Offchain: The King Is Dead

Offchain: The King Is Dead

The Sam Bankman-Fried trial sounds the long overdue death rattle of crypto 1.0

Perception is a magical thing. Little more than a year ago, Sam Bankman-Fried was crypto’s wonder kid, the clarion voice of where the industry went next. The cargo shorts and shambolic hair and WGAF attitude – did you hear he was playing League of Legends while fleecing Sequoia Capital for US$200 million? –  was all part of the act, proof that he was operating at a level not accessible to us mere mortals.

What a difference a year makes. Seeing him now slouching to court in an ill-fitting suit and oversized tie like a fidgety 10-year-old being dragged along to church, all you can do is wonder why we didn’t see it before.

Let’s be honest: SBF is hardly the first sociopath to have pulled one over the tech world; the industry veritably delights in showering capital on the most vibrant of personality disorders. Literally weeks before FTX collapsed, Sequoia Capital wrote a blog/work of ejaculatory fanfic describing him as having the potential to become the world’s first “trillionaire”.

But how were we so easily duped? Why did we want to believe so bad? When he talks, Bankman-Fried jitters and weaves and avoids eye contact like the last person on Earth you’d willingly give money to. But we gave him billions. What does that say about what crypto was?


The mercy rule

I, for one, would pay good money for an audio feed from the defence lawyers’ rooms when court adjourns for the day.

Like, there is damning testimony, and then there is the veritable conga line of ex-FTX plea bargainers taking the stand day after day to portray SBF as the crypto world’s answer to Tony Soprano.

There’s the $150 million Chinese bribes. There’s the $1.1 billion in frivolous deals and sponsorships. There’s the shadowy political donations. There’s the code that meant FTX basically couldn’t lose a trade. There’s the other code that meant they could use customer funds as their own personal piggy bank. There’s the multiple balance sheets so that they could lie to investors. There’s the presidential ambitions. There’s the negotiations with Saudi Arabia’s crown prince. There’s the furious outbursts and lavish lifestyles and erratic behaviour.

And through it all they were using US$14 billion in customer funds to pay off risky loans that they’d funded with made up tokens.

I mean, Jesus. The company only existed for like 3 years and it has the kind of rap sheet you’d expect from a generational Ponzi scheme. If I was Sam’s lawyer, at this point I’d fake my own death and move to Guam just to avoid having to explain to my family what the hell I was doing with my life.

The destroyer of worlds

Apparently in the dying days of the empire, Sam said to Caroline, “We were bulletproof last year, but we’re not bulletproof this year”. And that about sums it up, doesn’t it?

The smartest people in crypto could see the end coming. The freight train they saw hurtling down the tracks wasn’t inflation, or surging interest rates, or the war in Ukraine (although obviously those didn’t exactly help). It was regulation.

These insiders knew how flimsy it all was, how many companies were just daisy-chaining money from place to place with nothing behind it, and nothing to show for it either. They knew how many idiots and grifters and right-place-right-timers were pulling the levers. And the very smartest knew Sam was one of them.

Well, regulation is here. Next year, the EU’s MiCA regulations will introduce strict new compliance rules for any crypto exchange doing business in the world’s largest economic bloc. The UK is cracking down on unregistered exchanges, to the point that Binance has stopped taking new customers. In Australia, the government has announced their intention to force crypto exchanges to hold a Financial Services Licence – with all the solvency and audit requirements that entails.

In the end, the beginning

Here’s how I see it: SBF’s trial marks the final death rattle of crypto 1.0, that libertarian ideal of finance unleashed, freeform, transnational, independent, that land of Twitter-fuelled manias and Wild West analogies. We had a decade to prove that it could work and it didn’t. It’s a story of unfulfilled potential, wide-eyed hope and humanity’s unerring ability to take something good and do a big steaming dump all over it.

So, good riddance, I say. Put it in jail together with the golden boy over there and throw away the key. We can do better and we’ll have to.

Regulation brings opportunity, and danger too. New money comes but it arrives with demands and compromise. What can crypto carve out for itself between the CBDCs, the private blockchains, the publicly held Bitcoin funds and corporate metaverses? Now that the party’s over, is it actually worth anything? Or was it just a loser in a food-stained t-shirt all along?

Luke from CoinJar

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