Most of you are probably familiar with this alphabet soup by now. I'm just here to add my 2 cents about the lessons we can take from this debacle.

To briefly recap:

It appears that FTX was propping-up Sam Bankman-Fried's Alameda Research by lending it some customer assets. And Alameda Research's own assets were mostly in FTT tokens which is not the most liquid crypto. These FTT's were being used as collateral for loans in different platforms used by Alameda in its trading operations as well as for the funding of their massive buyout of other failing crypto companies.

News of this led Changpeng "CZ" Zhao of rival Binance to decide to liquidate all their FTT tokens provided to them as part of their exit from investing in FTX early on. This then led to a bank run that unraveled the rotten relationship of two companies that are both led one way or another by SBF.  

FTX is now on voluntary bankruptcy proceedings and SBF has resigned his post as CEO.  

What can we learn from this? 

Time and time again, whether in traditional finance or in the nascent world of crypto, we are provided evidence that we should not trust people. People are fallible and corruptible.

It has been widely assumed that SBF has been lobbying in the US for regulation that favors him to the detriment of others both in the decentralized and even centralized world like his main competitor. This was happening, it seems while he is mishandling customer funds. The irony will not be lost on many who followed his cult of personality building escapades. He was violating the trust of his customers to try to appear like a white knight of crypto. 

CZ is no angel in this story. But even if all users withdraw all their funds following a scare precipitated by a tweet from an industry titan, an exchange should be able to facilitate that and return everyone's money. A stock or crypto exchange company is not a bank. It should not be lending out even the smallest fraction of customer funds.  

This is a case of "Power corrupts, and absolute power corrupts absolutely."

Dissecting SBF's public apology, we see his true character: 

No, it's not just an F-up. It would be like Hitler apologizing for not better preparing his troops against the Russian winter. -Umm, no. It's definitely more than that. It's a character flaw that stems from the desire to win and especially to triumph against your nemesis. The desire to come out on top and be celebrated by your peers. We see that on display here:

As if the whole world was a chess match for just the two of them. In the end, he wouldn't have F'd up if he did not have ill intent. I mean, are we to believe that perhaps some intern made a clerical error that resulted in billions of dollars of missing funds?: 

He was 'slammed' with things to do, yeah right. Things that would add more to his prominence instead of furthering the cause of crypto.

You won't improve just by making sure you don't commit the same mistakes. You improve by making sure you address the root cause of the issue. And in this case where SBF has been a bad actor in the industry, he has to admit that to himself. -That he is a bad person.

 

The ethos of crypto is to not have to trust any centralized entity and instead be able to verify thru the blockchain. This transition period when the frontend of dapps are still not as user friendly as those from web 2.0 is a dangerous period and should prompt the industry to strive towards maturing web 3.0 further faster.

For everyone else, make sure you only put in money on anything that you can afford to lose so you can keep calm and HODL.

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Caveat Emptor. Not Financial Advice. 

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