The recent collapse of FTX, one of the world's top three cryptocurrency exchanges, has sent shockwaves through the digital asset world. Following a liquidity crisis and a series of bad debts, FTX halted user withdrawals and filed for bankruptcy, leaving many users struggling to recover their funds. The subsequent price crash has significantly eroded the overall market capitalization of cryptocurrencies.
Since the financial bomb detonated on November 9th, there have been daily developments, from regulatory actions to responses from key blockchain figures. For those outside the crypto space, the event has often been met with dismissive comments about the inherent risks of buying digital assets. Much of the criticism has been directed at the concept of "decentralization," with the FTX case cited as proof that decentralization is not a solution to financial problems.
However, this perspective is based on several misunderstandings.
If an Exchange Fails, Do the Coins Become Useless?
This surprising argument was recently seen in a major blockchain community. The poster, who seemed to have been in the crypto space for some time, claimed that "once cryptocurrency leaves an exchange, it becomes either valuable but without a market, or in a market but without value."
This isn't entirely their fault. Many traditional investors might harbor a similar imagination: "If the Taiwan Stock Exchange collapsed, what would be the use of holding so many shares?" What they may not realize is that it is precisely the decentralized nature of blockchain that ensures the coins in your wallet retain their value even after an exchange goes under.
That's because the world isn't only home to centralized exchanges (CEXs) like FTX, Binance, and Crypto.com. There are also decentralized exchanges (DEXs) like UniSwap, GMX, and dYdX.
The difference lies in the fact that centralized exchanges hold your assets in their own "vaults" and facilitate trading within their internal ledgers. The benefits are convenience, speed, and low fees. However, if an event like the FTX collapse occurs, your coins are held on the exchange. If the operators abscond with the funds or block withdrawals, you cannot retrieve a single penny.
Decentralized exchanges function more like pure platforms. Users must connect their personal wallets to trade, and funds are returned to their own wallets after a transaction. Therefore, even if the platform suddenly shuts down, since you control your wallet, your assets remain securely in your possession.
Any industry black swan event will cause volatility in coin prices. Setting aside the myriad of questionable smaller altcoins, as cryptocurrency lawyer Mrs. Shell famously said, "No country can turn off Bitcoin." As long as you hold your coins in your own wallet, you can still trade them even without a centralized exchange.
This is one of the key advantages of decentralization.
Did the Storm Erupt Because Blockchain Information Is Secretive?
Beyond this beginner's misconception, many have argued post-FTX that the lack of regulation and opaque information in cryptocurrency led to this financial storm. However, this assertion isn't entirely accurate.
In reality, although it's called "crypto," every transaction on a public blockchain is faithfully recorded and completely public. Anyone can review them.
Take the FTX event as an example. Before the massive bank run, some individuals had already issued warnings based on on-chain data. After the event, many teams reviewed FTX's fund flows to find evidence of fund movement and backdoor dealings by related parties during that period, using it as a basis for accountability.
In contrast, traditional finance is often more opaque. Internal accounts are usually unknown to outsiders and sometimes even recorded only on paper. The average person doesn't routinely conduct stress tests by making a run on their bank. To be blunt, from the Tenth Credit Cooperative case in 1985 to more modern scandals like Cosmos Bank Taiwan and the Chinatrust掏空 case, unless the scandal breaks, you almost have no way of knowing what your money deposited in the bank is actually being used for.
The FTX storm erupted not because people couldn't know what CEO Sam Bankman-Fried was doing in his private transactions, but because of excessive trust in his carefully crafted image and the deliberate ignoring of early warning signs.
Ultimately, it was a problem of human nature, not a problem with blockchain technology.
Is More Aggressive Regulation the Solution Then?
After the FTX incident, the crypto community is divided on regulation. Most people feel that enhanced regulation is inevitable (and indeed it is already happening). On one hand, certification by public entities can increase public trust. It could also encourage more institutional funds to enter, revitalizing the blockchain industry.
However, others worry that blockchain, born from a desire to break traditional financial models, risks having its innovative potential stifled once tamed. Beyond providing governments with a new source of tax revenue, victims of financial crises might not necessarily recover more funds because of it.
This perspective isn't entirely wrong. A significant part of the current regulatory focus of governments worldwide, from compliance to anti-money laundering (AML), is about verifying identity and tracking fund flows. The well-known benefit behind this is allowing governments to know which person (by social security number) earned how much money through cryptocurrency and to whom they sent it—not directly "protecting" the investor.
Taking a step back, the troubled FTX was actually one of the few exchanges that tried its best to be legally compliant, actively sought regulation, and even represented the industry at U.S. Congressional hearings. Under all these layers of playing by the rules, some have even pointed out that it was an SEC (U.S. Securities and Exchange Commission) regulatory loophole that left investors exposed in this event.
Compared to一味迎合 (blindly迎合) the demands of regulators, Binance founder CZ proposed collaborating with Ethereum founder Vitalik Buterin to develop a new method for proving platform reserves after the incident broke. This would allow users to clearly see whether the exchange they use has sufficient capital reserves and if there's any funny business happening. This is a more meaningful action for investor protection and asset security.
In summary, stop thinking that "crypto" currency is an impenetrable black box—there are almost no secrets on the blockchain. Stop believing that "decentralization" is the source of various problems—the issues largely stem from the centralized parts within the cryptocurrency ecosystem.
From LUNA to Three Arrows Capital to FTX, successive hurricanes continue to reshape the landscape of the blockchain world. But as long as Bitcoin miners keep running and the Ethereum chain continues to operate, the decentralized nature of blockchain will allow it to become more resilient through continuous weeding out, creating new opportunities for informed investors and industry players.
Frequently Asked Questions
What is the main difference between a centralized (CEX) and a decentralized exchange (DEX)?
A centralized exchange holds user funds in its own custody and manages the trading ledger internally. A decentralized exchange allows users to trade directly from their personal wallets, meaning they always retain custody of their assets. CEXs offer ease of use, while DEXs prioritize user control and security.
If I hold my crypto on a decentralized exchange, is it safe if the platform shuts down?
Yes, that's a primary advantage. Since you connect your personal wallet (like MetaMask or Ledger) to a DEX, your assets never leave your custody. The DEX platform is just an interface for facilitating trades. If it closes, your funds remain secure in your own wallet.
How transparent are blockchain transactions really?
Transactions on public blockchains like Bitcoin and Ethereum are fully transparent and immutable. Anyone can use a block explorer to view the history of any wallet address, seeing all incoming and outgoing transactions. This transparency allows for public auditing, which is how suspicious FTX-related activity was identified.
Did a lack of regulation cause the FTX collapse?
The core issue was mismanagement and alleged fraudulent activity by FTX leadership, not a simple lack of rules. Ironically, FTX was one of the more 'regulated' exchanges. The event has sparked debate on what effective regulation—focusing on transparent proof-of-reserves rather than just identity checks—should look like.
What is 'proof-of-reserves' and how can it help?
Proof-of-reserves is a method for an exchange to cryptographically prove that it holds enough assets to cover all user balances. This is done without revealing sensitive business information. 👉 Explore more strategies for verifying exchange solvency and protecting your assets. Widespread adoption could prevent future collapses caused by fractional reserve practices.
After FTX, is it safer to keep crypto in a self-custody wallet?
Absolutely. The fundamental principle "not your keys, not your coins" holds true. Using a hardware wallet or reputable software wallet for self-custody eliminates counterparty risk associated with leaving funds on any exchange, centralized or decentralized. It gives you full control over your assets.