The crisis and reconstruction of the cryptocurrency industry: Embrace the new!

Author: john, ChainCatcher

1. Destruction and Cycles

Throughout history, "twists and turns forward" is almost a fundamental law of development, and this law is currently frequently "manifesting" in the 10-year-old "crypto industry."

In 2022, the FTX collapse triggered a series of secondary disasters.

In 2018, Fcoin went bankrupt, leading to a deep bear market in crypto.

In 2014, the Mt. Gox incident remains an unsolved case to this day.

On the surface, there is a four-year cycle, but in reality, each crisis forces the industry to reach new heights.

After the Mt. Gox incident, people began to explore more diversified security solutions, during which Ethereum, known as the world's computer, was born as a smart contract public chain, further expanding the horizons and imaginations of crypto enthusiasts; during the deep bear market following the Fcoin collapse, a large number of "gold diggers" were filtered out by the market, leaving behind those truly interested in crypto, providing necessary conditions for the rise of DeFi, NFTs, and even Web3, and this time will be no exception.

2. Rescue and Rebirth

Looking back at the timeline of the FTX collapse, the rescue movement initially focused on FTX itself but escalated to the level of industry trust.

After the crisis occurred, investors began a "withdrawal movement." To reassure users, leading CEXs like OKX and Binance were among the first to publicly share their auditable Merkle tree proof of reserves (a common asset auditing method) to demonstrate whether their funds were sufficient, but the asset composition of each reserve was intriguing. According to the analysis of total reserve proofs from some exchanges detected by the knowledge graph protocol 0xScope, exchanges like HuobiGlobal, Bitfinex, and Crypto.com had a high proportion of platform tokens in their total reserves, while in Crypto.com's reserve composition, the proportion of the meme coin SHIB reached as high as 20%.

Overall, among various CEXs, Binance had the highest total reserves, but its asset composition also had a significant proportion of platform token BNB and stablecoin BUSD, raising doubts from the outside. In contrast, OKX, which shares a leading position with Binance, primarily holds Bitcoin, Ethereum, and stablecoins, presenting a healthier composition.

In the crisis triggered by FTX, the usually low-profile OKX received widespread praise compared to the "social butterfly" Binance and the "internet celebrity" Huobi. Many industry practitioners stated, "In our crypto industry, wealth and myths are fleeting; longevity is the true king. We hope OKX continues to remain low-key and move forward steadily."

Currently, CEXs like OKX, Kraken, BitMEX, Binance, and Gate.io have begun to support user asset verification functions, and users' trust in CEXs is being rebuilt.

Taking the low-profile OKX as an example, the platform announced this Wednesday the official launch of proof of reserves (POR), allowing all users to independently check OKX's on-chain wallet address assets and total assets within the Merkle tree on the official website, thereby verifying their asset reserve situation. Additionally, according to a tweet from its CMO Haider, OKX will soon introduce more advanced verification methods for institutional users, encouraging willing and capable institutional users to adopt wallet mechanisms like threshold signatures for independent wallet management, truly handing over asset control to users and maximizing the separation of asset control rights.

Currently, no CEX has truly achieved the separation of asset control rights. If realized, it would be a milestone "leap" for the entire crypto industry.

OKX seems to understand this well, stating, "Our foundation is as a technology company, and our team is deeply driven by the original spirit of Bitcoin. CEX is actually the most mature application scenario in the crypto network; its essence is to facilitate order matching between buyers and sellers, providing reliable and secure technology and services, and offering an entry point into the Web3 world at the right moment, rather than anything else. With so many temptations in the industry, maintaining 'mindfulness' is crucial." Product head Jack told ChainCatcher that OKX's upcoming focus will be to maximize the transparency of industry funds, rebuild industry confidence, and accompany users into a new cycle.

Objectively speaking, as the most mature application in the industry, it may also be the key entry point for people into the Web3 world. The issues faced by CEXs need to be viewed dialectically; after all, compared to the hundreds of years of history in traditional finance, the innovation and practice of crypto technology in the financial realm is only in its tenth year, which is already considered extraordinary and deserves some space for trust.

Currently, in addition to rebuilding user trust through enhanced fund transparency, leading CEXs like OKX and Binance have also initiated some industry recovery plans. Binance has launched a recovery fund, while OKX has a more targeted approach, primarily launching a $100 million project ecosystem support plan in conjunction with its self-developed public chain OKC, focusing on supporting the Solana public chain, which has been significantly impacted by the FTX collapse, helping these quality project parties to migrate smoothly while providing support in terms of ecosystem, technology, and liquidity to eligible project parties. According to a CEX practitioner, these leading CEXs may have more plans to restore industry confidence in the future.

Of course, the aftershocks of FTX are still ongoing, and many investment institutions, projects, public chains, and even competitors closely related to it are still in a state of being implicated. However, there is no need for excessive worry; the market law of survival of the fittest is directly helping crypto users filter risks while selecting "players" with strong risk resistance.

3. Behind the Trust Crisis, There Should Be Collective Reflection and Progress

In fact, since the FTX collapse, there has been a surge of opinion that DEXs are more trustworthy, but is this really the case? The answer is unknown, but it is clear that CEXs and DEXs are not in a binary opposition; on the contrary, they are harmonious yet different, each with its strengths, which seems to be the starting point for Vitalik to provide a reference solution for building trust in CEXs.

Whether it is the downfall of FTX or previous events, these issues do not lead us to deny anyone or support anyone; rather, they help investors and practitioners to more clearly understand the essence and value of CEXs, without being misled by the wealth effect. At its core, the crisis of CEXs is a crisis of the industry; what lies behind the industry crisis? This is a question worth collective exploration and reflection, and it is also a prerequisite for the crypto market and Web3 industry to move towards "rebirth."

To quote a senior practitioner, our industry looks like finance from a distance, law up close, and conscience upon closer inspection.