Why FTX Collapsed and How Giddy is Different

Eric Parker - December 1, 2022

Why FTX Collapsed and How Giddy is Different

 

The collapse of FTX caused major ripple effects in the crypto industry. One of the largest crypto lenders, Genesis, halted withdrawals and loan origination, which caused Gemini to pause client withdrawals. Crypto firm BlockFi just announced bankruptcy.

And because so many centralized crypto companies have been impacted, many crypto users are turning to decentralized protocols, which continue operating smoothly. For the first time the decentralized exchange (DEX), Uniswap, has overtaken Coinbase in Ethereum trading volume as the second highest Eth volume in the world. Market cap has flowed away from centralized custodians to non-custodial software providers.

Crypto and decentralized finance (DeFi) users are returning to the principles that are foundational to the space – permissionless, trustless, transparent financial building blocks.

 

FTX Was A Human Failure, Not A Crypto Failure

 

FTX and Alameda Research. The former a centralized crypto exchange, the latter a crypto hedge fund. Both were founded by Sam Bankman-Fried and a few close business partners. Accredited investors knowingly gave money to Alameda to take risks while FTX users expected to hold crypto in the exchange for trading and safekeeping. FTX was never supposed to risk client deposits and Alameda was never supposed to have access to FTX’s funds, but both of these things happened, and client deposits vanished.

Within the span of a week, FTX halted client withdrawals, announced bankruptcy, tried to raise $8B+, lost funds to a “hacker”, opened withdrawals to only the Bahamas and subsequently closed them, had a founder on the lam, and were dropped by their legal counsel. FTX unraveled in days, but they were reportedly using deposited cash as collateral for new loans as well as gambling client deposits with Alameda for months. FTX’s relationship with Alameda was opaque at best, these risks were certainly not disclosed to FTX depositors. This breach in operating integrity was so flagrant that at some point FTX’s wire instructions had Alameda as the destination for new funds. Nobody asked questions.

Too much money was being controlled by a small group of people with conflicted interests and no oversight or regulatory burden. Ultimately these unscrupulous actors put billions of dollars at risk that never should have been accessible for risk exposure in the first place.

This is ultimately a failure of many things – trust, oversight, lack of regulatory clarity, plain fraud – but not a failure of crypto as a technology.

 

Could Giddy Pull an FTX?

 

Whether out of incompetence, negligence, or greed, FTX misappropriated and lost billions of dollars. It was a bad custodian of client funds. In contrast, Giddy does not have the option to misappropriate our customers’ money because Giddy is not a custodian of funds. We are a software provider that enables users to administer a self-custody crypto wallet. Giddy users own their keys, and they own their funds.

The keystone of our product is our wallet tech. The Giddy app allows users to secure their crypto without having to worry if they’re doing it right. Our non-custodial private key tech is what gives Giddy users the power to place their own funds directly on the blockchain using code as the conduit, not a middle-man that requires high levels of trust. Giddy users can safely take custody of their funds in an easy, secure, affordable way.

Nothing happens with our customer’s crypto on the blockchain without their explicit authorization because they are the only ones with access to their private keys. Rather than our customers placing orders which Giddy would fulfill as an intermediary for user funds, our customers use the Giddy app to create and sign transactions which they execute directly on the blockchain. Our customers do not have to trust us to handle their funds appropriately because they can use the public blockchain ledger to verify their transactions immediately.

Yes, our users are exposed to risks inherent to DeFi and the blockchain, but no, they’re not exposed to the risk of Giddy misappropriating their funds.

 

Back to the Fundamentals of Trust

 

Trustless and permissionless. These are the core pillars of DeFi. Users do not have to rely on trust with DeFi protocols because people can verify the code and crypto publicly on the blockchain. And users who own their private keys do not need permission from an intermediary to access financial opportunities on the blockchain, they can directly access the blockchain whenever they choose.

I believe the next phase of crypto adoption will be driven by giving users financial power in the form of self-owned, easy, safe, affordable access to the blockchain. We’re already seeing an uptick in Giddy adoption with the shift in the public narrative about the issue of custodianship and trust.

These are the foundations upon which the technology at Giddy is built, positioning us perfectly to capitalize on the demand for high-powered, safe, easy to use self-custody crypto.

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