Source: AC Capital Research
In early November this year, COINDESK revealed that FTX was insolvent, which caused industry panic, and FTT suffered a sharp sell-off. Binance later announced that it would acquire FTX and gave up after entering the market for review. How will the market evolve in the future and how will we deal with it as investors or practitioners? This article is a review of AC Capital Panel's meeting.
Q1: Before the FTX crisis, the market had been repaired to a certain extent, and Bitcoin also recovered from an absolute low before 17,000 to the range of 20,000 to 22,000. Because the FTX balance sheet collapsed, there was a liquidity run. This kind of black swan event actually further penetrated market confidence. What does this risk mean to the market?
Bittracy: Because personally, I think that the spiral plunge between Terra and LUNA actually triggered a bear market in May, and then the market turned all the way. The crisis was the absolute dividing line between bulls and bears in the market. In fact, in October, some voices even said that 18,000 may be at the bottom of the market, and this incident actually falsified the views of this group of people.
First of all, I think the impact of FTX is definitely stronger than LUNA. The amount of funds of LFG is actually incomparable to the amount of funds of FTX. Moreover, FTX is the density of such an asset portfolio in his own hands. It will be a process of continuous bad debt exposure for a long time in the future. Another point is that I think from the perspective of currency quantity, the exchange itself undertakes a very important credit creation function, such as lending, mortgage, deposit and withdrawal. This part may disappear directly and even affect group behavior.
Nanten: I think the impact level is quite large, because I have communicated with you for a few days. I think that funds are indeed lacking in trust. Many traditional funds were originally very interested in the crypto market, but now they are also showing a wait-and-see state, including the funds on the chain. In fact, you can see that they are actually running away. I think this matter is not only due to some institutional losses, but I think it is more that the entire crypto market needs to establish its own image of a more formal enterprise operation. I think after experiencing the FTX incident, there is a need to rethink the entire industry, because this area will greatly affect the confidence of the entire investor, but if there are any methodology or measures, this is actually a very difficult topic.
But although I feel that this industry has arrived, I have to face this topic. Although it cannot be 100% eliminated, to some extent, the probability of such things must be reduced. Because only in this way will there be more and more funds for Wall Street , including traditional US dollar funds, and they will flow to the entire crypto market.
I think that is to say that the following is financing in the entire crypto market, the previous part of the financing may have been pure currency rights. In the future, there may be a lot of VCs that not only have the currency rights, they will also require equity , because to a certain extent, the equity still has certain investor protection.
Of course, this cannot provide complete protection, but with this mechanism, it can at least give investors a certain sense of security to some extent, and to some extent reduce risks, because after all, it has the board of directors and shareholders' meetings, and then conducts some binding force in business. Of course, I think this matter is actually something worth reflecting on for the entire industry. I will first throw a brick and a sensation on some of your thoughts.
Q2: How to change moral hazard and how to achieve industry self-discipline?
Bittracy: I think the industry you mentioned has always existed, which is equivalent to not breaking or establishing, because everyone has never mentioned a stronger supervision of exchanges, which has led to the misappropriation of funds. This thing that everyone can ignore when the market is good.
Nanten: I think FTX is not just a matter of misappropriating funds. Like traditional investments, they usually say that restricting founders’ expenses, and to some extent, it requires approval from the board of directors. I asked some institutions about FTX, and they said they didn’t know about this. They were all the same as us. They only knew that such a thing happened to the company they invested in after reading the news. This matter means that in addition to financing, including the funds run by the founder, requires certain communication with investors. It is impossible for you to do whatever you want by yourself. This is definitely risky.
Q3: Judging from the data on the chain, how does the user's behavior change? Is there any stronger change in whether it is new addresses or transaction data?
Haotian: Hello everyone, I have been doing research and analysis related to data and security in the industry. Let me briefly talk about this question from the host. After the FTX incident, everyone has been paying attention to the abnormal movement of the on-chain data. Then, just like there were several addresses last night when withdrawing coins, and then everyone wanted to know whether the exchange has returned to normal again. There are many rumors like this, but it also exposed a disadvantage of pure on-chain data. Users cannot see how the overall situation of this matter changes simply by looking at some on-chain data. In addition, if this continues, it may be used by some people with ulterior motives to spread some news that may be negative or positive, resulting in even more chaos in the market.
