Crypto: FTX contagion offers ‘silver linings’ to de-fi participants, strategist says

Maple Finance Co-Founder and CEO Sid Powell joins Yahoo Finance Live to discuss the fallout of the FTX collapse and how it's impacted the crypto space for investors.

Video transcript

JARED BLIKRE: All right, now we want to bring in Sid Powell. He is the CEO and co-founder of Maple Finance. Sid, thank you for being with us here today. We've been talking to former prosecutors today. We were just listening to Ian McGinley talk. I'm just wondering, you're inside the industry for-- working for DeFi organization. What's your view of the situation right now?

SID POWELL: Yeah, it's a very good question. I think what we've seen inside the space, for those of us who are focused on building, particularly in DeFi, is bearish sentiment is abounding. So there's certainly heightened concerns about counterparty risk. This is not unique. This is impacting people across funds, as well as projects and startups. A lot of people are sitting in cash. But there is a general sentiment that it does prove out and highlight some of the differences between CeFi and DeFi. So there are some silver linings to what has happened, particularly for those working in the DeFi space.

JARED BLIKRE: Well, let's get into some of those silver-- excuse me-- silver linings, please.

SID POWELL: Yeah, for sure. So I think one of the aspects that was really a standout here was the lack of transparency that happened in the CeFi space, and in particular, in the FTX case. So we just heard a lawyer talking about how this was a straight case of basic embezzlement. And what has been highlighted in the contrast between CeFi and DeFi is that transparency is extremely important, as is one of the key benefits of DeFi being non-custodial holding of funds and smart contracts.

So a user always has control and custody of their funds. And I think that's something that people are paying more attention to now as they focus on these issues of counterparty risk. And we've seen more institutional focus on these types of products now and a renewed interest in DeFi as a result of this.

JARED BLIKRE: Let me ask you. The way the regulatory hammer has come down in the US, with all the attention now on SBF and with-- my view is-- and I was an early cheerleader of DeFi. But it looks like because of the regulations that have come down in the US, it's either going to be a game of regulatory arbitrage, or nobody's going to be playing the game. Where does DeFi go from here?

SID POWELL: I think that's a really good question because for the longest time, there was a view that DeFi sits outside regulation. But what you're seeing is that there are a number of teams who are trying to offer products and features of their products that are going to be regulatory compliant. You've seen the very first versions of DeFi generally set outside of things like KYC.

But what you've now seen is there are a number of what you call permissioned offerings, where projects and teams are looking to offer something that is compatible with AML or KYC regulation and laws. And that would allow institutions to participate in this space. So I think you'll continue to see this kind of bifurcation, where you have-- call it the original DeFi that is permissionless, and then you have the new form of DeFi, which is catering to institutions who do want to participate and do want to take advantage of the important infrastructure in rails that are being built in this space now.

JARED BLIKRE: While I have you here, we got time for one more-- Binance. The biggest-- the elephant in the room here, the biggest man or the biggest exchange standing, CZ has faced a barrage of interest in whether or not Binance can, in fact, hold up during all these customer withdrawals. We've seen their auditor withdraw the proof of reserves work. I'm just wondering, what does this mean for the industry, for crypto as a whole? And then Binance in particular, does Binance go in the end?

SID POWELL: I definitely couldn't make a call on whether Binance goes in the end. But I will say that anything that is a move towards more transparency is important for the space. I think people are pricing in the fact that Binance doesn't have audited financials, and there isn't as much transparency as you would say that there is for someone like Coinbase, who has, of course, public board of directors, audited financials. And so us sitting in the lending space, those things are immeasurably important these days, as everyone is focused on counterparty risk.

Binance, though, is a systemic risk in that if something were to happen, it would have shockwaves throughout the space, which would be as large as anything that happened with FTX. But I think at this stage, from what we've seen, they've been able to process redemptions and withdrawals OK. And so I think whilst people are being cautious, that's generally being seen as a positive sign by the market.

JARED BLIKRE: All right, we've got to leave it there, but really appreciate your insights into all of this. Sid Powell.