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Cryptocurrency trading

There have been some great peaks in the short history of cryptocurrency, but not without some lows.

Some notable peaks include Bitcoin reaching a value of over $60,000 and becoming much more accepted in the mainstream.

In fact, from celebrity endorsements for crypto even during the Super Bowl, the rise of crypto has surged in recent years.

And the popularity of crypto is built on two factors. The first one is increased awareness and education of the functions of digital currency, and two, the ease with which digital currency is to be obtained and the much broader ability to use crypto in everyday societies.

Before discussing the impacts that FTX and its CEO Sam Bankman-Fried had on the overall DeFi marketplace, understanding some basics is crucial.

First, DeFi stands for decentralized finance and refers to an open-source algorithm that removes any third-party intermediary like a bank when two parties are conducting a financial transaction. The open-source algorithm operates by a decentralized public ledger that records cryptocurrency transactions and traditional transactions that are much more accessible than conventional financial transactions.

In typical financial transactions, banks, lenders, or escrow companies act as an intermediary between the two parties and, at times, broker the deal as well for a fee or cost. What they do, their decisions and the health of the institutions involved are hidden from the two parties working to close the transaction.

Those are problems of having a third-party intermediary; there are hiccups and costly delays, and the deal needs more control and transparency.

Whereas with DeFi, transactions occur between two parties who have control over the authenticity and verification of the transaction.

Rise And Fall Of FTX

In May 2019, the exchange known as FTX took shape and quickly cornered the digital commerce marketplace. By 2021, it had over 1 million daily users and was the third-largest exchange based on the number of transactions.

By November 2022, FTX was defunct, and its CEO was under indictment for fraud.

The fallout from FTX has been swift and crippling.

Once the reporting by CoinDesk showed FTX to be underwater, the demise was imminent. Investors scrambled to withdraw approximately $6 billion from the exchange, and CEO Bankman-Fried scrambled to cover those losses, including reaching a deal with Binance, the largest exchange in the world.

How The FTX Collapse May Impact DeFi

The sudden collapse of FTX showed that there is an inherent risk to decentralized finance that exists outside of governmental protections. In fact, the interest in DeFi is partly due to an undercurrent of anti-government sentiment.

What is unknown are the broader issues that may have come about due to FTX’s collapse. Still, investor confidence is shaky in the short term, and concerns about security and stability are prevalent.

How DeFi Is Building Back Consumer Trust

For DeFi to regain some of the consumer confidence lost by the FTX collapse will take time. DeFi needs to focus on better security and transparency to accelerate that trust building.

  • Mimic Traditional Finance Tools And Services
  • Improvements In Cross-Chain Communication
  • Implementing Transactional Privacy Protocols
  • Create Regulatory Guidelines
  • Highlighting Global Brands Participation
  • Market And Showcase Strong APYs
  • Demystify DeFi And Educate The Consumer Market
  • Share Success Stories, Especially With High-Profile People
  • Ensure Better Transparency
  • Create Easier Navigation
  • Better Encryption To Prevent Hacks
  • Simplify The Market
  • Continue Innovating

The key is to mirror what traditional finance does in operations, including building some inherent regulations into the DeFi marketplace to regain consumer confidence.

Another critical function is to improve consumer education to demystify the process and what DeFi does, its advantages over traditional finance, and build better trust in DeFi products through accessibility, familiarity, and endorsements from high-profile users.

The strategies that DeFi needs to take to regain the public’s trust are part marketing and part self-regulations that protect investors and promote transparency in peer-to-peer transactions.

Over time and with a deliberate, strategic effort to regain trust, DeFi can once again build into a viable investment option for people.

Consider the FTX scandal as a short-term dip similar to the housing crisis in 2008. As a result, it took some time for consumers to trust the financial markets. Still, over time and with added security, real estate became an investment haven for many people, and DeFi can resurrect itself.


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