The Central Problem

The black swan events of LUNA and FTX that have so far characterized crypto in 2022 left many in the space wondering how we got here. What began as a quiet revolution focused on decentralization and financial sovereignty has been corrupted by greed and the centralization of power and control. If crypto has any hope of a future it can only be found in reaffirming the central tenets of decentralization and financial sovereignty.

While the media claim these problems are the fault of a lack of regulation it’s worth considering that LUNA and FTX were already subject to regulations. In fact, in early 2022 FTX had been meeting with regulators from both the US and UK. They even claimed to be the most regulated exchange in crypto.

It’s incredibly naive to expect regulators to hold people in crypto to account and to oversee the development of the technology. Even within the space, experts face a constant battle to keep up with the latest developments as new capabilities and approaches evolve. While many argue for or against regulation the latest events show that overall we need to improve our skepticism and dependence on the word of influencers.

As Deniz, our CEO explains, “It seems that there were a number of people who knew and spoke out against SBF and FTX before the catastrophe happened. While this may not have been widespread information, for the majority of those who heard it, it fell on deaf ears. It’s easier to believe the multi-billion dollar “reputable” company than a thread on Twitter or a one-off video.”

Wilson, our COO adds, “Most people don’t want to risk their reputations by calling out big players in the space. The good thing that can be taken away from this horrible event is that the crypto community as a whole will be much more diligent about centralized risks, which can help the whole industry become more robust in the future. “

The key characteristic of both LUNA and FTX’s problem is a centralized point of failure. Too much control was in the hands of too few people who acted irresponsibly. It also characterizes much of the ensuing contagion within the space. For instance, Three Arrows Capital and Voyager Digital were both hit hard by LUNA’s collapse because of their own unsafe practices. They had unsecured loans and in some cases had misled regulators to cover up their high-risk behavior.

Although these events are relatively new to the crypto space they have a long history within traditional finance. The lure of quick, easy money can all too often tempt people into bad decisions and blind them to the potential risks. It’s why we believe that regulators need to take into account whether or not a protocol or platform is centralized or decentralized.

As Deniz explains, “I believe that going forward, for the short to mid-term, cryptocurrencies will run in parallel, but with different regulations, to the traditional fiat system. Lawmakers are still trying to understand the fundamentals of blockchain technology. The current centralized framework in which governments operate inherently has difficulty with making smart regulations that fit within a decentralized environment.”

Wilson concurs, “I think that governments around the world need to treat centralized crypto entities differently than decentralized protocols. This differentiation will require an understanding that “crypto” is not all one thing or idea. This is exactly where responsible and forward-thinking companies can educate lawmakers and the general public to make more informed decisions around the cryptocurrency space.”

Education should be a crucial part of every project’s development strategy. Blockchain technology has the power to change people’s lives dramatically. Sometimes it’s as simple as allowing people in countries with hyperinflation, such as Turkey, to stabilize their resources by moving them into US-backed stablecoins. At other times it’s helping people to avoid predatory lending and access affordable loans to buy their first property.

If, as an industry, we don’t push back against those that are selfishly trying to take advantage of others we’ll rightly lose control of the space to regulators and commercial banks. The main way to protect the future of crypto appears to be decentralization. There’s a very good reason this was one of Satoshi’s central tenets and FTX, LUNA, 3AC, and others keep proving the importance of it.

As Simon, our CTO explains, “Essentially, centralized services go against the core values of bitcoin, the first cryptocurrency. While they can be useful and convenient, I believe that recent events have proven again that trusting centralized platforms with your hard-earned money can be a recipe for disaster. Paribus as a platform is designed and built in the most decentralized way possible and is working towards becoming a full DAO. This process will take time and key structures will need to be in place before this can happen, but over time we will be able to achieve our fully decentralized goal.”

Nothing is perfect and DAO’s also make mistakes, which is why we strongly favor safe and steady progress. Some may race ahead by cutting corners, but the long-term success of projects and the space as a whole depends on cautious optimism.

The success of this approach depends on the trust and support of the community, which is why we place such a great emphasis on education and communication. Times like these are hard and our hearts go out to everyone that is affected by other people’s recklessness.

We appreciate that we don’t move as fast as some would like, but for us, it’s impossible to gamble the future of Paribus and other people’s money for short-term gains. We have, and will always take, a responsible and steady approach to each stage of our development. We firmly believe this is in the best interests of both the protocol and the community and we thank everyone for their continued loyalty and support.

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