The cryptocurrency has faced more than its fair share of disasters, almost all of which seemed likely to end or at least seriously impede the industry’s continued growth. Yet, despite the many “teachable moments”, the social layer of crypto refuses to learn its lesson and continues to place its trust in the hands of individuals rather than making full use of the technologies it claims to take. in charge.
Since the early days of the industry, crypto has suffered major blows from centralized players – Mt. Gox, which handled 70% of global Bitcoin transactionslost track of 25,000 Bitcoin (BTC) in 2011. The most recent debacle with FTX is just the latest iteration of a longstanding pattern within crypto. Last year we saw Terra implode and be seen as a Ponzi scheme. In the past, we have seen major exchanges unable to account for vast sums of user deposits, as was the case in 2018 with the Canadian exchange QuadrigaCX.
These incidents have all made waves in mainstream news publications, working to erode the public image of crypto and further instilling an air of mystery and heightened risk surrounding the technology. Ironically, adhering to the underlying ethos of crypto would have avoided such disasters, and concepts such as “don’t trust, verify” as well as unauthorized, publicly visible blockchain scanners should have prevented actors centralized authorities from carrying out clandestine operations and risking the client. funds.
Unfortunately, these centralized players often do not follow the rules or core industry beliefs they claim to promote and promote transparency without trust. Yet the social layer continued to show their support and shower these actors with praise and berate anyone who dared to question the project or the founder – like the cult of Terraform Labs founder Do Kwon.
In the most recent development, it emerged in January that Binance USD (BUSD) – the third-largest stablecoin by market capitalization – was repeatedly under-guaranteed for more than $1 billion. BUSD is issued by Binance, one of the industry’s leading crypto exchanges, and serves as a trusted stablecoin across the entire BNB Chain ecosystem. Despite the importance of BUSD, the news fell on deaf ears, with oddly few questions for Binance CEO Changpeng “CZ” Zhao.
Ok, did I miss the part where it went over $1 billion?
What kind of operational delays lead to $1 billion in assets being hit without collateral…
So at least 6% of all BUSD was withdrawn at some point, or all BUSD was only worth $0.94… https://t.co/MQvyrOJrA0
— Adam Cochran (adamscochran.eth) (@adamscochran) January 10, 2023
Just as has happened many times in the past with centralized players, CZ has been widely accepted as a bona fide player in the space, allowing him to operate with reduced public scrutiny. While there is no reason to believe that CZ allowed BUSD to become under-collateralized for nefarious purposes, no one should be beyond reproach, especially in cases that could pose an existential threat to the crypto industry as a whole. The collapse of the Terra-LUNA ecosystem in 2022 should be enough to elucidate the potential fallout from a stablecoin that has not been properly collateralized, and BUSD is used far more than TerraUSD (UST) ever was.
Despite CZ’s social status, there’s no reason why he shouldn’t be held accountable or at least should explain the discrepancy and come up with solutions to avoid such an occurrence in the future. Yet the social stratum does not seem able to ask difficult questions or learn from past mistakes. This lack of oversight within the industry only provides fodder and further justification for regulators.
Due to the lack of social due diligence, the future of crypto is now increasingly in the hands of regulators. But it’s not too late to change. Regulators are coming, no doubt, but we still have time to temper their fervor by being more proactive and holding centralized players accountable when there are deviations in their business practices.
Schemes that resulted in billions of dollars disappearing overnight have propelled crypto into the mountainous cliffs of overregulation. We have been swayed by claims of con artists hiding behind personality cults, such as ancient Greek sailors being lulled by mermaids. We can still break free from their hypnosis and course correct to ensure a bright future for crypto where founders can experiment and try new financial methodologies. But if we don’t hold our industry accountable, we leave the door wide open for regulators overzealous in setting the bar for what is acceptable, which will almost certainly stifle progress and innovation.
Sam Forman is the founder of Sturdy, a DeFi lending protocol. He became passionate about cryptography in high school before studying math and computer science at Stanford. When he’s not working on Sturdy, Sam practices Brazilian jiu-jitsu and roots for the New York Giants.
This article is for general informational purposes and is not intended to be and should not be considered legal or investment advice. The views, thoughts and opinions expressed herein are those of the author alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.