Paolo Ardoino Talks FTX, Adoption And Self-Custody With NewsBTC
17 November 2022 - 10:03AM
NEWSBTC
What happened here was not a mistake; it is not that they were
hacked. They took several decisions to put at risk customer assets.
The crypto industry saw dark days over the past week. FTX, the
former second-largest exchange in the world, crumbled. The fallout
continues to ripple across the industry, with FTX-backed companies
filing for bankruptcy, users filing for lawsuits, and regulators
sharpening their claws. Related Reading: Tom Brady, Gisele
Bundchen And Sam Bankman-Fried Sued Over FTX Collapse In this
context, we sat with Paolo Ardoino, Chief Technical Officer (CTO)
for Tether and crypto exchange Bitfinex to get his opinion about
recent events. Paolo joined us from El Salvador, the first country
to make Bitcoin legal tender, a historical place for the nascent
asset class. Two major events in the industry’s history came
together from this location, the celebration of mainstream adoption
by a nation-state and the fall from grace of one of its golden
boys, Sam Bankman-Fried. Paolo gave his perspective on real
adoption in the Latin American Country, and the recent events that
ushered in the collapse of FTX. His message revolved around
education, self-custody, and the work ahead for crypto exchanges,
users, and all actors across the crypto space. This is what he told
us: Q: You were on the ground in El Savador, the first country to
make Bitcoin legal tender. Are people using Bitcoin for daily
payments? How do you see things down there in terms of
adoption? PA: So adoption, you know, so we see adoption in
among, first of all, commercials, and businesses. The adoption when
it comes to people and retail, the consumers, is still not
widespread. I think it’s normal. So is fully normal, you
know, thinking and pretending that after just one year, everyone in
the streets would use Bitcoin. That is super far-fetched. The usage
of Bitcoin comes with infrastructure, and building infrastructure
requires time, even when Europe moved from, you know, all the
different currencies of the different countries to one single
currency called Euro. It took several years up to six years to
prepare everyone for the passage. And that was, you know, a forced
passage to a single option that was Europe and is in El
Salvador. Bitcoin is being used as an option for dollars. So,
my point is that it will take several years in order to create
adoption, and that is completely normal. And the only thing we can
do is to keep building infrastructure and support and make the user
experience more seamless. Q: How are you guys contributing to
crypto adoption? PA: First, we have supported different educational
platforms like “Mi Primer Bitcoin.” We are working directly with
the government to try to set up courses at different levels from
universities and high schools for Bitcoin education, right?
We cannot pretend that adoption will happen by itself, it will
happen only when people understand why Bitcoin matters. We at
BitFinex are devoting resources. Well, of course, we devoted
resources when it came to, you know, helping the families affected
by the Pandemic or by the hurricane, but that is just the first
step. The important part is starting with all the educational
projects that we have, and so also we are kind of excited because
more and more with all the different things that will happen in the
next months. El Salvador will stay on the map and we will become
more prominent because there is also a securities law (to be
introduced) that will enable companies to raise capital and create
a securities tokens like you know, issue bonds issue or stocks and
raise capital through Bitcoin. So more and more so. The
infrastructure has to be at all levels, it cannot be just retail,
it cannot just be consumer, it cannot just be shops, (there has to
be) a full immersion of Bitcoin as a payment option as a capital
raise option for companies here. Q: Do you believe the last week,
with FTX collapsing, users losing millions on the platforms, and
regulators coming after the industry, will change anything for
crypto adoption? PA: Well, I think that the last week just
showed that there is a big difference between Bitcoin and
everything else. We have seen an exchange that actually devoted
itself to altcoins with some debatable approaches to the point
where they were actually managing these tokens to go bankrupt. The
sad, sad story is that many people had bitcoins on those exchange
and that exchange, and they thought they had Bitcoins on that
exchange, but now they realize they don’t have any more
Bitcoins. It shows the (importance) of holding your bitcoins
in your private wallet, right? So, not everyone can do that yet,
right? Because there is some user experience challenges because no
one is comfortable, and not everyone is comfortable to store its
own bitcoins privately, but I think that what happened is making
more and more the case of for companies to research in building
applications that can help the self custody of Bitcoins. And
again, as I said, (the FTX collapse) also showed the difference
between Bitcoin as more reliable, more secure, un-censorable money
network and the rest. The industry will learn that you know, you
cannot lend out other people’s money. You cannot use other people’s
money to buy stuff. And so on. What happened here was not a
mistake, it is not that they were hacked. They took several
decisions to put at risk customer assets. Q: What do you think will
come out of this debacle, if anything? The industry likes to
believe that it learned something from FTX’s mistakes, how do you
spot another future Sam Bankman-Fried as a bad actor? First of all,
if something is too good to be true, that is already a problem,
right? I mean, these guys were offering you know, things that all
the other exchanges were not offering to grow faster, but you know,
in the end really, it was too good to be true. I think that FTX was
always vocal against proof of work, and it was vocal against the
usage of cryptocurrencies, including stablecoins, for decentralized
finance (DeFi) or for interactions without intermediaries. So, they
were quite vocal in working with regulators to increase their grip
in our industry, in a sense that created some panic among the
industry. We understand that regulations will come and there is
some sort of need for it but we are now in a situation where we
risk over-regulation. Hence, we’re at risk of crippling the
industry, the potential, and the innovation that it can create.
