What FTX’s Collapse Means for the Future of Crypto

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The FTX scandal continues to send shockwaves through the cryptocurrency industry. Few could predict that the much-loved centralized exchange (CEX) would implode, leaving vulnerable retail investors to bear the brunt of the disaster. Thousands of FTX users were unable to withdraw their funds from the exchange when insolvency rumors began to swell, and may now never be refunded. The collapse underscored the vital importance for crypto users to be able to transact quickly and efficiently across all platforms.

So what’s next for the crypto industry? CEXs embracing proof of reserves are simply not enough to win back users. In order to restore user trust, there are a few important steps that platforms can and should take. In light of the uncertainty of centralized finance (CeFi), users need more than ever ways to transact and transfer funds with ease and security. Individuals must be empowered to take control of their cryptographic keys. Although CEXs are convenient and provide a superior user experience, they should not be used to house long-term investments. Amid the FTX fallout, we are seeing a massive migration from CeFi to decentralized finance (DeFi), but to both onboard and retain users, there must be assurances that they will be able to exit safely. security and quickly withdraw assets.

Rise in DeFi user activity after FTX

Crypto users transact in high volumes following the FTX disaster, seeking safe ports for their assets.

For example, Uniswap, one of the most popular DeFis decentralized exchanges (DEXs), recently overtook Coinbase for daily trading volume on Ethereum pairs. Additionally, research firm Delphi Digital found that centralized exchanges saw a net outflow of US$5.5 billion on Ethereum from exchanges over 7 days in mid-November, coupled with its rising DEX basket. 33.8% against BTC.

The case for quick self-guard

Centralized crypto exchanges will still serve an important purpose in the ecosystem for some time to come, but perhaps not forever. In fact, a Binance executive recently said that their CEX may not exist in 10 years due to the macro move to DeFi. To that end, we simply cannot afford to overlook what DEXs bring to the table in terms of security and autonomy. CEXs and DEXs have their own lists of pros and cons, and users should use their judgment when choosing where and how to store their crypto to suit their specific needs.

In the wake of FTX’s collapse, the classic slogan “not your keys, not your crypto” rings truer than ever. The danger of keeping your assets on a centralized exchange is that your ability to access your crypto is entirely dependent on the exchanges ability to transfer it to you. In a crisis of confidence, investors may panic, attempt to withdraw all their funds quickly, and essentially cause a run on the stock market.

Non-custodial wallets are a great option for those looking for top-notch security. There are two types of non-custodial wallets: hardware and software. Both store private encryption keys, strings of numbers and letters that look like a highly sensitive password. Non-custodial options ensure that the user has complete ownership of their assets. Custody wallets are easier for those new to crypto to adopt, however, the private keys are held by a third party, which can be risky.

The key to DeFi: improving the user experience

Most crypto users, especially novices, have generally turned to CEX for convenience and user experience. In order to onboard and retain more users, glaring DeFi user experience issues need to be addressed.

One of the biggest barriers to mass adoption of DeFi is the lack of a transparent and secure activation and deactivation process. If major DeFi entities are able to perfect the entry and exit points to and from their platforms, they will facilitate a much more accessible and approachable experience for all users.

Above all, there must be confidence in the autonomy of the users on the assets, regardless of the platform. Ultimately, the industry can restore trust amid the FTX disaster by making crypto more accessible and transactions faster. While the macro environment remains devastating for retail investors and the crypto community as a whole, the Web3 revolution is still poised to overtake legacy finance.

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