the opposite of a degen gambler: A very informed tech person working in crypto, and still, I am losing money.

Besides having my crypto in a ledger and looking at it, I don’t feel much confidence in using it, and that’s bad. We absolutely should aim for having a vibrant ecosystem of DeFi and CeFi players, but the trust right now has been destroyed. People are scared of the next domino falling and someone running away with their hard-earned cash.

Have we hit crypto burnout?

Mistrust can be a good thing

I wanted to leave it at that because the last sentence was a nice ending point, but had some more thoughts to share.

Not all is bad of course. The current events caused a big wave of mistrust and that can be a good thing. Exchanges have to be transparent about how funds are handled to earn their trust, and I can imagine seeing big boys like Celsius/FTX implode causes a lot of the remaining ones to sweat and rethink their investment strategies. Users become more careful about where they put their cash, and regulations are getting tighter. Maybe we’ll even see FDIC-like insurances popping up?

What’s left after all of this is (hopefully) a more refined crypto space, with more transparency, more safety, and higher standards to hold CeFi/DeFi players to.

We may have been set back by a couple of years, but maybe those years will now be a bit better.

As for me, I will crank up my “risk management” lever. I moved most of my stuff into hardware wallets, moved to on-chain staking where I was able to, and reduced the amount of crypto stuff I was using. I don’t trust anything DeFi that’s not Aave (very small amounts in Venus) and will continue with that attitude.

In the CeFi world, I am a fan of Nexo (ref link) - they have been very transparent so far, had no exposure to any recent events, survived multiple bank runs, and are headquartered in Europe, not the Bahamas. Still, only time can tell if they end up becoming the next domino. Binance is good, (exchange) is good too and so is Kraken. I’ll continue using all 3 of them.

We’ll get through this. Let’s keep on innovating and building!