FTX collapse to trigger structural change in crypto markets, away from centralization

The collapse of FTX last week will trigger significant market structure changes, namely moving away from a model of all-in-one platform centralization, crypto trading firm Cumberland said.

The various functions of crypto spot trading have been trending toward a model of all-in-one platform centralization, Cumberland’s Head of Trading Jonah Van Bourg said on Twitter today. Van Bourg was referring specifically to liquidity, clearing, settlement, custody and lending. These functions were “coalescing under a very limited number of roofs.” 

Centralized exchanges had many incentives for pushing this all-in-one model. Van Bourg said that, in hindsight, some of these were “perverse.” 

Last week’s developments — the collapse of FTX and its eventual chapter 11 filing — triggered a “handbrake turn,” Van Bourg said. He added that the crypto market structure seems likely to mirror foreign exchange markets. Assets and capital aren’t left on centralized exchanges in foreign exchange markets. 

Van Bourg said that various regulated entities should emerge in the next year to become trustworthy providers of various well-defined market services. 

Despite the turmoil, no relevant blockchain stopped processing blocks last week, Van Bourg noted, before concluding that “these industry-defining events are usually the predecessors of market recovery.”

Cumberland is the crypto arm of Chicago-based trading firm DRW.  

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