DeFi after the collapse of FTX
FTX, the largest centralized exchange for trading cryptos, collapsed in November 2022 after a liquidity crisis. FTX’s token, FTT, lost 90% of its value over 10 days. It started with a company balance sheet being leaked, which triggered mass withdrawal by its customers. This led to the bankruptcy of the company. The collapse of FTX sent shockwaves through the financial industry; it exposed the vulnerability of the crypto market and DeFi and raised questions about the stability of the entire crypto market.
FTX’s business model and inadequacy in governance and transparency are the direct reasons why the company fell. Several factors contributed to the collapse of FTX. One is directly related to the overall crypto market sentiment during the crypto winter in 2022. A lack of confidence in cryptocurrencies made it difficult for FTX to raise capital. Another factor was the company’s close ties to Alameda Research, a crypto trading firm...