I think it is because of the current situation of the on-chain data. It is not that it is useless, but because the exchange itself is a black box, and all the addresses of the exchange are not transparent to the outside world. My address observation can provide reference. As for the things behind this matter, such as how many bad debts are behind the exchange address, and whether there are some big investors in the exchange in advance, the on-chain data cannot be solved.
Q4: After the FTX bad debt was exposed, what might the users off the chain react to this thing, and what is their attitude towards this matter?
: I guess this incident has a great impact. It may take several months to digest this matter. It may not be as expected that something happened yesterday, and today will be fine. There is a very important reason that FTX used to be a relatively important fiat currency channel, which is for many investment institutions and exchange websites. Especially for Chinese investment institutions with Hong Kong background in Singapore, many of their LPs and even their own money are locked in FTX, so they may have a great impact on the primary market. Now the investment institutions are out of money, and I am also talking about financing recently. Now I just happened to encounter this and feel the cold winter of the market. To put it bluntly, it’s either that people don’t want to invest, or that they may be locked in the exchange and cannot get it out, which is a helpless scene.
Of course, this matter can continue to ferment, and it may be transmitted directly. Q4 plus Q1 next year's primary market will be more difficult, and then the secondary market may be transmitted to Q2 next year, because to put it bluntly, the biggest impact of this matter is that there is no liquidity in the project, so there will be no such hot-type projects. Without hot projects, his attention will not be able to focus on the exchange, because the exchange cannot obtain external traffic through upward liquid assets. If the exchange has no traffic, the exchange will also face the game and decline of existing users. The decline in trading day activity may affect the secondary market. The cost of liquidity is lacking.
But now you start looking at some new directions, then start laying out, and then to , the bull market happens to be a process from the bottom vertex, and it is very likely that some projects with better next cycle will appear during this period. I think it may be good or bad to do whatever I want, and some of the situations I have seen.
Q5: If it is difficult for centralized institutions to solve the problem, then for the DeFi protocol at present, can it assume this role in credit creation?
Ron: I think I have experienced several rounds of bull and bear in the entire industry, and the biggest feeling is that exchanges have always been a bug in our industry. That is to say, this industry needs to have a channel between the crypto world and the real world, and exchanges are actually a relatively important link. Because users need to complete deposit and withdrawal and trading methods on the exchange. But most of the people come here just to speculate on a coin, and then I deposit the money in the exchange, then buy coins, and after buying coins, I go in and out of the exchange, and then I no longer say that I will continue to explore in-depth blockchain applications to experience or use them. Even if I am a wool party, I may not have this interest, and then simply speculate on coins. So in fact, many users stop at the exchange, and become exchanges, and become bugs in an industry.
And when we were chatting with Shenyu before, that is to say, almost every cycle of bear market will involve a large exchange storm, and they are all large exchanges in the West. Now, I think each new bull market may have different evolutions at different stages. DeFi is trying hard to solve the bugs on the exchange, so there is decentralized finance. In the bull markets again and again, DeFi continues to attack CEX. So after FTX, I think DeFi should continue to make its fourth impact in the next bull market. In fact, you can also see that some projects perform better in the past two days, and I think there may be some signs.
Q6: So for the DeFi protocol at present, what is the main development direction in a bear market environment?
Ron: I think it is difficult to ensure these things based on the CEX infrastructure design, the code of the protocol, smart contracts and the decentralization of the chain itself. For example, setting up several mechanisms to make the exchange want to misappropriate funds and use the user's funds to invest or borrow. Unless the user agrees to do this, your product itself is like this model. The background code is written in this way, and the exchange must abide by it. When users know these codes and functions, they are willing to entrust funds to the exchange, and the flow and records of each fund are guaranteed by the security of the chain. If you want to add new businesses, you need to develop new products and codes or new upgrades. These are transparent and open. I think this may be a direction in the future of the crypto world.
Ron: My opinion is to first say that in this period of time, you can find the top exchanges, announce the Merkel Tree to prove its funds, and then everyone follows up. But according to my understanding, Merkel tree is actually used to make fund proof , which is used to make proof of funding for CEX, and this is meaningless. Why do you say so? Because Merkel Tree is used as a proof of funds, it can only statically prove that your account exists, and then an asset on the exchange exists. Then it cannot say that it tracks the transfer of some different funds inside the exchange and the correlation between complex business logic, which will cause it to be impossible to monitor.
