Cryptocurrency exchanges keep failing, so why do we still trust Changpeng Zhao?

Cryptocurrency has faced more than its fair share of catastrophes, almost all of which looked like they could end or at least seriously impede the continued growth of the industry. However, despite numerous “teachable moments,” the social tier of cryptocurrencies refuses to learn its lesson and continues to place its trust in the hands of individuals rather than fully utilizing the technologies it claims to support.

Since the early days of the industry, cryptocurrencies have faced major blows at the hands of centralized players: Mt. Gox, which handled 70% of global Bitcoin transactions, lost track of 25,000 Bitcoin (BTC) in 2011. The biggest debacle recent with FTX is just the latest iteration of a long-standing pattern within cryptography. Just last year, we watched Earth implode and be wiped out like a Ponzi scheme. In the past, we have seen major exchanges unable to account for large sums of user deposits, as was the case in 2018 with Canadian exchange QuadrigaCX.

All of these incidents have caused a stir in mainstream news publications, working to erode cryptography’s public image and further instilling an air of mystery and heightened risk surrounding the technology. Ironically, adhering to the underlying ethos of cryptocurrencies would have avoided such catastrophes and concepts like “don’t trust, verify” along with permissionless and publicly visible blockchain scanners should have prevented centralized actors from being able to conduct clandestine operations and risk the client’s funds.

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Unfortunately, these centralized players often don’t follow the rules or core industry beliefs they claim to promote, and promote transparency without trust. Yet the social tier continued to show support and shower such actors with praise and reproach for anyone who dared question the project or the founder, such as the cult of Terraform Labs founder Do Kwon.

In the most recent development, it emerged in January that Binance USD (BUSD), the third-largest stablecoin by market capitalization, was under-collateralized by more than $1 billion at various times. BUSD is issued by Binance, one of the leading cryptocurrency exchanges in the industry, and serves as a trusted stablecoin across the BNB chain ecosystem. Despite BUSD’s prominence, the news mostly fell on deaf ears, with strangely few questions for Binance CEO Changpeng “CZ” Zhao.

Just as has happened many times in the past with centralized players, CZ has become widely accepted as a bona fide player in the space, allowing it to operate with little oversight from the public. While there is no reason to believe that CZ allowed BUSD to become under-collateralized for nefarious purposes, no one should be blameless, especially in matters that could pose an existential threat to the cryptocurrency industry as a whole. The collapse of the Terra-LUNA ecosystem in 2022 should be enough to clarify the potential fallout of a stablecoin that has not been adequately collateralized, and BUSD is used far more than TerraUSD (UST).

Despite CZ’s social standing, there’s no reason why he shouldn’t be held accountable or at least need to explain the discrepancy and offer solutions to avoid such an occurrence in the future. However, the social layer does not seem able to ask the hard questions or learn from past mistakes. This lack of oversight within the industry only provides fodder and further justification for regulators.

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Due to a lack of corporate due diligence, the future of cryptocurrencies is now increasingly in the hands of regulators. But it’s not too late to change. Regulators are coming, no doubt, but we still have time to temper their fervor by being more proactive and holding centralized actors accountable when there are discrepancies in their business practices.

Schemes resulting in the disappearance of billions of dollars overnight have pushed cryptocurrencies into the mountainous cliffs of overregulation. We have been influenced by the claims of scammers hiding behind cults of personality, like the ancient Greek sailors serenaded by sirens. We can still break free from their hypnosis and correct course to ensure that cryptocurrencies have a bright future where founders can experiment and try out new financial methodologies. But if we don’t hold our industry accountable, we are leaving the door wide open for overzealous regulators to set the bar for what is acceptable, which will almost certainly stifle progress and innovation.

Sam Formann is the founder of Sturdy, a DeFi lending protocol. He got hooked on cryptography in high school before studying math and computer science at Stanford. When not working at Sturdy, Sam practices Brazilian jiu-jitsu and cheers for the New York Giants.

This article is for general informational purposes only and is not intended to be and should not be relied upon as investment or legal advice. The views, thoughts and opinions expressed herein are those of the author alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

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