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Vitalik: FTX is ‘a huge tragedy’ that offers lessons to crypto community

By Raphael Sanis

Edited by Charlie Mellor

11:22, 21 November 2022

Vitalik Buterin speaking at a conference
Vitalik Buterin advised exchanges to record proof of reserves on-chain – Photo: Getty Images

The co-founder of Ethereum (ETH) Vitalik Buterin has laid out his plans for a crypto landscape in a post FTX world.

Buterin said the bankruptcy of the FTX cryptocurrency exchange had validated community concerns that centralisation is a “default suspect” and there are lessons to be learnt.

In a recent Bloomberg interview, the ETH co-founder said these lessons included trusting “open and transparent code above individual humans”.

However, Buterin reaffirmed his belief in the stability of blockchain technology despite acknowledging the demise of FTX.


Buterin’s CEX guide

As Buterin hoped the crypto world can learn and move on from this, he published a blog post discussing the future of centralised exchanges (CEX) on 19 November.

He said: “Every time a major centralised exchange blows up, a common question that comes up is whether or not we can use cryptographic techniques to solve the problem.”


67,387.45 Price
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Short position overnight fee 0.0069%
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-0.300% 1D Chg, %
Long position overnight fee -0.0616%
Short position overnight fee 0.0137%
Overnight fee time 21:00 (UTC)
Spread 6.00

Buterin argued CEXs could use cryptographic proof of reserves, rather than relying on centralised parties like auditors or government licenses. He added:

“Even more ambitiously, an exchange could build a system where it can’t withdraw a depositor’s funds at all without their consent. Potentially, we could explore the entire spectrum between the ‘don’t be evil’ aspiring-good-guy CEX and the ‘can’t be evil’.”

These suggestions from Buterin follow FTX and its founder Sam Bankman-Fried being accused of funnelling consumer funds to the Alameda Research trading firm and financing allegedly “risky bets”, according to The Wall Street Journal.

A liquidity crunch eventually occurred where consumers were unable to withdraw their own funds, which ultimately led to FTX’s downfall.

The FTX backlash

Buterin is not the only industry figure to publicly criticise FTX. The Binance CEO Changpeng Zhao took to Twitter at the beginning of the exchange’s crisis.

In reference to the events that led to FTX’s downfall, Zhao advised exchanges to not “borrow if you run a crypto business” and “never use a token you created as collateral”.

Meanwhile, Brian Armstrong, the CEO and co-founder of Coinbase, said: “This event appears to be the result of risky business practices, including conflicts of interest between deeply intertwined entities, and mis-use of customer funds (lending user assets).”

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Ethereum / USD
3490.21 USD
-10.35 -0.300%

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The difference between trading assets and CFDs
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.
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