Billions of dollars flee to crypto’s decentralised roots after FTX collapse
DIGITAL-ASSET investors are flocking to crypto’s decentralised heartland after witnessing the collapse of Sam Bankman-Fried’s FTX exchange.
Decentralised finance, or DeFi, relies on smart contracts – software that runs automatically – on blockchains open to public scrutiny and leaves users rather than firms with custody of tokens. That ethos from crypto’s roots is in vogue again after the bankruptcy of SBF’s centralised exchange, FTX.
Trading volumes on decentralised exchanges are up almost 11 per cent this month to US$62 billion, CryptoCompare data sourced from DefiLlama shows. Lending protocols such as Aave and Compound are also among those seeing strong user and transaction growth, analytics firm Nansen said. In contrast, depositors spooked by FTX have yanked cash from centralised exchanges.
DeFi apps tend to use the blockchain networks like Ethereum, whose co-founder Vitalik Buterin said in an interview that “many in the Ethereum community also see the situation as a validation of things they believed in all along: centralised anything is by default suspect”.
In the week through Tuesday – a period capturing FTX’s fall – Nansen data shows user growth at decentralised exchanges dYdX and Curve Finance hit 97 per cent and 61 per cent respectively, while transactions more than doubled. Users on lending protocols like Aave and Compund up 68 per cent and 46 per cent and transactions also doubled.
Buterin isn’t alone in seeing a tailwind for DeFi: Franklin Templeton’s chief executive officer Jenny Johnson said earlier this week that FTX’s downfall will likely push investors toward decentralised exchanges.
Just how long the shift toward decentralised protocols will last remains an open question. Buterin said DeFi is far from being user-friendly, scalable or accessible. Centralised exchange operators like Coinbase Global Inc are also competing hard for flows.
In 2022 alone, hackers have been able to steal crypto assets worth US$3 billion from various defi protocols, data from Chainalysis till October shows.
For now, though, the providers of DeFi solutions are emboldened. People are “screaming on Twitter that DeFi is the answer”, said Antonio Juliano, founder of dYdX. Mary-Catherine Lader, chief operating officer of Uniswap Labs, said FTX’s wipeout makes it “very concrete and painfully clear why people need to have more control over their money”.
Pascal Gauthier, chief executive of hardware wallet firm Ledger, said that “the message is clear: people are realising that we must return to decentralisation and to self-custody.”
“Last week saw Ledger’s highest sales week in history. Sunday was our single highest day of sales ever... until Monday, when we beat our all-time high again,” he said.
The Nov 11 collapse of Bankman-Fried’s FTX and sister trading house Alameda Research continues to reverberate through the industry. It follows earlier high-profile implosions of crypto outfits and comes amid a painful bear market in digital tokens – dramatic shifts that are set to have far-reaching consequences for the industry. BLOOMBERG
Decoding Asia newsletter: your guide to navigating Asia in a new global order. Delivered to your inbox. Free.
Share with us your feedback on BT's products and services
