Unravelling the tentacles of Sam Bankman-Fried’s Empire
The shocking collapse of Terra in May 2022 detonated a top Layer 1 and the industry’s flagship algo stablecoin in one fell swoop.
Bitcoin dived from $40K to $27K in days. Those armed with dry powder bought the dip, feeling like Christmas had come early.
What they didn’t realise was this would be the first of a series of black swan events that would soon unravel confidence in the industry.
Celsius.
Voyager.
Three Arrows Capital.
Insolvency galore.
It turned out that major crypto institutions were no better than ordinary DeFi degens. Who would’ve thought?!
The biggest bust-up of all arrived in November, when Top 3 exchange FTX — regarded as a beacon of light in the industry — was exposed with liabilities ten times bigger than liquid assets.
The tentacles of Sam Bankman-Fried’s FTX empire run deep and its collapse is expected to reshape the entire industry.
Let’s cover a series of ramifications, each of which have the potential to set back the industry from months to years.
Confidence
Crypto’s crisis in confidence has sank to new lows.
For the industry to grow, capital needs to onboard from TradFi and invest in all the amazing projects and protocols upon which they’re being built.
If you’ve been sitting on the fence thinking, “Hey, this crypto thing looks really interesting”, and see the circus that’s been happening, would you still bring your money in? Especially if you’re a cashed-up institution with a lower risk appetite?
Hell no, for many. Confidence has been shot.
Traditional Finance (TradFi)
Wall Street’s smiling from ear to ear.
Major players in TradFi, who had already been dipping their toes into bitcoin, are now circling the crypto industry like sharks — ready to strike the severely weakened sector at its most vulnerable time.
A recent Fidelity ad pandered on the fear of investors:
Do you trust an unregulated exchange?
Expect banks to dig their eager fingers into wounded assets, providing retail investors and institutions a safe and easy way to get into crypto while portraying themselves as the saviours of an unsavoury wild west.
Safe? Because banks and traditional finance are heavily regulated.
Easy? Because let’s be frank, MetaMask wallets with 24 word seed phrases is not an ideal onboarding experience.
Until Web3 fixes its image and user experience, mass adoption shall remain illusive, with TradFi all too keen to bridge the gap.
Wall Street couldn’t have scripted this better even if they tried.
Liquidity
Billions in liquidity that oiled the industry suddenly evaporated overnight.
As a Top 3 exchange, FTX provided a tremendous amount of liquidity for the crypto space. All the money that could have contributed towards the growth of the industry is — for now — lost, probably for many years.
FTX has gone into Chapter 11 and their books are now in the hands of liquidators. You know who else is in the hands of liquidators?
Mt. Gox.
That was back in 2014.
Runway
Startups have a limited amount of funds — and hence time — to scale their venture to success. That’s their runway.
Many crypto projects held some or all of their treasury on FTX. With that money locked up and perhaps lost, promising projects can no longer build.
Running out of money is one of the top reasons for startup failure.
Venture Capital
The industry’s incubators suffered significant casualties.
Indeed, venture capitalists doing amazing things to grow the industry took a massive hit, either through their investment in FTX (now written down to zero) or the loss of millions in funds held on FTX.
For instance, major firm Multicoin Capital — a prolific backer of Solana that spearheaded Solana Labs’ initial $20 million seed raise in 2019 — lost more than 55% of its flagship fund’s capital due to FTX’s rapid descent into insolvency.
This includes 15% of their funds that’s trapped on the exchange.
Solana
Sad story for the Solana fans.
Through Alameda and FTX Ventures, Bankman-Fried has incubated a host of projects within the Solana ecosystem since 2019.
This included Alameda’s participation in a major $320 million raise for Solana Labs in July 2021.
FTX’s demise has blown up a major source of support for Solana.
The way I view it is this:
Has Multicoin Capital and Sam Bankman-Fried done enough to kickstart the Solana ecosystem?
Has their nurture and support created enough of a momentum for the Solana plane to stay in the air?
My answer is yes.
First up, technology.
Solana’s insane throughput means that some projects can arguably only be built on Solana. You’re looking at the rare chain where you can build and scale with global ambitions on the base layer.
This unique value proposition has attracted a number of the most pioneering crypto startups and use cases to Solana.
Next up, NFTs.
Although Solana was initially pitched to disrupt the high-frequency books of Wall Street, it later became the second home of NFTs after Ethereum. With NFTs and digital collectables primed to play a pivotal role in driving mass adoption into Web3, the Solana ecosystem could see tremendous growth during the next bull market.
Finally, ecosystem.
There are so many amazing projects and use cases building on Solana.
Examples include:
Audius — Spotify of Web3. A decentralised music streaming protocol that removes the middlemen in the traditional music industry.
Helium — become your own wireless service provider. Turn on your Helium hotspot and earn an income servicing Wifi, 5G and IoT to those in your suburb.
Hivemapper — Google Maps of Web3. Earn rewards for mapping out the most detailed global map yet in your own vehicle.
Render — decentralised GPU rendering. Let your idle graphics processor render jobs around the world. Likely to become key infrastructure for the metaverse.
STEPN — gamified fitness. Earn passive income for staying fit. This app has changed thousands of lives.
Teleport — Uber of Web3. A future where drivers and passengers connect without a centralised intermediary that takes a large cut.
A diverse set of incredible use cases with the power to disrupt existing business models and dislodge entrenched Web2 powerhouses.
Solana even has its own phone in the pipeline.
When it comes to the next-generation internet (Web3) and how most users will interact with it (mobile), the team is positioning itself for posterity.
FTX is the latest bomb to go off in a line of major crypto explosions this year.
But there are two silver linings.
First up, I believe the scare campaign of Solana’s demise is premature. You’re looking at an amazing ecosystem being built on top of amazing technology.
To be sure, Solana will need to navigate considerable headwinds over the next couple of years. Token prices may continue to fall into 2023, buoyed by worsening macroeconomic factors.
Developers might abandon ship and seek a new home elsewhere. Perhaps Aptos or NEAR. Maybe even Cardano. But it’s hard to say as Solana’s technology and culture isn’t easily replaceable.
Second, focus on the signal, not noise.
Like the early internet era, crypto is in its nascency. There is incredible innovation, but also shocking corruption, frenetic failure and rapid regeneration.
FTX’s demise is part of the maturation journey for the crypto space.
The bigger picture is that in-between the volatile ups and downs, global crypto adoption continues to keep pace.
Every day, more people are appreciating what bitcoin represents — a new financial system that separates money from state — a gift as big as the separation of religion from state centuries ago.
More citizens are appreciating the benefits of a global permissionless financial system open to everyone and anyone. Spin up a self-custody Web3 wallet in minutes and participate in an ecosystem where your assets can’t be confiscated. This is the power of decentralisation and no gatekeepers.
More technologists and internet users are learning that blockchain and smart contract protocols like Ethereum and Solana form the basis of Web3, the next-generation internet. For over 5 consecutive quarters, Web3 has attracted the most amount of early stage investor capital among all sectors — a whopping $6.5 billion.
Focus on the signal, my friends.
