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“What do we know, and what have we learned” feat. FTX collapse

Market reports suggest that exchanges have enhanced their adoption of Proof-of-Reserves mechanism

“What do we know, and what have we learned” feat. FTX collapse
As reported by JD Supra, demand for regulatory compliance should be fulfilled for a better global decentralised scenario

Developments around FTX collapse seems to raise questions about how crypto industry can recover. Post FTX debacle, global authorities are believed to have laid more focus to safekeep investors’ funds and reduce illegal practices, around the decentralised landscape. 

According to KPMG, a multinational professional services network, in November, 2022, FTX’s balance sheet showed an eight billion dollars deficit between assets and liabilities, which triggered the halting of trading and withdrawals and transfer of digital assets to cold storage. “I believe the collapse of FTX has had a global impact on the crypto market, its prices, and its volumes. As a result, traders and investors aim to become more cautious in selecting crypto exchanges, opting for those with greater transparency,” Edul Patel, co-founder and CEO, Mudrex, a crypto investment platform, told FE Blockchain. 

Market reports suggest that exchanges have enhanced their adoption of Proof-of-Reserves (PoR) mechanism, to assure customers about being financially stable to cover their deposits. Insights from International Institute of Management Development, a private business school, stated that exchange users should ensure ownership of their holdings for trading practices. Experts suggest that this development has also raised the importance of being aware of privately-issued cryptocurrencies. In that context, as Bitcoin’s value determination is done through demand and supply, Ether2.0, Cardano, Solana, among others, should be held as utility tokens to back decentralised finance (DeFi), ensure non-fungible tokens (NFTs) have an intrinsic value, and frame metaverse’s future. 

“I think the fall of FTX and such relative incidents in the past year has brought awareness to the need for effective rules. Not just regulators, but even commentators and investors intend to make renewed calls to streamline stricter regulations. This time, the regulations are expected to go far beyond the crypto market and be inclusive of all financial movements,” Harishkarthik Gunalan, co-founder and CEO, CoinFantasy, a decentralised invest gaming platform, stated. 

From an investor’s perspective, the need for ‘progressive’ regulations is considered to be at the forefront for decentralised markets. As reported by JD Supra, an informatory platform, demand for regulatory compliance should be fulfilled for a better global decentralised scenario. For example, since Coinbase is a US-based, publicly traded company, it needs to follow SEC and NASDAQ rules and regulations and submit audited financial statements to the public.

Moreover, future predictions indicate that despite FTX-based drawbacks, blockchain can still benefit financial markets. In upcoming years, investors expect that blockchain’s institutional adoption will be key to make the technology mainstream, for disruption across different sectors. “The DeFi innovations in 2023 are expected to make product experiences comparable to centralised solutions. With increased scalability, reduced transaction costs, improved liquidity and easy on-boarding – DeFi products can be at par with their centralised peers in addressing customer needs,” Karan Ambwani, India lead, dYdX Foundation, a decentralised platform, concluded.   

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First published on: 23-01-2023 at 08:00:00 am