3 lessons gleaned from a very bad week in crypto
The centralized side of crypto has had a tumultuous week, but there are some important lessons that can be gleaned from all the trauma.
First,
here 3 things to look for in a crypto exchange…
1. it doesn’t have its own token
while not inherently something evil, having a token means the exchange is taking on more risks and providing itself with more temptations to do shady shit… exchange tokens are even more hollow than governance tokens, tread carefully
2. it doesn’t have a sports stadium named after it
such displays are excessive and gratuitous displays of wealth, indicative of a company that is chasing growth at all costs and is willing to throw massive amounts of money around willy nilly… if its reckless with its budgets and spending, there’s a higher odd its reckless with your money
3. it isn’t a private company
public companies are more regulated, tend to have better governance, and are required to be more transparent… higher levels of accountability create more hurdles for people to have to leap over in order to do shady shit
FTX had red flags across all three of these things, and there are other exchanges currently operating that also share these red flags. One of these things on its own isn’t that bad, but having multiple is a bullshit alarm.
As much as I dislike some of Coinbase’s political and ethical decisions, it’s probably one of the few exchanges I would ever personally use. At this point though, I don’t use an exchange for anything that brings them much ROI… my activity is limited to rare off-ramping of USDC which nets them $0 in business fees from me. That’s a compromise I’m willing to make.
Second,
self-custody is not easy and DeFi is not yet ready for the masses.
The DeFi influencers have been using the FTX situation as a way to push the “not your keys, not your crypto” narrative, but it’s vitally important to remember that self-custody/DeFi has probably rekt almost as many people as CeFi… whether it be through hacks, scams, bad security, complexity, etc, etc.
My full-time job used to be educating, coaching, and providing support to normal people on a daily basis as they began their self-custody journeys. I can tell you from direct experience and observations at scale that self-custody is not easy.
Self-custody will not save you. It’s not simple enough to setup a self-custody wallet, transfer all your money, and call it a day. If we lead people to believe it’s easy, their guards will be down when in reality their guards need to be even higher when doing self-custody.
Self-custody is doable, and I believe it is a wise decision for many, but it requires a lot of work and learning to stay safe. The reason why people use a custody like an exchange or a bank is because they don’t want to or can’t deal with what self-custody requires. Technology must improve before I’ll feel confident recommending self-custody to the average person.
Third,
we desperately need more regulation and regulatory clarity.
This isn’t to say all regulation is good, and we could easily end up with bad regulation… but that’s not what I’m advocating for. Good regulation and more regulatory clarity will help set crypto on the path of recovering from a long string of PR nightmares that have left it with an abysmal reputation in the eyes of outsiders. Without regulation, the cycle will continue and crypto will eventually be driven underground, doomed to never reach mass adoption.