Who benefits from all this? All this FTX debacle, while the whole industry seems to be distracted by the collapse, have we ever broken away from all the noises and thought about who is reaping the benefit over this mess?

Well, I can think of one. It’s the big brother. The government, the shady hidden entity that orchestrated the whole thing. The FED.

*conspiracy intensifies.*

In all seriousness, FTX's downfall strengthens the case for decentralization. Why settle for those shady and non-transparent exchanges if there are alternatives on-chain? Let’s explore.

Derivatives platform

dYdX, GMX, and Gains Network — Basically the projects I wrote in this article — have experienced a sudden surge in their token price despite everything else nuking.

The on-chain derivatives platforms are now gaining even more credibility as their centralized counterpart having a hard time obtaining trust from customers.

When trading on GMX, for example, you won’t have to worry that the protocol would misuse your fund. The money will be deposited to the contract address that does nothing more than what it is intended to do.

This super interesting GMX technical guide stated that users deposited funds into the Vault contracts, which only handle essential trading functions.

SBF take notes

Transparency on where the deposit goes and how its used is the main advantage of using a DEX derivatives platform. It is something that gets even more valuable now. I have heard from traders with the trapped fund on FTX, it’s not the amount of money lost that stings, but rather losing streaks of PnL, hard-earned gain that was built for months if not years. And the fact that all this time they’ve been practically trading monopoly money.

Not your key, not your coins.

Lending protocols

Examine the nightmare below.

The big money — institutions — on crypto turns out to be big fund lending each other money. It’s all looping ouroboros style so when one collapses, the other will get rekt as well.

In DeFi, you can do the magic of ‘ looping’ yourself to optimize capital management. But the difference is, everything is always properly collateralized.

So for example, if you pledge $1 million worth of ETH as collateral, you can only borrow 80% of it in stables($800k) for you to buy ETH and then pledge them as collateral to borrow more USDC. Even if you use this strategy, the more you loop, at some point, it becomes mathematically impossible and financially inefficient.

It’s not the case with centralized yield platforms, where the loop can go infinite because no collateral is enforced to stay. People would only rely on trust, that their counterparties won’t ever mismanage the money. Look at where that went with FTX. You’d wish that the code was the law.

During the various cases of meltdowns happening this year, one thing remains constant. Whether it’s 3AC or FTX, what we saw is they always fulfill their on-chain obligation first before everything else. They paid back the loan to avoid getting liquidated or topping up the collateral. They had to. Unlike with humans, you can’t pick up the phone and negotiate the smart contract to delay the liquidation, for example.

Yield aggregators

I heard multiple times, the reason why even crypto-native big funds opted for the centralized platforms was that the yield is getting lower on-chain. It’s no longer like the early days of DeFi back in 2020. So, rather than investing USDC on Yearn with a 2% yield, they’d rather do it on BlockFi with 4%.

FTX and its contagion collapse prove that there’s no amount of yields worth choosing if, in the end, you lost all your money anyway because the platform went bankrupt.

I hope the FTX case inspires funds to dab into DeFi directly rather than relying on middlemen like Genesis or BlockFi. For regulators, this event strengthens the case for DeFi regulation in a way that, they won’t prohibit funds from doing DeFi directly. (Part of the brick wall between those institutions and DeFi protocols is the fact that government won’t let them use DeFi.) Celcius, BlockFi, and other CeFi platforms are regulated, but look how that went.

The biggest challenge for decentralized yield platforms is security (against hacks.) It’s the reason big players are still scared. However, as time goes on and the space gets better, I hope this risk is minimized, through strong, long-running projects like Yearn with its robust security. And second, through the establishment of proper on-chain insurance service.

Crypto wallets

I think a lot of people become complacent lately as trading opportunities (volatility) came back from the relatively uninteresting market earlier this year. They prefer to trade than to do on-chain activities like yield farming or NFT flipping.

The party has stopped now, and it’s encouraged for us all to retreat back to the safety of private wallets. Self-custody becomes trendy again.

Some people think it’s a good time for Metamask to do their airdrop. While on the other side, the largest crypto exchange’s CEO CZ of Binance actively promotes TrustWallet, which he investing in. (Anyway, beware of scams related to them. I.e. offering airdrops and such. So far there’s no official announcement about any airdrops from both Metamask and TrustWallet.)

There’s plenty of room for developers to explore wallets. The incumbent, Metamask, is ridden with problems from UX to privacy concerns. It’s better more options are surfacing and it’s good for users. We got more choices. Features also got richer.

Here are some wallets worth trying: Rabby Wallet, Rainbow, Argent, and Coinbase Wallet.

On-chain financial management services

I heard that some projects team stored assets on FTX for convenience reasons. These projects need to spend and stream funds for operational expenses, paying employees, and other needs. Rather than using a private wallet with multi-sig, for many, it’s just easier to use regular passwords on FTX.

But we can’t entirely blame them as well. Self-custody is already inconvenient for individuals, let alone for teams where assets move on a more frequent basis.

In the future, I’m seeing the B2B side of DeFi will be more explored and gaining more adoption. Some protocols in this subsector are already up and running, with prominent examples like Llamapay.

Doing tasks on-chain is easily verifiable and auditable. It’s going to be easy for reporting and accounting purposes. With DeFi management tools, we wouldn’t see the mess FTX had with their internal management.

I hope this FTX situation attracts institutions to consider decentralized platforms directly rather than through middlemen like Gemini or Genesis or BlockFi or Celcius.

A lot of people have already been screaming for decentralization, long before FTX. However, the temptation for using centralizing services was irresistible. It’s important to acknowledge why it’s the case. And part of it was due to the DeFi infrastructure itself that wasn’t quite ready. Be it liquidity, UX, or security aspects.