The implosion of FTX has led to billions of dollars of losses for investors and consumers but it also has an important long-term implication: Loss of public trust in the crypto industry. In response, entrepreneurs and others must ask how this happened and what we can do to prevent it from happening again. We must commit ourselves to address unscrupulous or irresponsible actors while continuing to push the boundaries of Web3. I have been in this industry since 2015 and here are five things that must happen if blockchain technology is to reach its potential.
First, we need a legal framework that can protect users and still promote innovation. The status quo of regulation by enforcement must end. Policymakers and industry leaders can work together to come up with something akin to the 1996 Telecommunication Act, which created the conditions for innovation to thrive responsibly. Any new rules must distinguish between the technology and the companies that build services on top of it. Take cues from the Internet—we don’t regulate network time or hypertext transfer protocols (aka the web). Still, we do try to regulate platforms like PayPal, Internet service providers like Comcast and other corporate entities like Amazon that use those protocols. In the case of disasters like FTX, policy makers must understand the key issue is not decentralization but too much centralization in crypto corporate intermediaries that conceal their decision-making and financial health from the public.