Crypto After FTX: An Excerpt From Our October Investor Update

I'd like to spend some time discussing what the collapse of Alameda and FTX means for the ecosystem, and for Conduit specifically.

1. Conduit has no direct or indirect exposure to Alameda, FTX or Genesis.

2. Moreover, our clients will not be able to deposit funds into any centralized lenders through Conduit. Due to the lack of transparency within CeFi, we have yet to find any centralized lenders that we are comfortable to make available to our clients; however, if the current Merkle tree efforts bear fruit, this could change. Once Conduit has been able to perform full due diligence on centralized lenders to understand their contagion risks, they will become available to our clients.

3. This is a failure of CeFi - centralized crypto - not DeFi, decentralized finance. Despite extreme market turbulence this year, DeFi actually performed as intended without fail. 

4. Our long view on crypto is that events like this weed out the bad actors and encourage more transparent operations in the future. We believe we are still early in the crypto cycle.

5. Clearly, this will bring more regulatory scrutiny on crypto. 

That can be positive for the industry, as long as two conditions are met: 

Regulators will learn and understand the difference between CeFi and DeFi, the possibilities and risks of each, and regulate them accordingly. Right now I think that understanding is lacking. This is why we believe it's important for us to create educational content that goes beyond the clickbait noise to help provide a perspective that legislators will hopefully see. 

The US in particular stops "regulation by selective enforcement" and instead focuses on introducing clear and sensible rules for the industry, that take into account all the different variations of crypto.

6. We are now in a market that has a clear choice not just between CeFi and DeFi, but in practice between a single centralized entity - Binance - and DeFi. With the fall of FTX, Binance dwarfs all centralized competitors combined, especially internationally. CeFi is not just centralized, it is effectively monopolized with Binance dominating the industry being over 8X larger than the second place exchange by volume, Coinbase. 

What does this all mean for Conduit? 

First, we firmly stand in the DeFi corner.

DeFi has proven itself resilient to market shocks, reliable in most adverse conditions, and has the potential to become the basis of a new financial system - whereas CeFi is prone to scams, Ponzi schemes, and at best is only replicating old financial trading products with new digital assets. 

DeFi however is not without shortcomings, the three most important are: 

1. Security. Perhaps the most famous problem with DeFi is hacking. But not all protocols have been hacked, and in fact the largest (and most tempting ones from a hacker's point of view) protocols like Compound, AAVE, Uniswap and many more have been operating without breaches for years, securing billions of dollars of users' funds. 

While Conduit is not a security company per se, we offer clients curated access to vetted DeFi protocols which we evaluate on security, compliance, and risk.

2. Accessibility. This is not a reference to UX, but instead, the hurdles people face when trying to access and use protocols today. Using DeFi is still extremely convoluted and cumbersome. We bring value to clients by enabling them to seamlessly move value using our API from fiat into wallets and to multiple verified protocols, integrating DeFi into their product experience.

3. Feature completeness. Most crucially, DeFi is lacking credit - a cornerstone of any financial system. Without it, all true DeFi protocols are forced to use an overcollateralized model which is limiting.

There are several companies working on bringing credit on-chain. We will partner with the most successful ones to fuel the adoption of new financial products to the unbanked and underbanked people in emerging markets where credit is needed.

Now, back to business.