Purported as one of the most credible operators within the digital finance world, FTX’s ascendancy looked like something dreamed up by a Hollywood film producer. The third largest crypto exchange’s worth, at the height of its success, had a dizzying amount of zeros before the decimal point. Its dagger sharp fall over the past fortnight has not been any less dramatic. Where and how it went wrong can be gleaned from all manner of news articles on the topic. What we are keen to analyse here are the implications that this will have on blockchain-based functionalities in the metaverse and Web 3.0.
What the FTX scandal means for applications on the blockchain
The collapse of FTX and the ensuing fallout across the cryptocurrency market has shown the fragility of business models that rely too heavily on cryptocurrency and token pricing to attract and retain users. Not only has investment fallen, applications, metaverse worlds and blockchain games studios have seen a cataclysmic drop in the valuation of their tokens as a result of the bankruptcy of one of the market’s biggest exchanges. They will surely feel the sting as users back away from ecosystems whose value hinged on the economic potential of earned or traded digital assets. Add to this the catastrophic PR ensuing from the knavery engaged in by one of the sector’s most trusted institutions, followed by the loss of billions of dollars in value from an industry which is still widely seen as having little intrinsic worth, no regulation and whose business models revolve around little other than speculation, and it’s clear to see the serious predicament the sector has been left in, especially regarding the attraction of new users.
In its totality, the financial chaos, bad form and volatility of FTX’s crash will have left a bad taste in the mouths of any future investors. It has broken already waning trust in the cryptocurrency industry and possibly impacted the development of Web 3.0.
Where does blockchain go from here?
As bruising as the scandal surrounding FTX has been to the cryptocurrency world, it is worth holding on to the fact that the blockchain technology it sits upon is not to blame. It is quite the contrary, as its very purpose is to disintermediate the centralised banking institutions that take a cut out of every transaction and to make each fiscal interaction transparent. The system is constructed to be open and trustworthy. Its functionality is also not limited to cryptocurrency alone even though this is what has taken up more of the headlines. There are smart contracts that are written on blockchain to protect ownership of assets and tokens created with accompanying rules to incentivise open source contributors. In the creative industry, artists can secure full rights to their digital creations and even go on to earn from re-sales. Not only that, the blockchain has largely been embraced as the de facto infrastructure for the metaverse. This is because it provides a powerful framework for decentralised economies. Such functionality has already been used to underpin play-to-earn games and NFT based creator economies, driving the growth of Web 3.0 in the public consciousness. Beyond this, the blockchain is seen as a means for overcoming the challenge of interoperability and unified identity across apps and virtual worlds, and thus as a means of bringing a true, equitable and open metaverse into fruition.
FTX may be gone but Web 3.0 advances onwards
While the reverberations of the FTX scandal will continue to be felt and have certainly left a negative impact on attitudes to investment in cryptocurrencies, given time, these attitudes will change. The clearest signal that the fallout has made is the urgent need for regulation and this will also be a catalyst for the change in attitudes. The removal of FTX as a major actor may also create room for new players with innovative practices and business models that will move the industry forward. There has already been a noticeable shift in investment from CEX to DEX. Ultimately, it isn’t only regulation that will revive the cryptocurrency industry but also the fact that it has to serve a need. In this vein, we may find that the Metaverse will give it a renewed lease of life — a purpose built ecosystem where it will fuel the economic central nervous system. For its part, the application of blockchain as well the advancement of Web 3.0 offer far too many benefits — decentralisation, transparency, interoperability, ownership, composability, to name a few — that creators, developers and brands are looking for to be held back.
For those looking to set up a successful enterprise within Web 3.0, Hadean is ready to provide a proven, trusted and secure metaverse infrastructure platform to help you build, run and monetise it. We are working with and looking for new partners who want to join us in fulfilling the true potential of extended reality. A metaverse that will do away with ‘back-doors’ and untrustworthy practices and will instead be an open, secure and accessible space that adds to our understanding, development and evolution.