FTX fees leave the image of the industry in ruins

Hello and welcome to the FT. This week we take a look at the consequences of Sam Bankman-Fried's arrest on the Bahamas.

For Christians it should be the time of good will and charity, but these attributes are in short supply in the crypto industry.

The majority of the anger and acid understandably directed Sam Bankman-Fried after the collapse of the crypto exchange FTX in the past month, and the apology tour by the media only deepened distrust.

This week, things spoke against him with his arrest on the Bahamas and the publication of the full US directive.

The long list included criminal charges such as transfer fraud, money laundering and violation of the laws to finance political campaigns. If he is found guilty, he will spend a long time in prison. Allegations of conspiracy indicate that others could also be involved.

there was also the most devastating allegation of everyone; that these alleged crimes have taken place since FTX was founded. In fact, the authorities said, it was the plan all the time. You wanted to be Ferrell's figure in the Christmas film eleven she discovers a fraudulent Santa Claus and whispers: "You sit on a lying throne." It is devastating because it opens the accusation of the door and gate that the entire market bubble of recent years is a fake.

No wonder that there were only a few well -wishers. "His arrest is the right one, it must be accountable for what many consumers have brought into financial difficulties with the view that funds are repaid," told me Ian Taylor from Cryptouk.

The sight of a Bahaman-Fried, tied with handcuffs, which is led from a court on the Bahamas into the night, while police lights flash, could become the defining picture of a terrible year for digital assets. The prices for tokens have broken down and many large crypto companies went bankrupt in summer. But he is only the most prominent figure in an exceptionally overcrowded field of scandals and villains. Many may still be confronted with their own civil or even criminal charges.

crypto now goes on a way of redemption, although many skeptics will consider this mission to be unsuccessful.

"The collapse of FTX is not an indictment against the cryptocurrency, but important aspects of collapse are symbolic for a - almost proud - amateurism that is common in parts of the industry," said Peter Fox, partner of the law firm Scoolidge, Peters, Russotti & Fox.

I will forgive less. Such a dilettantism looks dangerously naive compared to the real world of law enforcement, court files and hearings in Washington. When a gray veteran like John Ray III, the new Chief Executive from FTX, reveals that the company uses QuickBooks for accounting, the punk do-it-yourself ethos loses its charm.

For example, the alleged abuse of customer funds by FTX is symptomatic of this separation. It is important to recognize that crypto borns are not like stock exchanges in the real world. Platforms not only make it easier to meet between buyers and sellers, they act as trustees and marketmakers who also take out loans from customers and award them to customers.

"The alleged abuse of customer funds at FTX could not have happened on a traditional stock exchange, since traditional exchanges do not keep customer funds," added Fox.

so what remains? The few remaining big players have big question marks about themselves - Tether about his reserves and coin base about his financial performance. Binance is the biggest black box in the industry.

The decentralized financing has its fans. They say that it represents the future and has survived fate that has hit the larger and more centralized units.

true, but it is easier to forget the litani of the mistakes that have messed up the world of Defi. The scaling of operations has always been one of the weaknesses of cryptocurrencies. And projects have suffered countless hacks because developers have not sufficiently tested the systems before they have thrown them on the free market. Another sign of dilettantism.

Then there are other chronic problems such as the unjustified CO2 footprint of Bitcoin and its use by rogue states such as North Korea to avoid economic sanctions.

In his statement before the Senate this week, the actor and crypto critic Ben McKenzie suggested that a reason why so many customers could not get their money back was simply that "a large part of it was never there".

"The prices of these speculative so -called 'digital assets' were offered/manipulated far beyond the real money," he wrote, quoting conversations with SBF and Alex Mashinsky from the failed Celsius Network to underpin him.

All of this raises the question. . . What remains to be redeemed? That is the challenge that the industry has to face next year.

cryptofinance now takes a break until the turn of the year and returns on January 6th. A Merry Christmas to the readers and thank you for your subscription. Some thoughts until then? Send me an email to scott.chipolina@ft.com

Weekly highlights

• ftx collapsed in the Caribbean, but his shock waves continue to spread around the world. France-one of these "crypto hubs", of which we hear again-begins to ask whether it should have opened its doors so willingly for digital assets. The country currently has crypto companies operated on without a license, but is under fire. My colleague Akila Quinio and I dealt with it here.

• Binance had to fight with a crisis of trust in a single day of 1 billion Binance, since the fears increased to be drawn into US investigations. Joshua Oliver and I have the story here.

• Elizabeth Warren (D-MA), together with her colleague Roger Marshall (R-KS), introduced the Digital Asset Anti-Money Lundering Act. The bill was described as "unconstitutional" Coin Center, the cryptofocussed non-profit organization that did not explain to me in October how the statements "We do not act with criminals" and "We do not know where the donations sent via Tornado Cash can come from"

• It is a terrible time for the crypto-miner Argo Blockchain. It will threaten the next month because it doesn't have enough money. What it didn't need was to accidentally publish material on its website, which implied that the company applied for US bankruptcy protection. Shares on the London Stock Exchange and Nasdaq were properly suspended and it had to be asked for permission to undo everything. Hoppla.

Soundtrack of the week:

Damian Williams, a US lawyer for the southern district of New York, has had a big week. On Tuesday, he stopped a press conference to talk about SBF's Ministry of Justice. He also found time, indictment for fraud and money laundering against founders and sponsors of two alleged crypto ponzi schemes. But he also sent a message to all crypto fraudsters.

"We come for you. Stealing is stealing, even if it is disguised with the jargon of cryptocurrency."

Data Mining: Binance strengthens the power

During a Twitter Spaces session this week, Binance boss Changpeng Zhao was asked whether the size of his company is a dangerous single point of failure for the already delicate crypto industry.

his answer was: "Is this a problem for the industry? This is not a problem, because if you want innovation, you have to have people win, they have to have people voted."

I assume that the holy principle of decentralization is not so sacred when you are the only man in the room.