There is a hidden profit in FTT, Binance, Bitcoin, Ethereum, Dogecoin and Solana Chaos

The events surrounding the FTX exchange this week triggered panic selling in the markets, resulting in new lows in major crypto assets. BitcoinBTC
fell to a low of $16,890, the lowest level since November 2020. EthereumETH
fell to $1,140, ​​a low last seen in July. FTT, the original symbol of the FTX exchange, crashed 90% in what appears to be panic selling and a trajectory similar to TerraLUNA3
Luna’s crash in May.

The chain of events began with the leak of Alameda Research’s balance sheet, which revealed that it held billions of dollars in collateral in FTX’s native token, FTT. Investors speculated that the FTT token was insufficiently liquid to cover its debt. The first shockwave occurred on Sunday night, when Binance CEO Changpeng Zhao (CZ) tweeted that he wants to sell Binance’s FTT holdings, which were valued at an estimated $580 million at the time.

This resulted in a bank run on FTX, panic selling of FTT tokens, wild short-selling speculative trades, and finally the announcement that CZ would buy FTX. At the time of writing, the prevailing news is that Binance may withdraw from the deal after reviewing FTX’s books, and that US financial market regulators are investigating whether FTX handled client deposits properly.

This comes after a series of events in the crypto space that have reduced confidence in investing in and trading digital assets. Three arrows capital, CelsiusCEL
, and Voyager Digital all went bankrupt this year. With the ongoing collapse of FTX, the third largest crypto exchange, it is clear that something is wrong with exchanges and that the space requires fundamental change to restore investor confidence and security.

One of the most difficult problems with crypto exchanges is the lack of transparency, as most of them allow traders to trade on I-owe-you (IOU) balances, which saves onchain costs. They have been observed collecting client deposits, thus creating a honeypot that hackers often target. In addition, they often remortgage client funds, putting client deposits at risk.

Although this is one of the most painful times for crypto investors, especially those who had funds with FTX, there is a hidden gain from the recent developments in the area.

CZ announced on Tuesday that Binance, the world’s largest crypto exchange, will soon begin proving reserves via a Merkle chain. This means that all crypto traders on the exchange will be able to verify that the exchange has reserves that match client deposits one-to-one. This will increase transparency and help rebuild trust in the cryptocurrency space.

If all exchanges were to follow suit and provide proof of reserves via a merkle chain, it would rebuild trust in the space and make the exchanges a better environment for traders.

While this doesn’t solve the honeypot problem, it’s a step in the right direction, in my opinion. Exchange plays an important role in the ecosystem. They help traders ramp in and de-ramp funds from fiat to cryptocurrency and vice versa. They also provide liquidity, enabling the smooth exchange of cryptocurrencies with other cryptocurrencies.

In addition, exchanges provide a limitless flow of capital where cryptocurrency users can borrow against their holdings at globally competitive rates.

To eliminate counterparty risk, self-custody of one’s own Bitcoin remains the best option for any pleb. One of the reasons Satoshi Nakamoto developed Bitcoin was to eliminate the system of trust and base peer-to-peer transactions on cryptographic proof.

While Bitcoin addresses the age-old question of money, I believe cryptocurrencies have spurred more innovation in the form of global companies with immediate global reach. In the past, it was difficult to run a global company with a seamless flow of capital and payments due to different jurisdictions.

Disclosure: I own bitcoin and other cryptocurrencies.