Many have been rooting for decentralized finance (DeFi) as an answer to the havoc that FTX brought on to the industry. As the community gets fearful of a sweep of liquidities, tapping into DeFi can perhaps bring peace of mind.
The scope of damages that FTX has caused is beyond fathom. With fraud, negligence, malfeasance, and many more under the belt revealed under court filings and leaked documents, people are becoming more doubtful about the credibility of crypto.
To give a brief summary of what questions crypto’s credibility, we’ll have to look into FTX’s misdoings. Through a series of creative accounting, FTX managed to conceal their insolvency.
FTX also secretly transferred user funds to a ‘seperate’ sister company, Alameda research. Through such examples of corruption, it is without a doubt that people have been turning a more suspicious eye to crypto.
Unfortunately for DeFi, mainstream media and politicians were quick to assume that FTX and DeFi were all lumped into the same crypto category.
Thus, a clear distinction should be made between centralised exchanges (CEXs) like FTX and DeFi exchanges (DEXs) in order to distinguish DeFi as its own umbrella under crypto.
But the general public however is not aware that crypto itself is not at fault – rather, as FTX was not operating on a true DeFi protocol, they were able to get away with multiple counts of fraud.
At the crux of the matter, FTX was an exchange that had its users give wallet keys in order for asset custodial and management services. As such, FTX had access to any user’s funds, at any time possible.
Anyway, one thing can bring back crypto’s cred – decentralised finance (DeFi).
What can DeFi do?
On a true DeFi protocol, such corruption would be difficult, maybe even impossible to happen. As DeFi protocols don’t selectively discriminate between users, with no middle-men in facilitating transactions, the probability of having funds abused by a DeFi provider is near zero.
True DeFi protocols also let users self-custody their accounts thus minimising the risk of having a wallet abused by someone else.
In the case of centralised exchanges (CEX) like FTX, users give exchanges access to their wallets and keys. If a user wants to access funds, they have to depend on FTX to send it – and they are not 100% in control of your own assets.
This makes CEXs like FTX a middle man, and they are in control of all of your holdings on the platform – unlike DeFi where you can manage your own assets.
Disasters like FTX.com’s won’t happen when your funds are not available for middlemen to abuse.
However, DeFi is not yet perfect. Don’t distribute all your assets to only DeFi protocols just yet!
Just like anything else, DeFi also has a few downsides. Service failures can happen, smart contracts can be risky, governance efforts from decentralised organisations can move slowly, not to mention a huge technical knowledge barrier.
Although centralised figures like Google are attempting to be trustworthy allies to help spread DeFi, such entities are far from what’s harming the spirit of crypto.
But DeFi is difficult!
To prevent further risks from happening, DeFi needs to be way more accessible than it is now.
FTX.com became popular with users as an easy alternative to true DeFi platforms. FTX was user-friendly, saving many users the hassle of trying to figure out complicated processes in crypto. However, it’s worth noting that such hassle can guarantee further safety of your assets.
As DeFi is immutable, decentralised, transparent, and permissionless, FTX’s failures are unlikely to happen on a DeFi platform.
In the meantime, the DeFi community at large is building platforms, wallets, and creating educational content in order to make onboarding to DeFi an easier, less stressful, and safe process.
Join the DeFi conversation
People are quick to assume that crypto just exists in a bubble – and unfortunately it can be true in some cases.
While regulators are scrambling to put rules into place due to drastic mishaps from bad actors, we have to act fast in elevating DeFi as its own thing, separate from what mass media is inclined to say.
Reach out and talk to other people outside of crypto to explain that although investing crypto in general has its benefits, using DeFi protocols to invest in crypto is a far safer option than giving someone else custody of your wallet.
Explain that there is a need for more tools and educational material to bring new users to crypto via DeFi. Explain that there are ongoing efforts within the DeFi community in building projects that will uplift its users.
The spirit of DeFi runs on beliefs that are opposed to financial fraud, exclusion, and consumer exploitation – all tenets that are part of centralised finance. If DeFi is lumped in with these sins, we run the risk of losing the future of finance as we know it.