Crypto is failing badly while it is succeeding wildly.
November 12th, 2022

It’s painful for me to type this because I got into a minor accident on Thursday night. After I cleaned up the blood and applied bandages, I gingerly lowered myself onto the couch and decided to look at Twitter. Turns out that the time I hit my head on asphalt was about the time that the same thing happened to FTX and Sam Bankman-Fried (SBF). My physical injuries are starting to get less painful, but my injuries caused by the cascade of failures in the wake of FTX are getting worse. We are at the point of contagion and I think just about every centralized crypto lender will need a massive infusion or go under.

On Monday, I wrote about how I don’t think CeFI is possible under current circumstances. On Friday, BlockFi halted all withdrawals. I didn’t want to be that right that fast.

The extent of the carnage is shocking and will probably only get worse: many customers have lost everything at FTX, many institutional investors lost much/everything at FTX, the few remaining CeFi lenders (BlockFi, Gemini Earn) are either failing or will avoid failing only with large external infusions of money. It’s disheartening. Crypto is failing badly. An entire generation of investors will be so ruined by the current contagion that it makes me question if crypto can ever succeed. In this context, I use “crypto” to refer to all of the service companies and entities built on the usage, borrowing, lending, trading of cryptoassets. It’s an unmitigated disaster. That FTX is currently being hacked after declaring bankruptcy is just the icing on the cake.

Now, there is another meaning for “crypto” that refers to the base protocols and smart contracts built on top of those blockchains. By this definition, “crypto” is succeeding wildly. Under the stress test of the past week, none of the major blockchains have had even so much as a hiccup. Bitcoin & Ethereum have been chugging along smoothly. Heck, even Solana has worked beautifully even while it was at the center of the FTX debacle.

I can’t believe I’m writing this: USDT (Tether) has functioned perfectly during a time everyone is running to withdraw everything from everywhere. I have been a skeptic of Tether for years and have had very few kind words to say about that stablecoin. And, yet, Tether has continued to hum along as it nothing were amiss. Indeed, every major stablecoin (USDC, BUSD, DAI, GUSd) are all trading at exactly $1.00. Exactly.

While FTX has gone off like a bomb, Uniswap has carried on as if nothing were amiss. Indeed, the DeFi space as a whole has shown a business-as-usual competence that is heartening. The events of this week have been a level 10 stress test and DeFi continued running like a charm.

Finally, a word about Ethereum (the network) and ether (the token). If you followed the All Core Devs call and nothing else in the space, you’d be supremely optimistic about crypto. After the success of the Merge, the eth devs have momentum and credibility carrying them forward to all sorts of Ethereum network upgrades. The market knows this: the price of ether has been shockingly stable at a time when the news of exchanges, lenders, traders has been shockingly bad.

Crypto is succeeding wildly.

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