The State Of Web3 Development

Welcome back everybody. It’s been another exciting week in crypto and we’re pleased to bring you the next edition of The Blockchain Review. The downfall of FTX and Alameda sent shockwaves through the industry and they’ve now entered Chapter 11 bankruptcy proceedings in the US, in a filing of over 100 different companies under the same umbrella. The ripples from the collapse are being felt by other Cexes, CeFi, Institutional lenders and protocols in the Solana ecosystem which were closely tied. 

FTX have a new CEO in charge after Sam Bankman-Fried stepped down. John Ray is a restructuring expert and has been brought in to guide the company through bankruptcy. Some of his comments made in the first filings are quite telling, saying he’s never seen anything as bad as FTX in over 40 years of restructuring. That there’s been a total absence of any lasting records of decision-making, who was working for the FTX Group or what their terms of employment were and even a list of major creditors. 

Without records or paper-trails it’s going to make the job of unraveling this mess even harder so anybody who’s lost out should prepare for a long wait before finding out if there’ll be anything left to salvage with any certainty. One current optimistic theory is that FTX lent Alameda several billion dollars of depositors funds and much of that has been put into early stage projects which will eventually be recoverable. During the last bull market that may well have been possible, however there are now several important considerations. 

Some projects may have had their funds on FTX as part of their agreement with Alameda or FTX Ventures. Some may never get to launch now that reputations and plans are damaged.

As well let’s not forget that if FTX lent exchange customer funds out then it was against the terms of their agreement and the court is bound to want to examine this.

John Ray revealed that Alameda had a ‘secret exemption’ from liquidations on FTX which would suggest they held an advantage when trading or launching their new venture tokens. For example, the rise of the Solana ecosystem was intricately woven with FTX and Alameda, and many projects were relying on this symbiotic relationship. Considering the state of the market, vesting periods and damaged reputations then it’s likely to take a long time to recoup this proportion of depositors funds. 

Users are rightfully concerned and this has led to a flurry of panic to withdraw from other exchanges with the threat of contagion we’ve unfortunately become used to in 2022. Genesis, an institutional lender, has been forced to halt withdrawals this week and Crypto.com has been under fire for the consistency of their declared holdings. 

If there’s anything positive that can come from this it’ll be industry wide adoption of Proof of Reserves solutions. These are designed to prove at regular snapshots how many assets entities hold in comparison to their liabilities. Making this the norm would give users greater confidence in the platform they are using and any that refused to do so would be less likely to succeed. After every exchange like Mt.Gox, Quadriga or FTX collapse it’s said that Cexes are one of the major weaknesses in the industry. 

One of the best things we can do through the ongoing bear market is to continue to help others understand how to self-custody their assets and use hardware wallets. This option isn’t without its own set of risks either, so best practices must be adequately understood to enable it to be an extra segment of a fully diversified portfolio.

We’ll always provide you with our research to help with your education. We’ll keep close track of the main developments and evolution of the niches in blockchain so that you get the best of the new knowledge. When you’ve finished reading your report then please remember to fill out the feedback form, your research is valued and we’re always open to suggestions.