As details about the collapse of FTX continue to emerge, the core of its downfall stems from a murky, damaged market, according to one tech entrepreneur.
“It’s almost like the equivalent of the largest market maker, the largest bank, the largest exchange, and the largest hedge fund, all going down at the same time. So the Web3 and crypto capital markets seem like they are broken,” AVA Labs President John Wu said on “Cavuto: Coast to Coast.”
On Wednesday, cryptocurrency exchange FTX’s founder Sam Bankman-Fried was hit with a class-action lawsuit by investors claiming that he and other distinguished celebrities caused consumers to suffer over $11 billion in damages.
Terry Duffy, Sam Bankman-Fried, Christopher Edmonds, and Christopher Perkins testify before the House Agriculture Committee. (Tom Williams/CQ-Roll Call, Inc via Getty Images / Getty Images)
FTX, which at its peak was the third-largest cryptocurrency exchange, filed for Chapter 11 bankruptcy protections on Friday, and the company confirmed over the weekend that millions of dollars worth of assets are unaccounted for. The company’s founder, Sam Bankman-Fried, faces allegations that he secretly transferred $10 billion from FTX to Alameda Research, his hedge fund that also filed for bankruptcy.
John Wu argued that “the whole spirit of crypto is having transparency and everything [Bankman-Fried] did and everything FTX did was actually not in the ethos of the spirit of what crypto is about, which is transparency and also having less centralization.”
Thus far, investors have hobbled through the shocking collapse despite investors’ deep-rooted uncertainty about the future of the crypto world.
FTX’s downfall has drawn comparisons to previous financial crises such as Enron, Adelphia and Lehman Brothers – all of which left major scars on the financial world. Although the economic fallout from FTX’s collapse is nothing short of historic, Wu argues that the “sapping out of trust” in the crypto space will have an even worse impact on the market.
“It’s almost like the lessons of the past have not been learned. That’s not how you imbue trust in the system that’s going to start being repaired,” he continued.
Fox Busineess’ Eric Revell and Greg Norman contributed to this report