Forbes contributor Sean Stein Smith, a business and economics professor at the City University of New York and a member of the advisory board for the Wall Street Blockchain Alliance, said rather than being distracted by the drama of Sam Bankman-Fried's trial, crypto market participants should focus on several lessons from the collapse of FTX. Bankman-Fried, the founder and former CEO of crypto exchange FTX, is beginning his trial for his role in allegedly misusing investor and customer funds.
"To say that FTX made a mess in the crypto space is an understatement, and some have argued that this single collapse has set the crypto lobbying industry years behind in the U.S., even as other jurisdictions assert leadership positions," said Smith. "As the court room drama continues to unfold, possibly augmented by the details to be provided by expert witnesses, it will understandably dominate the headlines in the crypto space. As scintillating as these headlines are, however, it is important to view the FTX saga as the end of an important chapter in crypto, and not a sign of things to come."
Smith wrote for Forbes that throughout FTX's bankruptcy proceedings, it has become clear that FTX's issues were "not unique to the cryptoassets," but instead were the result of poor management and bad business practices. Smith said that FTX had an absence of internal controls over financial reporting and did not have a CFO or external board of directors. The lesson that other crypto entrepreneurs should take from FTX, Smith said, is that they need to put as much emphasis on their business structure as there is on the crypto product. He noted that because of FTX's failure, crypto companies are facing heightened scrutiny from investors and regulators, so market participants must elevate their transparency.
Smith said that for members of the crypto industry, "boring might be better." He noted that FTX engaged in "splashy marketing" tactics, while "high-flying and volatile applications such as NFTs" have lost their momentum. In the article, which he wrote for Forbes, he acknowledged that, while "even the conservatively managed and proactive Coinbase could not escape the SEC’s enforcement arm," it is better positioned than FTX, while "boring" assets like stablecoins have seen more success than NFTs. "Going forward, conservative management and sound business models look set to trump excitement," Smith said.
Smith, in his Forbes article, encouraged the crypto community to take a positive view of the fact that traditional financial (TradFi) institutions are venturing more and more into the crypto and blockchain ecosystem. He said that the participation of TradFi institutions in the crypto industry will facilitate discussions on regulations and spur mainstream adoption.
Bankman-Fried is facing multiple criminal fraud charges for allegedly commingling funds between FTX and its associated hedge fund Alameda Research, according to Investopedia. A high-profile bankruptcy filing in November revealed that approximately one billion dollars of investor and customer funds was missing. Bankman-Fried was extradited from the Bahamas to the U.S. in December and subsequently indicted for his role in what some are calling the biggest financial fraud in American history.
