Offchain: An Exchange of Value

Offchain: An Exchange of Value

SBF has been sentenced, bringing to an end one of crypto’s most shameful story arcs. What can we take from it for the future?

The end, when it came, felt like an anticlimax. 25 years for Sam Bankman-Fried, the mastermind/bona fide imbecile behind one of the largest financial frauds in American history. The headlines arrived, there was a collective shrug of the shoulders and off wonder boy went for his quarter-century in minimum security.

It’s only been a year-and-a-half since The Unpleasantness, but with Bitcoin experiencing the kind of institutional interest and inflows that 2021 Us wouldn’t even dare dream about, it’s understandable that we’re keen to put the whole unseemly mess in the rear view mirror.

Yet it did happen. This khaki-shorted buffoon who may be the worst trader to have ever lived – seriously, how do you lose US$8 billion when you both control the house and are actively using your users’ money against them? – became the sanctified poster child for the new financial era. And he did it all while running a derivatives exchange from the Bahamas, noted paragon of fiscal probity. What could possibly go wrong?


From water into different water

Exchanges are simultaneously the most important and least interesting part of the crypto economy. 

Their importance is obvious enough: this is the vector by which people start their crypto journey, the almost magical portal where fiat money becomes cryptocurrency and vice versa. Without good exchanges you’re stuck like I was back in 2011, having to work out how to transfer money to some dodgy holding account in America in order to buy 50 Bitcoin at US$12. Spoiler alert: it was hard and I didn’t and I’m totally FINE WITH THAT.

But they’re also the least interesting because what they do doesn’t actually have anything to do with crypto per se. They’re just slightly glossier versions of the TradFi experience, a glorified accounting database with some glitter and rhinestones attached. (And yes, I know I’m writing this as a representative of a crypto exchange, but our glitter and rhinestones are definitely the best.)

In an ideal world, the way you buy and sell crypto should be as academic as the question of what cereal you eat. Sure, you may be making a choice between unadorned whole wheat muesli and Colonel Meow Meow’s Candy Rainbow Crunch (Now With 7 Vitamins And Minerals), but at a fundamental level they’re both serving the same nutritional purpose – and they’re definitely not the kind of thing that dominates the cultural conversation.

Forgive us lord

The sins of the last bull run were many, but perhaps the most egregious was the way that we allowed the actions of Binance, FTX, Coinbase, Bitmex, et al to become the story of crypto. Aided by a willing media (who saw in them the simplest angle into this mystifying world), the operators of these exchanges became the prime narrators of the crypto boom, their business decisions shaping the very fabric of what crypto was in a given moment.

But the story exchanges can tell is limited. They can tell you about asset prices, money flows and trading volumes with some level of accuracy. But they can’t tell you much about the culture or the tech or the broader economic forces shaping it all. When exchanges become the story, the story can only possibly be about what something is worth in any given moment. Tell that story enough times and it becomes hollow and self-reflexive, like a dog eating its own vomit.

Well, now the mega exchanges have been humbled, the founders largely silenced. One hopes that the virtuous cycle of credulous media coverage that enabled their dominance is at an end. If crypto’s going to change the world the way we all hope, it’s going to have to do it on its own two feet, by making genuinely useful things that people want and need to use – and the exchanges are just going to be along for the ride.

Luke for CoinJar

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