FTX collapse – The dangers of unregulated crypto trading

Let’s imagine a perfect world. A world where regulations clearly define the rules of the economic market’s “game”, the size of its field and the use of the necessary equipment to participate. A world where those who don’t comply with these regulations are immediately revealed, stopped from doing intentional harm and given their due penalty.

In such a world

  • It would be impossible for a crypto exchange to sell crypto and then continue to use and invest the sold currency freely as their own
  • It would be impossible for a crypto exchange to sell crypto without an actual registration on the blockchain, where the assets are not generated, making a 5-billion-dollar unaccounted-for hole in their accounting
  • It would be impossible for a crypto exchange to found and operate a co-owned trading company with a staff of 30 which makes USD 1 billion profits in a year by unlawfully manipulating the order book.
  • It would be impossible for a crypto exchange to issue its own tokens, which they themselves buy, thereby ‘setting’ its price, using the rest to further back their other transactions.

In a perfect world these actions would be punished by long years in prison.

It’s unknown what exactly Sam Bankman-Fried, the founder of the crypto exchange FTX did, along with cofounder Carloine Ellison, the manager of the Alameda trading company. It’s not known who else had a role in the violations at FTX. We know that the FTX enterprise which managed 300+ companies has collapsed, defaulting the group which was estimated at USD 15 billion not long before. We also know that Caroline is currently in Dubai since the USA has no extradition agreement with the United Arab Emirates.

The lesson of the story is well known: the crypto trading space needs regulations like those of the traditional financial world to prevent future intentional damages. Unfortunately, similar damages occur everywhere, not just in crypto. It’s not a coincidence that this case is referred to as the LehmannBrothers or Enron of crypto.

It’s also important to clarify that the FTX case has nothing to do with how secure the technology of crypto is. The main crypto currencies felt its effect, but they’re far from having collapsed: ETH is down just 7% and BTC 16% compared to a month before.

These events highlight the importance and the necessity of the solution we’re building at Dorsum, as well as the work the Blockchain coalition does every day. Services provided by audited players in accordance with a regulated environment will eliminate (or minimalise) similar cases.

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