Bitcoin Family Moves More Than $1 Million To DEXs After FTX Collapses
The Taihuttu family in November, days after they moved back to Phuket.
Didi Taihuttu
Confidence is rapidly eroding in the crypto sector, as it faces a wave of bankruptcies and investigations into Sam Bankman-Fried and his failed exchange, FTX, for the loss and use of billions of dollars in user deposits.
But Didi Taihuttu, his wife, three daughters and Teddy, a Pomeranian puppy they adopted in Portugal last year, are as confident as ever in their commitment to bitcoin — they just change how they store it.
Ever since they liquidated all their assets and bought bitcoin in 2017, when they were trading at around $900, the Taihuttus have protected their crypto riches in three main places: centralized exchanges (CEX) like Bybit and Kraken, decentralized exchanges (DEX) like Uniswap, and hardware wallets hidden in secret vaults on four different continents. But as brokers, lenders and exchanges continue to go bankrupt—locking up customer funds in the process—the Dutch family of five is proactively moving $1 million in crypto to decentralized exchanges, which allow users to hang onto custody of their tokens.
“To me, bitcoin is still about freedom, and decentralized currency should be able to be used by anyone in the world without having to do KYC or other regulatory things,” Taihuttu told CNBC, referring to know-your-customer, or KYC compliance, required of many centralized platforms which Coin base. DEXs do not require users to link an ID or bank account to the platform, making it an ideal custody solution for Taihuttus.
The Taihuttu family in Lagos, Portugal on the day they adopted Teddy, their Pomeranian puppy.
Didi Taihuttu
CNBC caught up with the 44-year-old patriarch a few days after the family moved from Lagos, Portugal, to Phuket, an island just off the western coast of mainland Thailand in the Andaman Sea. The family currently lives on 0.3 bitcoin a month — about $5,000 — and they are buying back the bitcoin they sold when the cryptocurrency traded at about $55,000 a year ago. For Taihuttus, the cascade of crypto bankruptcies and failed tokens only shows that “bitcoin is the king” and “totally different from all the other projects.”
Although Taihuttus had no tokens tied to FTX, Celsius, Voyager Digital or any of the other platforms that recently went under, the wave of failures reminded them of the importance of ownership.
In crypto, one of the mantras is “not your keys, not your coins”, meaning that rightful possession of tokens comes through custody of the corresponding private keys. DEXs such as Uniswap and SushiSwap are peer-to-peer platforms where transactions take place directly between traders, excluding intermediaries such as e.g. banks and brokers. That means users retain custody of their tokens by never handing over their private keys.
DEXs eliminate centralized intermediaries from financial transactions such as trading, holding and transferring assets through programmable bits of code known as smart contracts. These contracts are written on a public blockchain like ethereum, and are executed when certain conditions are met, negating the need for a central intermediary. Essentially, with DEXs you trust code, and with CEXs you trust people.
“You never send your bitcoin to an exchange. Your bitcoin stays in your own wallet, which means you have complete custody of your coins,” explained Taihuttu. “You connect to a DEX, and by making that connection, you trade out of your own wallet.”
That nuance of ownership is critical.
“If DEX collapses, it doesn’t matter, because bitcoin is always in your own wallet,” he added.
Change their storage strategy
From the beginning, Taihuttu said he could tell something was “really wrong” with FTX, even though it was one of the biggest CEXs on the planet before it imploded in November.
“Too many influencers were paid too much money to promote it,” continued Taihuttu, who added that trusted crypto products and companies usually don’t rely so heavily on celebrity endorsement.
The Dutch father of three had learned his lesson in 2017, when he lost four bitcoins due to a hack of a centralized exchange known as Cryptopia.
“From that moment I was always looking for alternatives,” he explained.
The Taihuttu family in the Netherlands.
Didi Taihuttu
People who choose to hold their own cryptocurrency can store it “hot”, “cold” or a combination of the two. A hot wallet is connected to the internet and gives owners relatively easy access to their coins so they can access and use crypto. The trade-off for simplicity is potential exposure to bad actors.
“Cold storage often refers to crypto that has been moved to wallets whose private keys—the passwords that allow the crypto to be moved out of the wallet—are not stored on internet-connected computers, so that hackers cannot hack into the computer and steal the private the keys,” said Philip Gradwell, chief economist at Chainalysis, a blockchain computing firm.
Thumb-sized devices like a Trezor or Ledger offer a way to secure crypto tokens’ “cold”. Square also builds a hardware wallet and service “to make bitcoin custody more mainstream.” The Taihuttu family has relied heavily on cold storage to protect its tokens for the past six years.
Currently, Taihuttus holds 27% of their crypto holdings “hot” on centralized exchanges such as Bybit, a platform that Didi says is transparent and backed by real assets. He also has some tokens on Kraken, as it is one of the oldest exchanges. Didi refers to this crypto stash as his “risk capital,” and he uses these crypto coins for day trading and potentially precarious bets.
The other 73% of Taihuttu’s total crypto portfolio is in cold storage. These cold hardware wallets, which are spread across the globe, hold bitcoin, ether and something litecoin.
