Ripple’s CTO says an important lesson from FTX’s collapse “will not be learned”

A Ripple executive says there is an important lesson to be learned from the collapse of crypto-currency exchange FTX, and he can say with complete confidence that it will not be learned. The executive added: “Regulation that punishes after the fact will not catch it. Nor will investor due diligence.“

There are a few lessons that should be learned from the FTX fiasco, but there’s one important lesson that is really pretty obvious in retrospect and that I can say with total confidence will not be learned. 1/4

– David “JoelKatz” Schwartz (@JoelKatz) November 22, 2022

A lesson from the FTX collapse that will not be learned

Ripple Labs CTO David Schwartz shared his thoughts on the collapse of crypto-currency exchange FTX in a series of tweets Monday. FTX filed for Chapter 11 bankruptcy protection on November 11.

While noting that several lessons must be learned from the FTX fiasco, the Ripple executive said:

There is one important lesson that is really quite obvious in retrospect that I can say with complete confidence will not be learned.

He explained, “If you hold billions of dollars of other people’s money for indefinite periods of time, the temptation to speculate with those funds is irresistible; if there are no verifiable controls that make such risk-taking virtually impossible, nothing else will do.“

Schwartz emphasized:

Regulation that punishes after the fact will not detect the problem. Nor will investor due diligence. Of course, many people will say that this could be, and probably is, happening, but they will be rebuffed with accusations of confusing or upsetting a system that makes people money.

“This kind of thing will always happen, unless it is impossible“, he stressed. “The temptation is irresistible. It is one of the most important lessons of FTX. But most people will actively choose not to learn this lesson because of, among other things, the elephant in the room.“

Regulation that punishes after the fact won’t catch it. Investor due diligence won’t either. Of course, many people will say that it could be, and likely is, happening, but they’ll be shouted down by accusations of sowing FUD or upsetting a system that is making people money. 3/4

– David “JoelKatz” Schwartz (@JoelKatz) November 22, 2022

FTX is currently under investigation by a number of authorities around the world. In the United States, the Department of Justice (DOJ), the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) are investigating the exchange for allegedly mishandling customer funds, among other charges. Turkey’s financial intelligence unit has also launched an investigation into FTX and the Bahamas securities regulator has attempted to seize FTX’s crypto-currencies.

This kind of thing will always happen unless it cannot happen. The temptation is irresistable. That is one of the most important lessons of FTX. But most people will actively choose not to learn this lesson because of, among other things, the telephant in the room. 4/4

– David “JoelKatz” Schwartz (@JoelKatz) November 22, 2022

Ripple Labs is currently engaged in a lengthy lawsuit with the SEC. The securities regulator has sued the company, its CEO Brad Garlinghouse and co-founder Chris Larsen over the sale of shares of Ripple Labs. XRP, claiming that the crypto-currency token is a security. Garlinghouse expects a response in the first half of 2023. Ripple’s CEO recently said that the crypto-currency industry will be stronger after the FTX fiasco if we continue to focus on transparency and trust.