By now, we all know that the cryptocurrency exchange FTX imploded in spectacular fashion earlier this month. For those eager to understand what happened, there’s no shortage of explainer articles, (including this helpful one that explains it as if you were a 5-year-old because, well, that’s where some of us are at on cypto). And there will clearly be lots more revelations about just how bad things were inside FTX as bankruptcy hearings continue.

But we were interested in the forward-facing view. What will FTX’s collapse mean for the future of crypto? So Insight reached out to Sarit Markovich, a clinical professor of strategy and expert in fintech, for her thoughts. We’ll hear from her today.

What’s Next for Crypto?

To understand Markovich’s thoughts on the future of crypto, it’s important to first know that there are two types of exchanges: centralized ones, like FTX, and decentralized ones, like Uniswap.

Centralized exchanges are overseen by a central authority. They are custodians, meaning they hold people’s money while performing transactions, which can make them susceptible to fraud. Decentralized exchanges, on the other hand, have no central authority and do not hold any money themselves: they just allow people to authorize their own transactions, making fraud much less likely. And unlike centralized exchanges, decentralized ones are fully transparent: activities are recorded and visible for all to see.

Markovich sat down with Insight for a conversation that turned into this article and this podcast episode. Below are some lightly edited excerpts.

INSIGHT: Does crypto have a future?

MARKOVICH: I definitely believe that there is a future for crypto. In a way, these events are going to benefit the crypto world, because there is a need for regulation, and trying to get it as fast as possible is going to be helpful. It would also push the market more toward DeFi, toward decentralized projects that are fully transparent.

It’s true that now regulation is probably going to be stricter than it would have been otherwise. But regulation that helps stop fraudulent activity and Ponzi schemes benefits the entire industry.

INSIGHT: How would you envision FTX’s implosion as affecting the future of crypto? How is this changing the trajectory of the industry?

MARKOVICH: We have had collapses in the last year, but many felt that this was because the projects were just not legit. That’s the difference between centralized and decentralized projects—and most of the recent collapses like Celsius, Three Arrow Capital, or BlockFi are centralized projects. Since many do not realize this difference, they view these as crypto failures. So this is going to slow down demand. Investors are not going to be as likely to invest. So a lot of the funding is going to go away.

It also means that regulation is going to come sooner rather than later—and it is going to be stricter. My concern is whether regulators will understand that regulation for centralized and decentralized projects should be different. You don’t want to just regulate the market and think about crypto as crypto. There are different types of projects that need to be regulated in different ways. Overly strict rules are not going to allow the DeFi world to be as innovative.

INSIGHT: If I don’t think I care about crypto at all, can you give me an example of one of those projects that you think is really neat and actually has the potential to have a cool impact on the physical world?

MARKOVICH: Decentralized exchanges like Uniswap and SushiSwap are really cool. If you think about crypto as a stock, the fact that I can buy a stock from you without going through a broker and without paying high fees, it makes everything more liquid. I think that that’s great.

Another project that I believe is great is MakerDAO. They give loans that are collateralized but do not require any kind of [customer checks] to prove that you have a lot of money, or who you are. If you need the money, then MakerDAO is going to lend it to you if you put up the needed collateral.

There are ways this is being gamed—and there are attempts to limit the type of gaming that is going on—but as a concept, using DeFi to help people who find it hard to borrow money is interesting.

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LEADERSHIP TIP

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