, even as a virtual account on an exchange, Merkel tree cannot be checked out. And if you let him control it, it means that it is very transparent and extremely dead, he will tell you that there are funds, cold wallets, and the collection of users' small wallets, as well as transfer and risk control issues. This thing is not clear. So I think Merkel Tree is just an attempt for these exchanges at the moment.
You should say that you should leave the required coins on the exchange. If you don’t need them, you think that this is not needed in short-term trading and you need to take them for a long time. You should transfer them from the exchange and put them in your wallet, and then make backups and security.
If you look closely, you will find that this industry is quietly wafting a whirlwind, such as account abstraction, hardware wallet, and MPC wallet. Then these types of wallets will allow ordinary users to have a lower threshold when managing the use of crypto assets. You can use your email, your Weibo, your , your , and even some biometrics to enable this wallet, and then manage this wallet. I believe that this matter should be in the right direction in the future, and at the same time, it can also guarantee everyone's ownership of their own property.
Q8: If FTX is not the last black swan we encountered, what can we personally deal with in this situation? For example, I will go to the second level to get some more core assets before I can prepare for the next bull market, or before the next bull market comes, we can see what indicators or dynamics to refer to.
Bittracy: Personally, I prefer to see a continuous increase in activity on the chain, or the increase in the scale of stablecoins, the next bull market may not be far away, but this indicator is still too far away. Investors or project parties actually need continuous financial support, and then a steady stream of user support is also needed, including a healthy and good industry ecosystem.
sub-time: I am actually quite scared because to be honest, because most of the investors are investing in fiat currency and cash out channels or looking at it, but you can’t avoid exchange trading in the end, because you still have to flow in most spot goods through the exchange. So just mentioned that many infrastructures, or many infrastructures on the chain, have a relatively big difficulty. The first step is to go from the exchange. In theory, DEX traffic, or the traffic of the past infrastructure, still comes from CEX, which is a very difficult way to avoid.
So once the top three exchanges in this industry theoretically fall, it means that DeFi will definitely be affected. Don’t look at the recent DeFi liquidity may be good, but because of the exchange’s own internal market maker , it may provide a lot of trading liquidity off-chain. Once the exchange collapses, the market maker will be stuck, or the system on the chain will be stuck. Because the market value of the entire transaction encryption is not as large as Apple . Everyone is in the same spirit. It is hard to say that being alone is a system. It is a complex system. As long as there is a problem in one link, other links will have problems together. After the nest is destroyed, how can you finish the eggs?
, and this brings a very bad demonstration education to some other institutions. In the future, he will still dare to come in with traditional funds. I think this is a big question. If these funds cannot be included, the industry will continue to be internalized. People in the market are always speculating on these funds, hot money .
Q9: As an individual, how will you deal with your assets and how do you do it?
Haotian: is indeed related to security, so I will briefly summarize it. In fact, it is mainly the issue of capital allocation. I think that you cannot put eggs in the same basket, because if there is a problem with any basket, it will be a devastating blow to users. There are actually several options. Yes, one is a hardware wallet, which does not touch the Internet. It is relatively safe, but this kind of hardware communication is also relatively old for this industry. Some people like to use it, and some people have not yet adapted to hardware wallets, but because it may be more suitable for storing some long-term value currencies such as BTC and ETH. Another way is to self-custodial wallets and MetaMask wallets. It is more suitable for storing some assets, but this kind of on-chain assets. Then I think if the asset scale is large, it is recommended to distribute more addresses, that is, to collect some addresses.
Because if your single address gathers a large number of assets, it is easy to be targeted by hackers. Various attacks are hard to guard against, including Trojan , or even replacing the address of paste board , attacking when you transfer money, including certain attacks on your mobile APP system.
Ron: So I personally think the most important thing is your own cognition and technology, your risk control awareness, and what I just said, it is not difficult to learn these things by yourself. I think our generation may say that young people can only master basic operations after spending about dozens of minutes.
I think the supervision of the entire product industry may be an opportunity and a relatively far-reaching impact. One may be a crisis. I think the overall situation may be that after the breaking down or not, there should be more formal matters involving supervision in the development of this area, which is also a relatively good impact on the industry.