Didi Taihuttu in a desert in Dubai.
Didi Taihuttu
The family declined to say how much it holds in crypto, but they revealed that they are moving $1 million worth of bitcoin, ether, litecoin, polkadot and other tokens from these hardware wallets and centralized exchanges to decentralized exchanges.
Tainuttu says he ultimately wants to move 100% of his family’s crypto savings into DEXs and invest 15% of their net worth in emerging DEXs since he sees these decentralized platforms as the centerpiece of the next bull run. When asked why he’s going all in on DEXs instead of keeping crypto cool, Didi pointed to ease of access.
DEXs allow Didi to connect the crypto he protects on thumb drives in stashes around the world directly to the platform, meaning he can make trades much easier, while protecting his tokens.
“Our capital now is very difficult to use in trading, because then I have to send bitcoin from the ledger to an exchange,” explained Taihuttu.
The financial privacy offered by DEXs is also a big incentive.
“You trade from an anonymous ledger on an exchange as an anonymous entity,” he said. “You get full access to non-KYC trading in a decentralized way on a DEX.”
Taihuttu is not alone in shifting its focus to DEXs. After the FTX bankruptcy, Trezor’s sales revenue reportedly increased by 300% and billions of dollars in bitcoin fled exchanges. Meanwhile, Multicoin Capital, a crypto investment company, told limited partners that 7% of its assets are similarly stored cold, in self-contained multisig wallets.
Didi Taihuttu and two of his daughters on a boat trip in Portugal.
Didi Taihuttu
Advantages and disadvantages of DEXs
Centralized exchanges are a big part of what helped drive crypto adoption by offering new investors an easy entry.
“Centralized exchanges have played an important role in the adoption of cryptocurrency,” explained Auston Bunsen, co-founder of QuikNode, which provides blockchain infrastructure to developers and companies. “With their growth came the growth of the industry.”
But in recent years, and especially in the past six months, decentralized exchanges have grown in popularity as investors look to trade in a way that protects their funds.
Boaz Sobrado, a London-based fintech data analyst, sees three main advantages of DEXs: they are non-custodial, meaning you don’t have to rely on someone (like Sam Bankman-Fried) to store your money for you ; they are open, meaning anyone in the world can participate; and transaction data is more widely available, which reduces the risk of insiders gaining a head start on knowledge that only they have.
Didi Taihuttu in Lagos, Portugal.
Didi Taihuttu
Uniswap has facilitated more than $1 trillion in trading volume from around 100 million trades since its launch in 2018, according to a June 13 Bank of America research note. Rival DEXs such as SushiSwap and PancakeSwap have also gained traction with traders, although Uniswap still accounts for around 51% of all trading volume on the DEX so far this year.
While DEXs play an important role in the digital asset ecosystem, there are many reasons why these decentralized platforms won’t eclipse their centralized peers anytime soon, according to Alkesh Shah, Bank of America’s Head of Web3, Crypto & Digital Assets Strategy.
“Centralized exchanges provide a one-stop shop to invest or trade digital assets with someone to talk to if something goes wrong – this will be critical for mainstream adoption beyond the early adopters today,” Shah told CNBC.
Shah said investors are likely to prefer exchanges that are more transparent about their operating practices, adding that regulated and transparent CEXs are likely to be important for mainstream adoption in the long term.
Bank of America said in its June note that it expected Uniswap, in particular, to face regulatory scrutiny. The bank said it also saw the potential for the Securities and Exchange Commission to require it to register as a National Securities Exchange or broker-dealer.
Didi Taihuttu and his eldest daughter, Joli.
Didi Taihuttu
“Uniswap may be unable to comply with regulatory requirements, given its inability to verify user identities, implement AML/KYC (anti-money laundering/know your customer) requirements or provide the necessary disclosures for the thousands of tokens listed on the platform,” the research note continued.
Some centralized platforms are splitting the difference by offering DEX-type services, but it’s unclear what kind of regulatory backlash they may ultimately face.
Meanwhile, Sobrado tells CNBC that at this stage, most DEXs are losing money, which means they may not be sustainable.
DEXs are also automated market makers, meaning that the exchange collects liquidity from its users and then uses an algorithm to price the assets in that pool. Sobrado says this model has proven remarkably resilient — but is untested against order book exchanges like Coinbase.
Underneath it all, the Bitcoin family still believes the original cryptocurrency is a solid bet. They say they have not been affected by the turmoil of the past six months.
“We seem to learn that lesson every bitcoin cycle,” Taihuttu said. “There was Mt. Gox, there was a ban on bitcoin in China, there was a ban on mining. There’s drama every time.”
He continued, “But looking at today’s situation: We have a huge war going on, we have a huge financial crisis, we have FTX, we have Celsius, we have a lot of bear market signals. I think bitcoin is really holding strong at $16,800. For me makes bitcoin still perfect and still doing what it always does: being a decentralized currency usable by all people around the world.”
Didi Taihuttu gave a speech on bitcoin adoption in Tulum, Mexico.
Didi Taihuttu
