Much has been written about the fall of FTX leading to wild speculations about a contagion risk hiding in plain sight. Some of the big names on the venture capital list like Sino Capital, Sequoia capital, Genesis had stakes in FTX. While some of them have been honest enough to admit their mistakes, there are many players who have expressed their confidence in maintaining customer funds. But history has taught otherwise. Post the LUNA collapse, firms like 3AC and Celsius were caught in the contagion and went out of business. It’s important to keep a keen eye on the crypto market during these times and be aware of what’s happening. In today’s article, we will give a general overview of the market and Ethereum in specific.
Exchanges are obviously affected, especially centralized crypto exchanges. A nascent industry like crypto was expected to hit a few roadblocks. While losing investors money and trust is certainly not the way to go down, strangely, the FTX debacle has infused a sense of responsibility to all other serious players. As a way to regain trust, top exchanges in the world have come together to create a Merkle Tree Proof of Reserves.
The Merkle tree proof of reserve, named after its investor Ralph Merkle, is a cryptographic tool at the heart of all blockchain technology. It is touted as an attempt to boost the public confidence towards centralized exchanges and to douse their fears. Ideally it uses public wallet ownership with third party audits to prove that the centralized exchange has adequate assets to match their customer deposits. This enables the users to verify that their account balance is included in the attested proof shown by the exchange.
These balances are held by the exchanges in the form of merkle tree. This tree usually has a root that sums up the balances held across the accounts and gives an overview through which unique identification is possible. Consistency is of utmost importance here as any change in data will indicate that the assets have been altered in the merkle root.
From a price action perspective, Ethereum (ETH), the second largest crypto asset in the world, has succumbed to overall market sentiment stirred by a lot of external factors like US Fed rate hikes, Ukraine war, LUNA and FTX debacle etc. ETH is trading near $1080, down by more than 70% from its all-time high. Losing $1000 will be a crucial moment for investors and traders because of the inherent volatility it will create.
From a utilitarian perspective, ETH is poised to flip BTC in terms of market capitalization in the next bull run according to the majority of crypto industry observers. And, they are right in predicting so. Ethereum alone commands a total value locked (TVL) of $23 billion even at a market low. Most often, utility of a coin like ETH will not evaporate with the value of a coin. The fundamentals remain the same and there are real use cases that are on the development stage to be taken into mainstream.
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Disclaimer: This article was authored by Giottus Crypto Exchange as a part of a paid partnership with The News Minute. Crypto-asset or cryptocurrency investments are subject to market risks such as volatility and have no guaranteed returns. Please do your own research before investing and seek independent legal/financial advice if you are unsure about the investments.