While carrying out their due diligence procedure, Binance unexpectedly pulled the rug out from under them and canceled the agreement, dealing a stunning blow to the parties involved. Considering that Binance already had the leverage on the trade and is in a better position, this did NOT seem good for FTX (Binance could choose to say yes or no, but FTX needed Binance to say yes to the deal). In a scenario such as this, it does not take a genius to recognize the sounding of the alarm bells, as it was clear that Binance had likely identified some figures that did not match up, despite the fact that they did not specify what they had discovered.

Customers of FTX were paying close attention, and this sudden jolt of uncertainty sparked a run on the holdings of FTX very rapidly. The FTX community wanted to go as soon as possible. Despite this, it was not as easy as it seemed for the majority of FTX's clients because the exchange abruptly froze all assets, making it impossible for users to access their own money. At the same time, FTX announced that it was going out of business and then, a few hours later, claimed that it had been hacked. When billions were suddenly taken out of the hands of their owners and were quite probably lost for good, the uneasiness that investors were feeling evolved into pure dread (and wrath).

The Impact of FTX on Crypto Is Even Worse Than You Might Imagine
What a catastrophe this is going to be for the cryptocurrency business.

Fans of cryptocurrencies and genuine believers who envision a future in which cryptocurrencies occupy a full seat at the table of global finance are likely to experience a wide range of feelings in response to this news. This kind of catastrophe causes significant harm to the entire cryptocurrency business, and it is more harmful when the market is in a bear market. When the objective of the community is widespread adoption, this is the worst possible event that could happen. This is because only a portion of the full picture is reported by mainstream news channels, which will classify all "crypto" as belonging to the same category as FTX and associate all of the risks with the industry as a whole. This ignorance is really aggravating, and it is startling to see how little fact-checking the non-tech news outlets do regarding cryptocurrency stories, particularly ones that contain unfavorable information.

Let's take a moment to clear up what went wrong with FTX, what its underlying issues were, and why the industry has been moving away from FTX and other exchanges like it for some time now. Regarding the dangers that led up to what took place with FTX, there were no unexpected developments. Let's get right into it and figure out how to entirely avoid dealing with them.

What Caused This to Take Place?
We have previously gone over the consequences of the FTX disaster; but, what about the underlying causes? We will discuss some of the intermediate causes, but there is one genuine root cause, and that is the fact that FTX was a centralized exchange. This is at the heart of some of the worst hacks, frauds, and failures that have occurred in the crypto space. When the industry is much less regulated, is more global, and the regulating bodies have not even discovered all the ways that fraud or theft can be committed, centralized exchanges simply cannot function as effectively as they do in an environment that is highly regulated, such as the one we see in traditional finance.

Because of centralization, FTX was able to control the records, which severely limited the amount of openness that was possible. Because FTX was centralized, they had access to the funds of its customers, which meant they could potentially seize it and quickly freeze it (which they ended up doing). This has already started the snowball effect that eventually led to the company filing for bankruptcy, but the "hack" that was done hours later is still being investigated and is highly suspect due to the timing of it.

It is not proven, but it does make sense that someone with inside information may have prepared to undertake illicit transactions in order to shift as much money as possible out of FTX and into somewhere they controlled while the company was in the process of filing for bankruptcy. The fact that it occurred within a few hours after the release makes it highly improbable that it was a response from the outside world to the public statement. And all of this was made feasible by the fact that FTX was a centralized exchange.

How Can We Make Sure That This Never Happens Again?
To put it another way, all of this might have been avoided if things had been more decentralized. However, while it is true that switching to decentralization does reduce some dangers, this does not eliminate all of the risks associated with utilizing cryptocurrencies. The use of DeFi platforms is not without its dangers, such as the possibility of ICO "pump and dumps," the existence of DAOs that are insufficient in size and, as a result, susceptible to attack, and unfavorable trading behaviors. These components call for a DeFi solution of the highest possible quality, one that, in addition to resolving several problems by virtue of its decentralized architecture, has also addressed particular DeFi issues. Radix, one of the most extreme examples of this quest, has been keen to point out that they are not a blockchain but rather an asset-oriented smart contract platform that was purpose-built for DeFi. This is one of the most extreme situations of this endeavor. This is a small but crucial distinction, particularly considering Radix's primary focus is identifying the risks that are now still inherent in DeFi, and resolving those risks by completely rebuilding the smart contract platform from the bottom up. They have tried a variety of approaches over the course of nine years, and they feel they have figured it out. This kind of dedication is wonderful news for DeFi and the cryptocurrency industry as a whole, and we can only hope that it can counteract the disasters that have been produced by people like FTX. On December 8th, the Radix team will hold a video conference in which they intend to discuss their perspectives on the inevitable future of DeFi.

A Promising Prospect...?
Even though there are currently some ominous looking clouds in the sky, we are aware that FTX merely demonstrates that the significant transition to DeFi that has occurred over the course of the past few years was the correct path to take. The sector will continue to discover vulnerabilities, implement fixes for them, and gain knowledge from previous errors. Considering that there are platforms like Radix that are willing to play the long game in order to make this happen, it is possible that we will have clear sailing once again.