Even though crypto was first created to break the old system, some visionary avant-gardes in classical finance have long realized its vast potential.
Note: ”classical finance” is a phrase adopted from the Chinese internet, where a traditional VC investor mocked the crypto industry and self-classified as “classical internet”. Since then, in the Chinese internet, “classical internet” refers to web2.0, while “classical finance” refers to the analog TradFi system.
In the capital of classical finance, Wall Street, the prevailing view on the crypto new world has been evolving from “What the hell is that?” to “Something interesting in this shit huh?” and then “Hmm, we must take this over!” Similar storylines happened many times in history and now in the crypto world: once they realized the unprecedented value and huge potential of the crypto new world, the old “financial aristocrats”, a.k.a. Wall Street, quickly started to expand their ruling to the new world. And such expansions were rarely carried out in a when-in-Rome-do-as-the-Romans-do manner. This is, of course, because they believe they are THE Romans, so they do whatever in their way in any place.
The primary base of such expansion is a small circle consisting of FTX, Solana, and the companies. Following the Wall Street naming tradition, let’s just call them “FTX, Solana & Co.”, just as “Goldman, Sachs & Co.” or “J.P. Morgan & Co.”.
FTX, Solana & Co. has essentially become the digital royalists in the new world. That is, they are trying to preserve the old world’s order in the crypto new world so that the old aristocrats can continue their ruling in the latter.
As you know, blockchain was born in the middle of the (classical) financial crisis. Since then, the ideal of the crypto world has been to create a brand-new financial system. This was the original motivation of Bitcoin—to create a cash system that is not manipulatable by a small circle, which is one of the defining features of classical finance. This idea of creating a new financial system has been further pushed forward by Ethereum, which brought us DeFi. DeFi has introduced a lot of innovative financial paradigms, such as the new lending model by Compound or the new trading paradigm by Uniswap. And DeFi has been evolving along this innovating path.
Nevertheless, the playbook of “FTX, Solana & Co.” was to preserve the old order so that they could play this new game just like how they had dominated the old one for many decades. Their efforts were mainly about continuing the old financial aristocrats’ ruling in the crypto new world. In history, we call such groups royalists.
Within FTX, Solana & Co., the FTX pillar is a centralized exchange. While centralized exchanges play a core role in the crypto world, they are not where native crypto activities actually take place. The blockchains are. Therefore, they took over a blockchain network, Solana, and transformed it into a base for their expansion. After being taken over by SBF, Solana’s primary mission became to continue the classical finance paradigms on a blockchain network. That is, Solana was to enable the financial (especially trading) activities to be carried out in the old manner, which was infeasible in other blockchains due to TPS constraint. They did not care too much about the network’s decentralization, robustness, or anti-censorship, which are usually the crypto community’s common concerns. Instead, their primary focus was the platform’s capability of supporting the old financial paradigm. Especially, an essential infrastructure on Solana, Serum, was built to facilitate an easy transfer of the old trading paradigm to Solana.
Another pillar of “FTX, Solana & Co.” is Jump Crypto, a subsidiary of Jump Trading, which is a legendary Wall Street high-frequency trading firm and typical old financial aristocrat. It is one of “the big boys who dominated the global equities and foreign exchanges markets and began allowing small internal outfits to experiment in trading crypto”, per Arthur Hayes’s article. The trading business on centralized crypto exchanges have already been dominated by these “big boys”. But as mentioned, native crypto activities actually take place on the blockchain networks, rather then centralized exchanges. So dominating centralized exchanges is not enough — they want to dominate the on-chain part too. These big boys can just join the new games on those crypto-native networks like Ethereum. (They have actually done that and probably still have certain advantages.) However, they found a much more straightforward approach — what if the new game can be played just the old way? That is where Solana came into the play.
A co-founder of a top trading dapp on Solana told me that initially they planned to build an AMM but then switched to an orderbook model per their investors’ request. This was a little bizarre because AMM vs. orderbook is supposedly a technical choice the team should make. Why were the investors involved so deeply that they even made the call on the team’s behalf? It all makes sense if you take a look at their investor panel. Their top investors are the typical old financial aristocrats from Wall Street, e.g., Jump, Wintermute, etc. One of the most important reasons for them to invest in this project is probably to make it a platform for them to play the old game, for which orderbook is preferred over AMM. (Read this article for a non-technical comparison between AMM and orderbook, which explains why the old aristocrats prefer orderbooks). This dapp was a very typical case of how the projects on Solana were built. Once in a meeting, I heard a crypto VC investor complained about the lack of original innovations in the Solana ecosystem. Considering Solana’s mission, that would not be so surprising. Solana was never built to inspire or support crypto-native innovations. Instead, it was built to provide high TPS so that the new games could be played the old way. (To be fair, that might not be the original motivation when Solana was first designed. It probably became so after SBF took it over to become part of “FTX, Solana & Co.”.)
With exchange, blockchain, and capital ready, FTX, Solana & Co. formed a small closed circle to push for their expansion of the old empire. Not many innovations were really needed here — they were mainly transforming the old stuff. When a business sector is not driven by innovations, it’s usually driven by capital. Naturally, Solana then became the hottest fund-raising place in the crypto industry. As innovation is not a major driving factor, whether a project can get sponsored or not is mainly determined by how much it can replicate the old system and how close they are connected to the inner circle. Folks with blue-blooded classical financial backgrounds are especially favored. With cash burning as the primary strategy, the old financial aristocrats quickly expanded their old empire to the new world. This “restoration” even caused a Wall-Street admiration in the new world, which was ironic considering the crypto technology was first created to break the old system. Please note that there is nothing wrong to adopt the valuable know-how and long-learned experiences from the old world to build the new world. (I myself do that too.) However, there is nothing to admire or worship either. As long as such admiration is still popular, the crypto world has not won its Independence War yet.
Now we all know what happened to FTX, Solana & Co. — the old financial aristocrats had a significant failure in the wild west of the new world. In the old world, they were harnessed and protected by the regulations, which were formed by decades of gaming at huge costs. When they are in the wild west of the new world, where such regulations do not exist, they totally screwed up. The FTX collapse represents Wall Street’s failure to expand to the new world. And that is not a bad thing. After all, the original motivation of the crypto movement was to break the old system and build a new one. If a group of digital royalists still rules the new world, you can’t expect many new things to happen, can you?