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In News
- A sharp decline in the prices of Bitcoin, the collapse of the Terra Luna network and new crypto-tax regulations in India have compounded miseries for investors and the overall industry.
- However, the sudden market meltdowns turned more intense after the shocking FTX crash.
About the news
- FTX was one of the largest and fastest-growing crypto exchanges in the world, largely tapping into the crypto derivatives market.
- Before the collapse, it was the second-largest cryptocurrency exchange globally and, along with Binance, accounted for a majority of global cryptocurrency trades.
- This event dragged Bitcoin’s price to a two-year low.
What’s the platform used for?
- FTX is set up as two verticals:
- One can be accessed by global users, and the other is specifically built in compliance with U.S. law.
- FTX.US, catered to U.S. residents as they could not legally trade on the FTX International platform.
- FTX claimed to have over one million customers in 2021.
- FTX International offered investors an option to trade in tokenized stocks, which are digital coin-based derivatives of shares of actual companies.
- It also allowed users to bet on expected valuations of pre-IPO companies. Such features attracted users to the platforms.
Major challenges
- The latest crypto crash affected not just FTX users, but also traders investing in top cryptocurrencies like Bitcoin and Ether.
- Investors holding large reserves of the exchange’s own FTT token took a hard hit as it lost most of its value in just hours.
- About 130 affiliated firms are now part of the bankruptcy proceedings.
How different is this from the Luna, Celsius, and Voyager collapses?
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Way Forward
- The volatile crypto market from here could face more regulation, according to some experts.
- Crypto companies are deeply intertwined: they invest in one another, buy one another’s tokens and lend tokens and capital to one another which means the collapse of FTX could continue to topple others.
- This fallout makes a strong case for why we need decentralised systems like Defi. We will see an increase in transparency and widespread adoption of a decentralised system.
- This crash will force Web3 firms to build better solutions and develop effective rules for evaluating systematic risk.
- The incident has brought up the need for regulations in the sector: The step taken by Binance to launch an industry recovery fund to help projects during a liquidity crunch is a positive step in that direction.
Source: TH
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