Bankman-Fried awaits sentencing, but the blockchain scene is already doing time


Opinion: Sam Bankman-Fried is an albatross around the neck of blockchain entrepreneurs – and that’s a problem.
Sam Bankman Fried
UNITED STATES – DECEMBER 8: Sam Bankman-Fried, founder and CEO of FTX, testifies during the House Financial Services Committee hearing titled Digital Assets and the Future of Finance: Understanding the Challenges and Benefits of Financial Innovation in the United States, in Rayburn Building on Wednesday, December 8, 2021. (Photo By Tom Williams/CQ-Roll Call, Inc via Getty Images)

In the end, it was mercifully quick for Sam Bankman-Fried.

After an excruciating six week trial in which Sam Bankman-Fried managed to pick a fight with his own defence team and admitted calling his customers ‘dumb mother f*****s’, the FTX founder was found guilty of fraud after less than five hours of jury deliberation.

My overwhelming feeling is one of weary relief rather than celebration.

Yes, the end of Bankman-Fried’s trial draws a line under his involvement in digital assets. But FTX remains an albatross around crypto’s neck.

If Bankman-Fried just humiliated himself, it wouldn’t be so bad. But he didn’t.

By association, he embarrassed a cavalcade of powerful politicians, regulators, celebs and investors. The only person not taken in, it seems, was Taylor Swift.

As one Aussie venture capital fund said at the time, ‘FTX made the whole industry look silly’. No-one likes being duped and that is a fraudster’s main schtick.

So, how big are the implications for Australia’s blockchain scene? The most pressing problem is that societies overcorrect.

Thirty years ago, science journals were full of articles about the AI Winter. Today it’s the turn of blockchain.

Critics have jumped on their high horses. National banks that were queuing-up to release retail digital asset products have quietly shelved their plans.

Rumours run amok within the industry of Australian blockchain start-ups being denied basic banking services.

Not all of this is on Sam Bankman-Fried of course.

At times the crypto industry wanted to walk an impossible path between becoming establishment and remaining iconoclast. But FTX has had a particularly pernicious impact.

Counterfactuals are hard to prove. But Australian adoption of digital assets grew by 2% in the last 12 months.

Sure, it is still growth. But it is 50% slower growth than it was pre-FTX.

By this time next year, we are likely to be where we should have been today with around 5.5 million Aussies owning digital assets. A quarter of the population.

Meanwhile, VC funding is down 63% from levels immediately prior to FTX’s collapse. Bankman-Fried has led to a lost year of investment.

What is the significance of 12 months? Perhaps the best way to answer that is to look at the current scale of Australia’s economic challenge.

The country’s average productivity growth is today at 60-year lows. Threatening real wages and overall living standards.

Our finance industry is at the back of the class, recording a greater than four per cent fall in labour productivity growth. No other sector fares worse.

No-one wants to hear it at the moment, but Web3 entrepreneurs are a big part of the solution. Blockchain has enormous near-term potential to disintermediate functions in finance like trade settlement and processing by using native crypto projects like Polygon.

Siemens has already trialled the issuance of corporate bonds using blockchain tech. HSBC has piloted the distribution of structured products via digital ledgers and it’s tokenised the gold in its vaults.

JP Morgan has turned shares in one of its money market funds into digital tokens. The business is also exploring the use of digital deposit tokens to accelerate cross-border settlements.

Longer term, we expect to see finance migrate to new blockchain infrastructures – especially in securities – if regulators are satisfied it can be done fairly.

Less sexy, but still important, Aussie blockchain entrepreneurs can improve national productivity by supporting GST compliance, retail payments, international remittance, supply chains and record keeping. All of which is a roundabout way of saying that a lost year is important.

I fully accept that elements of the blockchain industry need to grow up. There are otherwise extraordinary projects in the ecosystem that still can’t get the basics right in areas like issuance and governance.

Rendering them essentially un-investable by traditional finance. If the sector wants to achieve mass adoption, it needs to embrace the rule-based system and deal with insidious issues like scams.

At some point though, the fundamentals have to matter. Australia is host to serious blockchain entrepreneurs quietly innovating across areas including disintermediation, payment gateways, gaming, custody, smart contracts, software development, Web3 crowdfunding and tokenisation.

It also has a well-established retail sector served by local exchanges like Swyftx that operate to globally high standards. The Tech Council of Australia estimates the country could add up to $60bn a year to annual GDP by 2030 if it supports a responsible, regulated blockchain sector.

We’ve overcorrected. It’s time to make up for lost time and support our blockchain entrepreneurs and founders.

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Jason Titman is Chief Operating Officer at Australian cryptocurrency exchange Swyftx. He is also a Non Executive Director at ASX-listed fintech, Findi, and at US-based ecommerce platform, Reshop.

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