Sam Bankman-Fried, CEO of FTX: Why Institutions Still Have to Adopt DeFi

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  • Sam Bankman-Fried offers solutions to bridge the gap between traditional and decentralized finance.
  • It highlights the regulatory uncertainty surrounding DeFi and says venture capitalists need to be more transparent about their intentions.

First time deciphering interviewee FTX CEO Sam Bankman-Fried, in September 2020, SushiSwap decentralized marketplace was better known than the 29-year-old billionaire or the cryptocurrency exchange he founded. He first became famous thanks to his efforts to save the SushiSwap protocol, after its creator charged.

In the intervening months, Bankman-Fried has overseen a $ 900 million Raise for FTX, with investors including Softbank, Sequoia and Third Point; value of FTX has skyrocketed from $ 1 billion to $ 18 billion and the young entrepreneur has been celebrated by all the major financial publications around the world, with publications like Financial Times taking his presumed breath back planning to buy Goldman Sachs.

FTX and its new acquisitions shopping list, as well as expansion into Asia and the United States, take up most of Bankman-Fried’s time. But SBF, as it is affectionately called, is also one of the few cryptocurrency luminaries that straddles decentralized finance (DeFi) and its conventional equivalent. This gives you a unique insight into the emerging DeFi space – its benefits, as well as the issues it faces.

She said figure out how do you think some of these can be overcome in a comprehensive interview last week?

In it together, or like a fish on a bicycle?

FTX makes money by charging commissions on cryptocurrency trading, and much of its success is due to its expansion into other areas, including offering stocks and commodities through derivatives contracts. In developing the exchange, Bankman-Fried strove to embrace the spheres of traditional finance and cryptocurrencies.

“It is really important for me to have a really broad view of the crypto ecosystem and understand what is happening in every part of it in order to be able to serve it effectively and understand where the demand is,” he said.

This “we’re all together” approach has earned it acclaim from the DeFi and TradFi fields, because venture capital and institutional culture are often the exact opposite of the financial egalitarianism that DeFi advocates strive to achieve.

SushiSwap chef to sleep. : Sam Bankman-Fried

re is still a wide gulf between the two, Bankman-Fried said. Unsurprisingly, he highlighted the lack of regulation as one of the big problems facing institutional investors.

Despite this, DeFi money markets are increasingly attractive to venture capitalists who see the potential in their transparency and seize the opportunities. Currently, more than $ 95 billion clogged in the industry, compared to just under $ 1 billion last year.

But DeFi advocates fear that VC’s influence could damage the ecosystem.

A leading DeFi protocol, Composite, now has five venture capitalists accounting for 42% of its ownership of the token, at risk, according to some, of it being labeled a VC currency.

SushiSwap: on the hunt for VC

Fittingly, SushiSwap is one of the experimental Petri dishes to measure the impact of institutional investments in DeFi. On Proposal Attracting venture capitalists by offering them discounted SUSHI tokens would make it cheaper for them to lead the direction of the protocol. But the idea sparked a new controversy within the project community.

proposal suggests that around a quarter of SUSHI’s governance tokens should be sold at a 20-30% discount if buyers promise to lock their tokens for 18 months. So far, 21 investors, including Polychain, Dragonfly Capital, and Hashed, are on board for the $ 60 million sale.

Also Read Misconceptions About Bitcoin – Coindoo

VC money would add much-needed liquidity to the exchange, which fell from its peak of around $ 5.6 billion in mid-May to $ 3.2 billion today. Proponents of the proposal, including SBF, also argue that value chains can provide diversity and expertise.

“[SushiSwap] doesn’t have as many institutional sponsors at the moment as retail sponsors,” said SBF, adding that building its institutional base would be “quite valuable as a project.” exciting »VCs that« will really help you build your business and really fight for you «.

However, critics argue that such a move undermines protocol, makes it less democratic, and notes that SushiSwap has no shortage of cash.

“SushiSwap is, at least in part, a community founded on anti-VC sentiment […] there is still a lot of resistance.”

Sam Bankman-Fried

“SushiSwap is, at least in part, a community based on anti-VC sentiment. So I think there is still a lot of resistance, ”Bankman-Fried said. He called for a quick resolution of the impasse, with the risk that the proposal would end up “being such a great nuisance to the community – and a point of tension – that in the end it is not worth it.”

More transparency and more explanations

Venture capitalists can do their part to overcome the deadlock with DeFi communities by providing “more transparency and more explanation” about how they intend to add value, Bankman-Fried said.

He suggested that an Ask-me-anything (AMA) session “could help people have more clarity and confidence about which partners to choose” and noted that one fund event, Lightspeed Ventures, had some success.

“When you see funds try to do this and fail, this can be a decent sign that they may not know how they are going to add value,” he said.

But many DeFi products are not ready for this type of investment and, “frankly, they still have a long way to go before they make sense for institutional use,” he warned. User experience has been an area in which many projects have failed. User interfaces (UI) and performance were other areas that needed attention, he said.

DeFi Custody Issue

A key issue that concerns both regulators and institutional investors is the custody of digital assets. Buying, storing and using cryptocurrencies safely remains a complex ordeal for many.

Unlike SushiSwap, FTX offshoot Serum is a decentralized exchange (DEX) has no custody. And Bankman-Fried argues that custody of funds should be a key consideration for crypto projects.

“Part of this is giving up custody, which is very different in crypto than traditional finance to begin with, and it is very, very different in DeFi,” he said. “It’s something where people haven’t really worked out what their long-term plan will be.”

Custody issues are largely the reason that institutions, as they interact with DeFi, generally use crypto-native intermediaries, he said.

It was an interesting moment @EthCC. Several things are now much clearer to me:

Defi’s narrative was supposed to be my bank and I thought it still was. But this story is over. Defi will be mostly b2b, so the fintech company uses it in the background.

– Martin Krung (@martinkrung) July 22, 2021

trend towards DeFi becoming a business-to-business (B2B) sector was highlighted at the Ethereum Developers conference, EthCC, last week.

According to Bankman-Fried, achieving more practical participation could take much longer. “re is a lot of work that both parties have to do, particularly what DeFi has to do, to prepare for this and build the products that will work,” he said.

In May, a report by the Wharton School of the University of Pennsylvania, in collaboration with the World Economic Forum, found that the new sector was exposed to many risks.

“DeFi has the potential to transform global finance, but to date the business has focused on speculation, leverage and generating returns among the existing community of digital asset holders,” the report says.

“We still see a lot of pressure from institutions that are trying to get involved in cryptocurrencies, but it won’t happen tomorrow.”

Sam Bankman-Fried

“I think we still see a lot of pressure from institutions that are trying to get involved in cryptocurrencies, but it won’t happen tomorrow. I think it will happen in the next few years, ”Bankman-Fried said.

But the 29-year-old business mogul, who has a personal fortune of about $ 8 billion, is willing to help out. DeFi, he said, is part of the FTX journey: ” things we can do to help build the crypto ecosystem can help us too.”

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