Blockchain and Digital Assets: Addressing the Elephant in the Room

Crypto's Roadblocks Uncovering the Role of Founders, Beyond Regulators

Crypto’s setback is not just due to regulators, but also founders.

Let’s get real for a moment. The prevailing narrative in the blockchain and digital asset industry has been that regulatory risk is the greatest threat we face. But hold on a second…that’s like saying a mosquito bite is more dangerous than swimming with sharks! It’s time to debunk this false notion, my fellow digital investors.

Over the past couple of years, we’ve witnessed regulators meandering at their own pace, navigating through the maze of rules and regulations. But while they do their thing, we must ramp up our efforts to educate and advocate for Web3 technology worldwide. However, here’s the thing: we can’t just ignore the elephant in the room—the dreaded founder risk. We can’t simply accept it as the norm in the crypto world. It’s time to face the music.

In the blink of an eye, some of the leading stars in our industry have transformed from celestial beings to snake oil salesmen. The list of implosions reads like a tragic comedy—FTX, Voyager, Mt. Gox, Quadriga…the list goes on and on, like a never-ending reel of misfortune. How did these platforms fail so spectacularly? And how did they manage to drag billions of dollars of client capital down with them?

Now, you might be thinking, “Hey, aren’t the regulators to blame for this mess?” Well, my friends, our industry loves to beat the drum about the lack of clear regulation when enforcement regulators come knocking. And yes, there’s truth to that about 90% of the time. However, exchange founders who ineptly handled or misused client assets can’t just throw their hands up and blame it on regulatory ambiguity. Nice try, but no cigar.

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Let’s take a step back and ponder a basic tenet of finance: assets should be segregated from where they are traded. The platform where you trade should not double as your asset custodian. That’s like asking your pet parrot to guard your pirate treasure. It’s a clear conflict of interest, my friends, and until we remedy this, we’ll continue to witness the vaporization of assets—poof! Gone into thin air.

But wait, there’s more. Did you know that most of the big shots in crypto boasted about their experience in traditional markets? They flaunted their Wall Street credentials like peacocks in a park. Well, here’s a dose of reality. In the traditional world of exchanges and trading firms, they don’t hold your precious assets on their order books. No, sir! When you want to trade Apple (AAPL) stock, you don’t just hand over your stock certificate to Nasdaq and say, “Hold my stock until the trade is settled.” That would be madness! Instead, reasonable folks understand that something could go wrong during that interim period. So, where do the assets sit? With trusted custodians like Bank of NY Mellon or Fidelity, while your broker stands by, ready to make the trade.

But alas, in the crypto conundrum, all centralized exchanges and brokers have fallen into the same trap—they insist on being both the trader and the asset custodian. In other words, they’ve mixed the potion of disaster, creating a toxic brew. Picture this: you transfer your assets to a centralized exchange, and suddenly you find yourself with a deceptively balanced account ledger, ready to make trades. But here’s the kicker—your assets are actually co-mingled with those of other traders, sitting helplessly in the exchange’s custody. Your assets are not securely segregated, and you have foolishly granted the power to move your hard-earned investments to the platform. Oh, and let’s not forget the fine print—the terms of service say you’re an unsecured creditor in case of bankruptcy. Congratulations, you’ve become an unwitting financial daredevil!

But hold on a second, my dear investors. It gets worse. If the exchange can move your assets, they can also abuse your trust. They can go wild behind the scenes, playing with your assets like a child in a toy store. You’ll be left in the dark, pondering the elusive whereabouts and fate of your beloved crypto treasures. At this point, I’m afraid you should be shaking your head in disbelief, muttering, “Shame on me for falling for this again!”

Now, before you start panicking and considering the risky path of self-custody, let me clarify something. There’s no such thing as true self-custody. You can’t be a custodian yourself, my friend. That role requires a non-conflicted third-party, holding assets as their primary purpose, like our dear friends at Fidelity. And let’s face it, most people don’t have the technical know-how or desire to manage self-custody wallets and seed phrases. Just look at the folks on national news, lamenting the loss of millions because they couldn’t figure it out. We need a middle ground, a solution that combines self-ownership with key recovery support, all wrapped up in a sharded database. It may sound complex, but take a deep breath, it’s not as daunting as it seems.

So, here’s the plan. When you interact with a trading venue, you go through a robust KYC/AML compliance onboarding process. Once completed, your assets go into a designated non-custodial wallet controlled by you, seamlessly connected to the exchange. You don’t face the risks associated with omnibus accounts that plague every other centralized venue. Your assets are safe, untouchable by the centralized party or any shady individual. Plus, going through this process means you’re demonstrating that you’re not a bad actor, and you’re trading with legitimate counterparts. It also sets a baseline, enabling potential recovery of your assets if you misplace your seed phrase. Genius, right?

Now, let’s talk about the path forward. Currently, the majority of online users reside in the Web 2 world, but we want to usher them into the wonders of Web3. It’s like leading a herd of digital sheep towards the promised land. It won’t be easy, my friends. But mark my words, this grand transition to decentralized, autonomous ownership of assets will go down as one of the most profound shifts in human history. We’ve hit the maximum capacity of people willing to embrace self-custody, so it’s time for a more nuanced solution. We need mass adoption without compromising security and protection against internal and founder risks at exchanges.

Remember, Rome wasn’t built in a day, and the financial markets of tomorrow won’t magically materialize overnight. But all our hard work and perseverance will be worth it. Let’s meet users in the middle, giving them the freedom to embrace innovation at their own pace, while also safeguarding their assets. This, my friends, is how we pave the way for mass adoption and ensure the survival of Web3 platforms.

So, buckle up, fellow digital investors! The future is coming, and it’s arriving faster than a cryptocurrency on a roller coaster. Let’s ride this wave of change, build trust, and usher in a new era of decentralized finance. Together, we’ll change the world—one block at a time.

Keep hodling and stay wacky, Your favorite Blockchain Guru

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