I know this is going to sound heretical but perhaps crypto is broken because it is not regulated.
Exhibit A: FTX
Exhibit A: FTX
The reason people detest regulation is because a) people detest the government and b) people think regulators are corrupt and/or ineffective.
But what people are doing is incorrectly extrapolating from one aspect of the problem and then falling into a trap of a logical fallacy.
It goes something like this: The government or the regulator is corrupt and/or ineffective therefore regulation is bad. If regulation is bad then no regulation must be good.
Well, in fact what the government does (at least to some extent, at least in some countries) is it takes care after its citizens. Even if this care is not distributed justly, equally, efficiently and competently it is still the fact that most citizens are way better off having the government than not having it.
Of course this doesn't mean we should stop pushing government to do better.
Similar happens in financial world -- people dislike regulation for all its failing but the truth is that great majority of financial players by numbers are better off with regulation than without it. By numbers, most players in financial markets are simple people who invest money for retirement but don't have enough knowledge to protect themselves from financial predators.
Case in point: crypto. Where regulation is thin or non existent and people get robbed blind right and left by organisations who have knowledge and resources to build schemes to extract wealth from smaller players that can't defend themselves.
If you are like me, saving your money for retirement, you absolutely want regulation. Regulation is your friend -- this is some government weight trying to make sure that at least some rules are respected at least most of the time.
There are financially savvy people who will do well regardless. Regulation does not affect them much -- they will make money regardless. Regulation is for small people like you or me trying to save up a bit and not loose it, because without regulation you are bound to loose the money sooner or later. Or you will pay dearly to protect your assets to the point where it is difficult to accumulate any wealth on your own.
The FTX fallout wasn't not a result of the asset class in question. It was much more than that. Even IF crypto had regulations, it wouldn't have been able to prevent the blatant fraud and criminal activities that happened in FTX. I would really suggest you to read more about it first.
You can learn about it in this video here which covers the key points: https://www.youtube.com/watch?v=l3HfrRjWilQ
Here is another commenter who also talks about it: https://news.ycombinator.com/item?id=33879829
I was not surprised it happened. The only thing that surprised me is that it took this long for someone to make an enron sized mistake.
The macro econ guys should have a ton of fun and probably a few papers out of it. As it looks like in addition to the probable fraud here there may be some new things to learn about monetary systems. In this case how crypt might actually be very tied to existing monetary systems they seek to get rid of. Which is an interesting result that crypto was promising to end.
Any sane regulator would not allow the shit happening that happened in FTX.
This is not a company making bad business decisions. This is company making bad criminal decisions with the money they did not own and were not free to do what they pleased and creating impression of value in a fraudulent way.
What's criminal here is that it wasn't just failed governance, there was literally no governance. They comingled funds (it's just a big pile of cash, right?) and didn't even consider risk. [1] This is what happens when Scooby and The Gang run a hedge fund. Zoiks!
The point of regulation is that it ensures that companies have frameworks like this in place, and that the actors are playing fairly. Mainly because we can't trust some people among us to not take advantage of having access to other peoples money. You can't build a civilization on the back of "Trust me bro I'm good for it".
Think about it, why do people regularly hand over their money to their bank, when they've never met the people actually running it? We trust that if we put money in, that later it will come back out. But why? It's because regulation solves the trust problem, if your bank is FDIC insured you're covered. Thanks government!
Yes regulation is an evil, but a necessary evil. It's a tax on everyone because some people can't be trusted with the keys to the bank vault. The government ties their hands, that's a good thing. It's harder to raid the cookie jar with one hand tied behind your back.
[1] https://www.yahoo.com/video/sam-bankman-fried-said-hed-13173...
The issue I have with this space is that lack of central/governmental control is the original selling point. Lack of regulation is a defining feature, not a bug. This is a huge red flag for me. If I was a con-artist, I'd be drawn to this space like a moth to a flame. I don't trust any of the players in this space, anyone legit would be making real $$$ in TradFi. It's the modern day junk bond.
This picture summarizes the situation perfectly. Caveat emptor indeed. [1]
Not as exchanges, not as brokerages, or anything else resembling their supposed business model.
They’re registered business but that’s about it.