Learnings about FTX and the role of centralized exchanges

Everything that happened with FTX has been a major blow to the entire market. Just a few days ago we were talking about the end of the crypowinter, from a technical point of view. The black swan caused by the fall of the second most important Exchange has swept away all the previous conditions of the market and has once again established panic and uncertainty as something omnipresent among token holders.

Without a doubt, this is a complicated situation, but as complicated as it is strengthening the ecosystem as a whole. The lessons generated by the FTX case will be hard to forget. I think that what we have experienced or are experiencing can undoubtedly be classified as a real lesson, and as always in the markets, the best ones are produced at the cost of losing money, our own or that of others, but millions of dollars need to volatilize in a instant to engrave some concepts in the minds of investors

Centralized exchanges in question

This whole situation has seriously questioned the role of some of the main and absolutely necessary players in the digital asset market: exchanges. I think that this whole situation shows that we have reached a critical point where it is absolutely necessary to develop a regulation for the sector, ad-hoc or simply applying existing regulation with some modifications, but these assets must come within legal channels and become financial assets with full rights, with what this entails

The need for regulation of the crypto sector

The relevance of regulation is indisputable at this time, and despite not being the perfect solution, it can help to provide transparency and simplify decision-making processes for investors, something that surely we had all underestimated the importance of.

I come from the financial sector, albeit indirectly. Looking at your organization from within, it is indisputable that there is surely an over-regulation in some aspects that conflicts with the innovation of a disruptive process such as the appearance of web3, but it must be recognized that it fulfills its function, or several functions.

And in this regard, the first link in the chain is the exchanges.

The role of the Exchange

At this point I would like to reflect on the role of Exchanges in the crypto asset market. Its position and function is vital, because it is the entry into the world of crypto assets by the novice investor. It’s the first thing you see, and the first tool you need.

We all know exchanges for their role as crypto asset exchange houses. They facilitate the exchange of FIAT currency to Crypto currency. So far everything is in order and there is no problem.

But this is the theory… let’s move on to practice…

Practice offers us a very different face. And it is that behind the scenes, exchanges have become much more, and we would do very well as users to keep this in mind.

Why should we ask ourselves this question:

How can it be that a simple exchange house, that is, a simple intermediary that executes the exchanges between assets that we order as users, have liquidity problems?

That is the big question we should ask ourselves. And the answer is very simple and known to all, although we do not want to be aware of it:

Because exchanges, despite the name, are NOT simple exchange houses

This is the reality… exchanges are centralized entities to which we entrust our funds. In the traditional ecosystem, an entity with a simple intermediary license is limited to carrying out this function exclusively, and only using client funds under their direct orders and to carry out the transactions they deem appropriate.

The problem occurs when we overextend ourselves in this role and assume other roles promoting other activities carried out with the users’ own funds (investment in other products, creation of financial vehicles) blurring what we know as segregation of assets between the entity and the balances of customers, who must always remain outside the company’s activity, being a simple work tool

If, in addition to all this, we add that the entity is capable of issuing an asset out of thin air, which can sometimes act as collateral or even principal in certain related products, the cocktail is served

This is the x-ray of the FTX case and it deserves a deep analysis by each one of us. As happened in the Terra case, the market must draw lessons for the future from a situation like this in which, in the end, the reality of mathematics has prevailed in an unappealable way, as it has always done and always will

If you engage in high-risk activities with a high degree of leverage, ruin is certain, what we don’t know is when

This maxim that we are used to applying to traders also serves traders and large institutions as a universal law.

The role of users and investors

And I think that here we also have to focus on ourselves and what role we have had in this function. Users and investors must also draw lessons from a case like this, even though we have not been directly related

And it is that in this case, there is no forgiveness for not doing it….

The role of custody of the funds is shown to be absolutely crucial, and in a context where we can self-custody them, or make this custody fall to specialized third parties in the case of large amounts, we have no excuse

Not your keys, not your money

The phrase in the crypto world is clear and eloquent… let’s apply it, and don’t get carried away by siren songs of magical stakings with astronomical returns and similar tricks

Let’s put more emphasis on knowing the security and transparency procedures of the custodians of our funds in the event that we delegate this activity, and otherwise, let’s work to ensure safe, responsible and professional custody of the funds.

The meaning of native exchange tokens

Another figure that has been called into question in this entire case is that of native exchange tokens. I think that from the point of view of functionality and utility, some of them are very lame, and this is a fundamental weakness, as those of us who work in Tokenization processes know.

Does it make sense that each exchange has its own token?

There is no single answer to this question, but I think we should pay close attention to the utility, functionality, and purpose of each of them. Because perhaps, if we don’t manage to identify it, the underlying objective of that asset is to provide an artificial money creation tool to its issuer and give it a lever with which to promote risky activities that can have disastrous consequences.

As always, the crypto ecosystem pushes us to a responsibility as investors, if anything greater than in the traditional system. No one had said that the reward that this may entail is free…

It is up to us as investors to work more in this regard, train properly and design our investment policies putting all the existing risks in our valuation systems, and for that, we must know them all

BELOBABA on the regulation side

From what we have exposed, we know a lot in BELOBABA, because our policies revolve around these axes from minute zero. It is not for nothing that we quickly established ourselves as a regulated and audited product, and we have focused our educational products on providing students with the necessary knowledge to become an investor in this market with all the guarantees, and even a true professional in digital assets.

Proof of this are the recent agreements reached with renowned entities to train professionals in the financial sector

Always rely on training and solid and transparent criteria to make your investment decisions and even decide where to deposit your assets

Knowledge is power…