Cryptocurrency exchange FTX joined many other projects that have fallen —such as Terra (LUNA), 3AC, Celsius and Voyager— and have filed for bankruptcy in 2022. Due to the devastation caused by the multi-million dollar losses suffered by companies and investors, the man who runs the largest cryptocurrency exchange, Changpeng “CZ” Zhao, CEO of Binance, foresees an era of heightened regulatory scrutiny in the near future.
Representing the overnight collapse of one of the biggest cryptocurrency businesses, CZ considers the episode to have been devastating for the industry., taking much of the confidence of consumers. In his speech at the Indonesia Fintech Summit 2022, he said:
“I think we’ve basically regressed a few years. Regulators will rightfully look at this industry much, much harder, which is probably a good thing, to be honest.”
Regulations in the cryptocurrency sector have historically revolved around know-your-customer (KYC) and anti-money laundering (AML). Nevertheless, CZ reiterated its long-standing belief that regulations should focus on exchange operations, such as business models and proof of reserves.. As a result, he believes tighter regulatory scrutiny around cryptocurrency business operations is just around the corner.
While the collapse of FTX is bound to have a short term impact on retail investors, in the long term, this is a wake up call for discussions on how to manage risks in cryptocurrency ecosystems. Speaking specifically about FTX, CZ said:
“The last three days are a revelation of the problems. The problems have been there for a long time. This problem was not created in the last three days.”
CZ noted that the biggest red flag on FTX was Alameda Research’s financials, which were full of FTX Tokens (FTT)which made him take the decision to sell Binance’s FTT holdings, valued at over $2 billion at the time.
The next day, FTX CEO Sam Bankman-Fried contacted CZ with an agreement that “made no sense on several fronts”. At the same time, CZ hoped to secure an over-the-counter (OTC) agreement to protect users:
“The original intention was to save users, but then the news about embezzlement of user funds, especially investigations by US regulatory agencies (made us see) that we can’t touch that anymore.”
CZ considers that increasing transparency and educating regulatory agencies about cryptocurrency audits and offline wallet reporting will make the industry much healthier. Finding the right balance of standards isn’t a request, she said.
The businessman highlighted the need for easy tools to store private keys and other security featuresbut argued that the cryptocurrency ecosystem will grow in incremental steps and not in giant leaps.
Taking a proactive approach to regain investor confidence, Binance published a new page entitled “Proof of Assets” which displays details about the exchange’s on-chain activity for its online and offline wallet addresses.
“Our objective is allow users of our platform to be aware and make decisions based on sufficient information that are aligned with their financial objectivesBinance said in an official statement.
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