Vitalik Buterin offers lessons for crypto in wake of the FTX collapse

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Ethereum co-founder Vita­lik Buterin has spo­ken out in the wake of the FTX col­lapse, offer­ing his thoughts and some pos­i­tives from one of crypto’s biggest black swan events.

In a Nov. 20 Bloomberg inter­view, Buterin said that the col­lapse of FTX con­tains lessons for the entire cryp­to ecosystem.

He acknowl­edged that the under­ly­ing sta­bil­i­ty of dis­trib­uted ledger and the tech­nol­o­gy pow­er­ing the cryp­to asset econ­o­my has not come into ques­tion. The prob­lem in this instance (and sev­er­al before it) has been peo­ple, not technology.

Buterin also labeled the FTX col­lapse as a “huge tragedy” but added that it reaf­firms the posi­tion of many in the Ethereum com­mu­ni­ty con­cern­ing centralization:

“That said, many in the Ethereum com­mu­ni­ty also see the sit­u­a­tion as a val­i­da­tion of things they believed in all along: cen­tral­ized any­thing is by default suspect.”

He added that this ethos includes trust­ing in open and trans­par­ent code above humans. Over the week­end, Buterin post­ed a guide to hav­ing a “safe CEX” with proof of insolvency.

He said rather than rely­ing sole­ly on “fiat meth­ods” such as gov­ern­ment licens­es, audi­tors, cor­po­rate gov­er­nance, and back­ground inves­ti­ga­tions of peo­ple run­ning exchanges, the exchanges could cre­ate “cryp­to­graph­ic proofs that show that the funds they hold on-chain are enough to cov­er their lia­bil­i­ties to their users.”

The prob­lems for FTX are under­stood to have stemmed from the exchange’s use of cus­tomer deposits for oth­er pur­pos­es. After a large influx of with­draw­al requests came to the exchange ear­li­er this month, it found itself unable to meet with­draw­al demand with its cur­rent liquidity. 

Relat­ed: FTX fias­co means com­ing con­se­quences for cryp­to in Wash­ing­ton DC

Vita­lik Buterin is not the only indus­try leader recent­ly speak­ing out about the FTX fall­out. On Nov. 17, Binance CEO Chang­peng Zhao said that while reg­u­la­tion is nec­es­sary, it is more impor­tant for indus­try play­ers to lead by example.

Dur­ing the Indone­sia Fin­tech Sum­mit 2022, Zhao said the entire FTX saga is like­ly to have set back the cryp­to indus­try by “a few years,” and will like­ly see reg­u­la­tors scru­ti­nize the indus­try “much, much hard­er, which is prob­a­bly a good thing, to be honest.”

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