“Sam Bankman-Fried Couldn’t Know”

Can the FTX cryptocurrency platform be saved?

Nope. It’s too late. Some assets, such as its subsidiary LedgerX, may eventually be sold, but the exchange won’t be able to restart because of it. The brand is dead and there are too few customer funds to do anything credible. Sam Bankman-Fried argues that some large subsidiaries, such as those in the US, are not technically insolvent and will be able to return money to customers, but this is not very convincing except in a few countries.

Is FTX Japan one of these exceptions?

Yes. Because FTX Japan developed under the very strict rules of Japan. They told customers they had the funds to pay and made very clear statements about their savings. Japan’s financial regulator has already started monitoring their announcements. So it looks like FTX Japan will be able to recover the funds it owes its customers. Unfortunately, many Japanese users have instead used FTX International, which is less regulated and provides access to a large number of other products that are banned in Japan. According to preliminary estimates, these clients of FTX International were able to recover only 10% of their investment after a long liquidation procedure.

Sam Bankman-Fried asserts that he recently discovered that Alameda, a private trading firm in the FTX empire, was using funds deposited by FTX clients for its own operations. Is this a plausible explanation?

Nope. He couldn’t know. The creation of FTX itself, a year after the launch of Alameda, is related to the desire to allow Alameda, an investment company, to have easier access to the cryptocurrency market. In the terms of service, FTX stated that funds entrusted by customers will never be used by the company. Maybe that was the original idea. But soon, Alameda’s risk-taking strategy instead involved access to funds from FTX clients. The heads of FTX and Alameda, which share offices in the Bahamas and more, knew exactly what was going on from the beginning. Their system worked as the cryptocurrency market grew. The problem appeared as a sharp decline.

What is the lesson of this crisis? Should Cryptocurrency Exchanges Be Regulated More?

Adjustment can sometimes be useful. We see this in Japan, where FTX Japan clients will ultimately be better protected thanks to a strict legal framework. In Japan, it is completely forbidden to touch customers’ savings, so their money was saved. However, such an arrangement is not necessarily favorable for the industry. There are so many barriers in Japan that activity in cryptocurrency is extremely limited. It is now very difficult to develop new blockchains or new tokens in Japan. Almost impossible without a rich multinational company and an army of lawyers behind you. There is also a leakage of innovation to other nations that are considered less rigid.

If this is not a regulatory issue, what needs to be improved to avoid a new FTX?

The sector needs more transparency and information on the financial health of exchanges. How many cryptocurrencies do they have, what is their policy on revenue, debt, customer deposits? The user should be able to measure the risk he takes according to the platform. Either he invests with players operating in highly regulated markets like Japan, where he will have limited options in terms of cryptocurrencies or tokens, but he will be protected. Or he is willing to invest in markets that are less regulated and riskier but potentially offer better returns. The important thing is to be able to invest wisely. This led me to launch UnGox.

How will this UnGox service work?

From the first quarter of 2023, we will provide ratings for dozens of cryptocurrency exchanges. These points will be free for everyone. At the same time, we will offer you a paid subscription system that allows you to know the details of each platform’s activity in terms of financial transparency, technology, security and even management, and receive alerts when detected. an event. Since the FTX crisis, many customers have been asking for this kind of service.