NASSAU, BAHAMAS — The potential failure of FTX represents a bump in the path of The Bahamas in its effort to establish itself as a major digital asset centre, according to a governance, risk, and compliance (GRC) expert yesterday.
Hubert Edwards, principal of Next Level Solutions said however that nothing about the development is anywhere near fatal.
“There should be no doubt that some reputational issues will emerge from this event,” he said.
“There will be jurisdictional pressures, both sovereign and supranational organizations. There will certainly likely to be those who seek to leverage the development to further their ongoing agendas and perpetual attacks.
“I maintain though that the vision for digital assets leadership remains viable and what is transpiring should be seen as a defining and refining of the options that are viable for pursuit,” said Edwards.
FTX, founded by Sam Bankman-Fried has warned of bankruptcy if it can’t secure funds to cover a shortfall of as much as $8 billion. On Wednesday rival exchange Binance abruptly backed out of a deal to acquire the company which has its headquarters in The Bahamas.
FTX’s downfall has sent shockwaves through the cryptocurrency market and the fate of its plans in The Bahamas remains in doubt. Bankman-Fried yesterday in a series of tweets apologized for the FTX’s liquidity crisis and collapse.
Edwards said: “Based on public reporting, being mindful that some may be speculative, FTX ran into a liquidity roadblock. That’s about the sum of the issue except that the foundations for such a roadblock has to be seen as being largely self-created with an operation seemingly lacking in sufficiently robust internal limits and triggers to protect liquidity. We are also mindful of the speed with which these assets themselves can become illiquid – having no buyers.”
He added: “Earlier this year we saw the spectacular failure of Terra Luna, the reputed stable coin that turned out to be an algorithmic- stable coin. In other words, while it should have been backed with real assets it was in fact being supported by complex mathematical calculation. The lesson was clear. There must be closer regulatory oversight. The once prevailing argument that crypto should remain generally unregulated is untenable.”
Edwards said that regulators and industry will need to work together to create a mechanism that consistently balances movements in value with “reserve requirements”.
He noted that the big question on the lips of many is what does this mean for the country.
“The reality is that what has transpired is a manifestation of the risk inherent in that sector without the necessary regulatory checks and balances,” Edwards said.
“I believe therefore that we should be focusing steadfastly on these incidents with a view of extracting lessons for making adjustments. Terra Luna delivered lessons on stable coins and by implication, the potential value of CBDCs [such as the sand dollar]. FTX is delivering lessons on settlement risks and the faults of a purely virtual assets business model.
“By implication, it should draw our attention to the value of NFTs, the underlying utility of blockchain technology, the value and utility of smart contracts, and its potential to redefine operational practices in the traditional finance and banking sectors.”
Edwards said that the idea that the crypto sector can continue to resist regulation at the current level is “yesterday’s discussion” and can no longer be tolerated.
“We should however be very careful not to seek to apply normal regulatory approaches that may destroy the business models,” he said
“The FTX story is an unfolding one. We should resist the temptation to draw hard conclusions in any direction at this point. We should be convinced that government, regulators, industry and committed minds, properly engaged, have the ability to find viable and profitable paths forward, consistent with the stated strategy.
Edwards added: “As a country, and certainly the task of regulators, is to observe, question, learn and shift our focus to be able to embrace and exploit these disruptive developments, seeking to leverage them for national gain.”
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