FTX CEO Sam Bankman-Fried's proposal to set standards weakens DeFi

97
5
FTX CEO Sam Bankman-Fried's proposal to set standards weakens DeFi

DeFi Startups Don't Have the resources to meet proposed norms.

Sam Bankman-Fried's proposal to set crypto industry standards weakens DeFi's competitive spirit and presents an existential threat to the space's leading DeFi teams and platforms.

On October 19th, Sam Bankman-Fried, the CEO of crypto exchange juggernaut FTX, presented one of the most controversial and controversial documents to the industry: a detailed blueprint for regulatory oversight and industry standards in the digital asset sector.

In less than 4,000 words, the degen-gone-lobbier managed to perform a 180 degree turn from his unbridled DeFi days to a polished suit-and-tie executive heading a fully compliant centralized exchange.

Bankman-Fried, along with advocating for on-chain censorship and restricting regulations, stroverted the proverbial rug out from underneath leading DeFi platforms and algorithmic stablecoin issuers alike, while positioning his own FTX Exchange to collect all of the lost alpha in the aftermath.

DeFi is more than just a contract; it's more than a validator.

Bankman-Fried proposes codification of individuals and organizations acting as front-end providers and even website hosts under the umbrella of traditional financial brokerages. He also suggests that they be subject to all relevant regulatory policies, including stringent KYC obligations.

This is quite a stance for a guy who, just two years ago, was aggressively farming and draining liquidity pools from prominent DeFi protocols. While time does fly in crypto, we can't allow ourguiding principles to waver in the face of changing tides.

Bankman-Fried acknowledges a couple of DeFi's key components. He commended the DeFi community for their'maintaining free, decentralized validators and smart contracts' and said they are absolutely crucial for DeFi.

However, that appears to be the only element DeFi Bankman-Fried can still support. It makes for a less-satisfying concession for those who remain in this space to pursue our principles - not power.

The challenge of registering and operating in a top-tier financial institution is that it's cost-intensive, labor-intensive, and resource-intensive.

A small startup team can hardly manage the legal expenses, let alone manage the time and energy required of its top decision-makers. The biggest financial institutions can serve as Broker-dealers and the like, as they can allocate the necessary resources to legal departments and highly specialized professionals. Small firms can't handle regulatory requirements, making it hard for them to do so.

What will happen if individuals and small teams cannot provide front-ends, run websites, or conduct essential product marketing?

As they proposed, Bankman-Fried proposed, they the people may contribute code and smart contracts and run validators as a form of free speech.

The individuals can build legos and ensure they run efficiently. With assembling the legos, determining their use cases, building ecosystems, and connecting with communities that's for the big chiefs upstairs.

DeFi in name only

The responsibility of our values is to remain faithful to our values, including uncompromising decentralization, censorship resistance, and self-sovereignty.

SBF's vision for the future seems strangely ignorant - if not outright dismissive - of cryptocurrency's founding principles. He supports tokenized equities and sanctioned on-chain addresses and blocklists, while rejecting dollar stablecoins on-chain reserves backed by on-chain reserves.

If the CEO of FTX wants to persuade the government to embrace his ideas, DeFi will be deleted from its inherent decentralization and censorship resistance and replaced with a skeleton of pseudo-permissionless smart contracts and validators.

By attacking front-end providers and other unlicensed DIYers - you know, the builders that built Maker, Aave, UniSwap, Synthetix, and other blue-chip platforms that erected a $40 billion DeFi arena from ground zero - such a regulatory model would crush DeFi's original entrepreneurial spirit. DeFi legos would inevitably fall under the authority of high and mighty industry players, namely, CEXs like FTX. Or worse yet, they could be corralled by larger financial institutions like Blackrock or JPMorgan.

Gone will be the days of free-thinkers congregating on communal chat forums to pursue the mission of returning power to the individual. There will be the days of self-ownership in the digital realm, he said. Gone will be the days of a self-driven, ever-evolving free market for assets and protocols. And certainly, the days will be gone of a thriving ecosystem of decentralized financial applications.

As DeFi tools are integrated, then assimilated, then acquired and consumed by the legacy financial system we designed them to replace, DeFi will exist in name only - as a suite of digital native financial tools to optimize process efficiency in traditional finance and cross-border use cases. And to serve as the standard infrastructure for finance in Central Bank Digital Currency systems.

In the end, decentralization comes first or never.

DeFi must be safeguarded as a engine of innovation and creativity at the heart of cryptocurrency, he said. Like it or not, that doesn't just mean ensuring that a strong consensus remains intact, attracting a decentralized body of validators, and securing trustless bridges between ecosystems. They are all essential infrastructure components, and each deserves attention in its own right.

But if anything has become undeniably visible since October 19 it is that our infrastructure is only as robust as the principles that guide and direct its evolution.

As project leads, we must affirm why we are building what we are building with our teams, frequently connect with our communities to understand their individual needs, and remain dedicated to protecting the former and serving the latter. Otherwise, all is lost and we are merely building the next iteration of an inequitable and exploitative financial system - albeit a highly efficient one.