Cryptocurrency has faced more than its fair share of catastrophes, almost all of which looked as if they could end or at least seriously impede the sector's continued growth. Yet despite many โteachable momentsโ, the cryptocurrency social layer refuses to learn the lesson and continues to place its trust in the hands of the people instead of fully utilizing the technologies it claims to support.
Since the early days of the industry, cryptocurrencies have taken big hits at the hands of centralized players: Mt. Gox, which managed 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 long-standing pattern within cryptocurrencies. Just last year, we saw Terra implode and be written off as a Ponzi scheme. In the past, we have seen major exchanges fail to account for large sums of user deposits, as was the case in 2018 with Canada-based exchange QuadrigaCX.
All of these incidents made waves in major news publications, working to erode the public image of cryptocurrency and further instilling an air of mystery and heightened risk around the technology. Ironically, adherence to the underlying ethics of cryptocurrencies would have prevented such catastrophes, and concepts like โdon't trust, verifyโ along with publicly visible, permissionless blockchain scanners should have prevented centralized actors from running clandestine operations and putting at risk to customers. money.
Related: Mass adoption will be terrible for cryptocurrencies
Unfortunately, these centralized players often don't follow the rules or core industry beliefs that they claim to promote and promote transparency without trust. However, the social layer continued to show their support and shower those actors with praise and blame on anyone who dared to question the project or the founder, such as the cult of Terraform Labs founder Do Kwon.
In the most recent development, it came to light in January that Binance USD (BUSD), the third-largest stablecoin by market capitalization, was undercollateralized at various times to the tune of over $1 billion. BUSD is issued by Binance, one of the leading crypto exchanges in the industry, and serves as a trusted stablecoin across the BNB chain ecosystem. Despite the importance of BUSD, the news fell on mostly deaf ears, with strange few questions for Binance CEO Changpeng โCZโ Zhao.
Ok, I missed the part where this went over $1B.
What kind of operational delays lead to $1B in unsupported assets piling up?
So at least 6% of all BUSD was unbacked at some point, or all BUSD was worth only $0.94... https://t.co/MQvyrOJrA0
โAdam Cochran (adamscochran.eth) (@adamscochran) January 10, 2023
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 it to operate with reduced oversight from the public. While there is no reason to believe that CZ allowed BUSD to be undercollateralized for nefarious purposes, no one should be beyond rebuke, especially on matters that could pose an existential threat to the crypto industry as a whole. He collapse of the Terra-LUNA ecosystem in 2022 it should be enough to elucidate the possible consequences of a stablecoin that has not been properly collateralized, and BUSD is used far more than TerraUSD (UST).
Despite CZ's social position, there is no reason why he should not be held accountable or at least have to explain the discrepancy and offer solutions to avoid such an event in the future. However, the social layer does not seem capable of asking difficult questions or learning from past mistakes. This lack of oversight within the industry only provides fodder and further justification for regulators.
Related: From Bernie Madoff to Bankman-Fried, Bitcoin Maximalists Have Been Validated
Due to a lack of due diligence at the social layer, the future of cryptocurrencies is now increasingly in the hands of regulators. But it is not too late to change. The regulators are coming, to be sure, but we still have time to temper their fervor by being more proactive and holding centralized players accountable when there are discrepancies in their business practices.
Previous schemes that resulted in billions of dollars disappearing overnight have pushed the trajectory of the crypto industry to the mountainous cliffs of overregulation. We were swayed by the claims of scammers who hide behind a cult of personality, like ancient Greek sailors serenading mermaids. We can still break free from their hypnosis and course correct to ensure that cryptocurrencies have a bright future where founders can experiment and test new financial methodologies. But if we don't hold those in our industry accountable, we're leaving the door wide open for overzealous regulators to set the standard for what's acceptable, which will almost certainly stifle progress and innovation.
forman himself He 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 at Sturdy, Sam practices Brazilian jiu-jitsu and is a member of the New York Giants.
This article is for general information purposes and is not intended to be and should not be taken as 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.