Honestly, I’m talking to many people that are extremely pissed by
the fact that we took a three years step back. We are at the
same situation of the ICO (Initial Coin Offering) era. And we have
to put even more effort to regain the trust of the users and
educate them on how to properly keep their funds under their own
custody. So, really it is a complex process that requires energy
that should be better invested in Bitcoin adoption. Yet we have to
fight the fight to show that not everyone in the space is the same
(as Sam Bankman-Fried). There are bad actors and good actors. Q:
Tether was one of the first to freeze FTX funds. How do you work
with authorities to make that decision? Were there any red signals
about FTX, Sam, and Alameda before their collapse influencing the
decision? PA: We (Tether) received a law enforcement request. You
might have seen later on also the SCB, the security commission of
Bahamas, issued a statement that was connected to our freezing
process. We get contacted by law enforcement and we have to act,
keep in mind that Tether is a centralized stablecoin. Because
although it uses the decentralized transport layer is a centralized
stablecoin. We have to comply with the requirements of law
enforcement. And honestly, I was pleased that we were extremely
quick to act to save a little bit of money of users. Because, you
know, after they went bankrupt they were also hacked. So, it’s
putting oil on the fire. Q: In the wake of FTX, there are reports
about massive crypto withdrawals from exchanges; Bloomberg reported
over $3 billion in the past week alone. Is Bitfinex prepared to
deal with a bank run? And in that sense, will the FTX incident
force all major exchanges to adopt some proof of reserve mechanism
and become more accountable to users? PA: Absolutely. So with
BitFinex, we released the proof of reserves that shows that
BitFinex has around $7.5 to $8 billion in custody on the platform.
So that, you know, for us is important to show to the jury. Just
let me take a step back of those assets. The majority is in Bitcoin
and Ethereum, it is not some sort of vaporware coins that you
create. So that to us is quite important because shows that
BitFinex probably has the second biggest wallet in the world. We
have the funds that we are supposed to have under our
custody. We showed the proof of reserves and also we
published or republished a project that we have been working for
some time. Called “Antani”, it is an open source library that
allows us to publish a proof of liabilities, because with proof of
reserves, you don’t have the full picture. You also need the proof
of liabilities. But in general, a good message would be that
exchanges should teach their users to keep custody of your own
tokens on exchanges. 50% of the assets deposited on exchanges,
probably more but to be safe, is not used for trading.
Exchanges should be used for trading, they should not be your
custodians. You should have a Ledger Wallet. You should have a
multi-SIG, you should try to do your own setup, and that’s what
exchanges should teach. I represent an exchange. And I believe that
people should learn more about self-custody. Q: Finally, Paolo,
where do you think the industry will be in 2023 and 2033? Was the
collapse of FTX, as some called it, part of the industry’s “growing
pains”? What changes need to be implemented to take the next step
forward in adoption? PA: The industry has to mature. In one way or
the other, it will need to mature and I think that the work that we
are doing at BitFinex is actually going in that direction; to try
to lead the way in this maturing process. We are providing
the tools, our mission is to (help) companies and even governments,
like what we are doing elsewhere with the traditional financial
system right we want to create more options for people and
governments to access capital. And we want to reinforce our focus
on Bitcoin. Of course, we are an exchange we have to provide
options, but in our heart is Bitcoin. We will always keep Bitcoin
as our priority. More and more BitFinex will be considered the
place to go if you want to you know interact with Bitcoin, learn
about Bitcoin, learn about financial inclusions, and to educate
yourself. Related Reading: Bitcoin 7-Day Volatility Comes Alive As
FTX Collapse Shakes Market
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