The future of Web3 after the FTX saga

It seems like a month can’t go by right now without industry-shaking news breaking out and sending Web3 into another nosedive. This month’s focus has been FTX, a centralized cryptocurrency exchange that was worth over $32 billion by early 2022. Fast forward to November, and the company is now bankrupt, with the former CEO now possibly facing criminal charges.

Once again, a well-established project within this space turned out to be deceptive, as FTX illegally funneled user funds off the platform to a sister company. This event has shaken up the community, with the lack of transparency offered by blockchain companies calling into question the validity of many of the leading projects in the ecosystem.

With alarm bells ringing and speculation at an all-time high, people are wondering how the cryptocurrency world will ever recover. In this article, we’ll take a deep dive into what Web3 companies are doing to get past this shocking moment and move toward a more transparent future.

What happened to FTX?

During the first week of November, Binance co-founder Mr. Zhao announced that he had decided to liquidate all of his FTT holdings. FTT was the native currency of FTX, with the sudden withdrawal of almost $580 million sending other holders into a panic. This liquidation decision was rumored to have come after FTX CEO Sam Bankman-Fried criticized Zhao in private conversations.

In response to the mass movement to defund, FTX froze all user accounts, preventing millions of users from touching or accessing your assets. Once this news broke, the value of the FTT token plummeted, losing much of its value in the space of a few hours.

In a rather shark-like move on his part, Zhao announced that he would jump in to buy FTX, as Binance and FTX were still big rivals at this point. A few hours after this announcement, Zhao made another statement, citing disturbing financial records within FTX as the reason he was pulling out of the deal.

journalists in Reuters he then began to investigate these statements further, uncovering the final piece of the puzzle that led to the entire system coming crashing down. According to a recently published report, Bankman-Fried had funneled funds from FTX to its partner company, Alameda Research.

Alameda had made a series of venture capital investments that ended badly for the company. To repay the lost capital, SBF began transferring FTX user funds to the company as ransom. The only problem with this is that those funds belonged to clients, with FTX illegally moving the money around. The total amount stolen was around $4 billion at the time of discovery.

People within the blockchain community are rightly up in arms over this. In response, many question the validity of companies not sharing their financial records. If the records were public, people would have been able to see FTX’s nearly empty treasury and would have been much more easily aware of the theft.

Banker-Fried is currently being investigated by the Department of Justice, and this offense could potentially result in years in jail. Beyond holding some people accountable, this event has made the blockchain community look for a complete change.

People want transparency, and they want it now.

How can Web3 companies provide transparency?

The FTX saga has shown the world that not all cryptocurrency companies can be trusted. Before its downfall, FTX was the third largest cryptocurrency exchange currently active and had funds for millions of different clients. Many assumed that because of its size alone, FTX was too big to fail. As we have seen in the space of about ten days, that was far from the truth.

One of the main problems with FTX is that it was a centralized cryptocurrency exchange. What this means is that all the transactions were not actually recorded on the blockchain. Normally, the blockchain acts as an unalterable ledger of transactions, which is publicly available to everyone. Within decentralized exchanges, this means that users can simply go and see if the transactions they requested were successfully recorded.

As a centralized exchange, FTX only recorded all transactions in its internal ledgers. These ledgers were private, and all of this information was hidden from the public. While they claimed to do this out of a desire for protection and security, we now see that it was the perfect front to embezzle user funds.

No one could see where their cryptocurrency was going, or if FTX actually had the amount of liquidity it claimed it did. When the Binance president backed out of the FTX acquisition due to lack of records, red flags were raised among the public.

This problem is unique to centralized exchanges that companies are quickly scrambling to fix. For companies in the same position, they are now facing a lot of questions from users, with many people wanting to see full transparency around financial data. This has put many companies in trouble.

Those who are accepting suddenly have to produce incredibly detailed results, which requires resources. Those who refuse to produce these documents suddenly look incredibly guilty, leading users to back out of their systems.

The only companies that continue as normal within the Web3 landscape are those that have already been publishing their financial data. Of course, any fully decentralized system must run its transactions through a blockchain ecosystem, which means they have a traceable record.

However, the real winners in this situation have been brands like decentralized games. This company has had a history of publicly tweeting your income, treasury reserves and all other financial data each month. Instead of taking this opportunity as some sort of PR backlash to FTX, they’ve been doing this for quite some time already.

Companies like Decentral Games represent the best of Web3 organizations; Those companies that are dedicated to full transparency are the ones that succeed in this environment.

What does the future hold for Web3?

Web3 is still going strong, despite the turbulent week that companies in this space have experienced. The sudden collapse of a large blockchain business is not as rare in this industry as it would be in other spheres. In this environment, we have become accustomed to projects exploding and rapidly downsizing.

One thing that became evidently clear is that the core ideals of blockchain are as important as ever. Authenticity, decentralization and true transparency will always reign in this field. For companies looking to distinguish themselves from the masses and win the support of the community, emphasizing transparency is key.

If we can take anything from this situation, it is that companies like Decentral Games, which have already included truth and user access in their business model, will go much further than those that hide their data. For Web3 to be truly successful, we must build an open future with fair and transparent data sharing.

To the companies that do not do it, what do they have to hide?