Into the Cryptoverse
A Regulator's Dream....
Disclaimer: I am not as versed in Crypto as I’d like to be, so most of this story is my basic understanding of what I’ve read, heard, and watched and might not be an accurate depiction. In the event that it isn’t please don’t hesitate to let me know in the comment section (You can drag me if you're so inclined; Lord knows I need the popularity).
Special thanks to Ikechukwu Uche and Michael Ogezi for all the help I got from them when putting this together.
To say that the tech ecosystem has been quite chaotic in recent times would be putting it mildly. The ecosystem’s preferred platform was acquired by everyone’s favorite supervillain, layoffs were happening from Westeros to Wakanda, and while people were trying to catch their breath, billions were lost in the Cryptoverse due to a company’s attempt to play a fast one.
Much Ado About Tokens
FTX, an exchange founded by a guy whose name sounds like a financial institution (Sam Bankman Fried- SBF for short) went through more drama than a Soap opera that has been running for 24 years. First, there was a report by CoinDesk showing that 40% of Alameda research’s (another company founded by SBF) assets were denominated in the FTX-created token FTT. This then made Binance (another exchange platform) sell all its FTT, which in turn caused mass hysteria, making everyone want to withdraw their funds.
The story was extremely difficult to understand for those of us that know nothing about crypto. So, I read some articles and watched a ton of videos to get a better grasp on what’s happening so I can at least share like I know what’s going on. This is a more simplified version:
MIT grad and confident whiz-Kid whose name sounds like a financial institution, Sam Bankman Fried (SBF) founded two companies; Alameda Research which is a quantitative trading firm (uses computers and math to trade securities) focused on Crypto, and FTX a crypto exchange platform (like Binance). Now FTX created its own token (money) out of thin air and needed to assign value to it. So, they gave it utility by selling it to SBF’s other company. Imagine if there are a hundred stones just lying there. Then out of the blue, you find out that sixty of those stones have been bought. You immediately want to rush to buy at least one stone to keep because you feel that it must have some type of value to be purchased by everybody. Now imagine you find out that all those 60 stones were purchased by the wife of the guy that was selling them, this makes them less valuable immediately, it means that the stones were just bought to create a fake scarcity to drive up value, they still can’t be used for anything. FTT became more valuable when Alameda bought a whole lot of it.
Now Alameda research is a proprietary trading company, meaning that it trades for itself alone. How would it make more profit trading more securities? By borrowing money. And what does it use as collateral? its assets. Final question, I promise; what will the assets be? Exactly! Worthless tokens.
The next act in this story is when CoinDesk found out about this and snitched. This made Binance dump all its FTT, causing everyone else to panic too, and leading everyone to attempt withdrawing their funds. Problem was that funds weren’t enough for everyone to withdraw so they had to lock withdrawals. Investors lost all their money, Sequoia stated that their investment was worth “zero”. The story ended on the 11th of November 2022. With the company filing for Bankruptcy (along with Alameda Research).
Of course, there was a lot of sorrow and tears from this. And a lot of think pieces came as well. Many people spoke about how it was a war between giants (Binance and FTX. In the end, Binance offered to buy the company but backed out at the last minute).
I personally believe that this has just created a good case for regulations. It’s hard to imagine that any of this would have happened if there was a regulatory body presiding over the Crypto space. At the very least, people with funds deposited would have been able to withdraw at least a fraction of their funds, instead of losing the full thing. Funnily enough, SBF was on the frontline calling for regulation in the Crypto space. Perhaps he needed someone to save him from himself? In any case, it shows that the crypto space is not yet ready for the wider world. Crypto is meant to be another form of money, like Naira or the Dollar even. But, it’s still being used as a store for value instead. People buy crypto like they buy stock. It’s still being driven by speculation. I for one prefer my legal tender with some stability.
However you look at it though, there’s one thing for sure. This was a disaster, and a hit to the crypto community, which is constantly trying to prove its legitimacy to the public.
Have a great week friends, and be sure to invest in things that you know.
What Else is Happening?
Chiprent is still as determined as ever to provide new housing solutions for everyone.
I read this article on Zikoko about how money destroyed a friendship and it broke my heart
Speaking of money in relationships: ‘Loan Friends’ will save your relationships from money issues, I promise you that.
The Naira seems to have listened to our pastors’ prayers and is rising against the dollar.
The election season in Nigeria is heating up, and the insults and accusations are becoming more imaginative and better crafted. Can’t wait for February to pass, so we can go back to just passively insulting our leaders.
President Muhammadu Buhari wrote this beautiful piece in the Washington Post and I read it like ten times. Check it out.
Special thanks to Prudence Akinola for always taking out the time to check out the News from the Juice.
See you all next week!