The post-crash FTX era has begun for the cryptocurrency industry. The immediate and total destruction of FTX came on top of the other failed centrally managed cryptocurrency companies such as Terra (LUNA), 3AC, Celsius and Voyager.
Since the disaster that caused billions of dollars in losses to businesses and investors, the man who runs the largest cryptocurrency exchange, Binance CEO Changpeng “CZ” Zhao, envisions an era of greater regulatory scrutiny in the near future.
With one of the largest cryptocurrency firms going down overnight, CZ believed that this development was disastrous for the industry, which took away much of the consumer confidence.
Speaking at the Indonesia Fintech Summit 2022, he said:
“I think we are now a few years behind. Regulators will rightly look at this industry much, much harder, which is probably a good thing, to be honest.”
Where to focus checks
Cryptocurrency regulations have historically been released around Know Your Customer (KYC) and anti-money laundering (AML).
However, CZ reiterated its long-held belief that regulations should focus on transactional operations such as business models and proof of reserves. As a result, he believes tighter regulatory scrutiny around cryptocurrency business activities is just around the corner.
The consequences of FTX’s collapse are bound to have a short-term impact on retail investors, but in the long term it is a wake-up call for discussions on how to manage risk in cryptocurrency ecosystems.
Speaking specifically about FTX, CZ said:
“The last three days are just an exposure of problems. The problems have been there for a long time. This problem was not created in the last three days.”
The red flag
CZ pointed out that the biggest red flag for FTX was Alameda Research’s financials, which were full of FTX Tokens, which made him finalize the decision to sell the FTT that Binance held, worth over $2 billion at the time.
The next day, FTX CEO Sam Bankman-Fried contacted CZ with a deal that “didn’t make sense on many fronts.” At the same time, CZ hoped to reach an over-the-counter (OTC) agreement to protect users:
“The original intention was to save users, but then the news of user funds being misused, especially the investigations by US regulators, made us realise we can’t touch it anymore.”
CZ believes that increasing transparency and educating regulators about controls on cryptocurrencies will make the industry much healthier.
The entrepreneur stressed the need for easy tools for storing private keys and other security functions, but argued that the cryptocurrency ecosystem will grow in incremental steps rather than giant leaps.
Taking a proactive approach to regaining investor confidence, Binance has published a new page titled “Proof of Assets”, which displays details of activity within the exchange chain for wallet addresses, hot and cold:
“Our goal is to enable users of our platform to know and make informed decisions that align with their financial goals,” Binance said in an official statement.