About the Author

The Index Coop is a decentralized autonomous organization (DAO) and the largest provider of on-chain structured decentralized finance (DeFi) products. 

For those of us building in decentralized finance (DeFi), the events of the last two weeks are singularly disheartening. Innocent users were harmed and in some cases lost their entire life savings. As the scope of fraud, negligence and malfeasance at FTX is revealed in court filings and leaked documents, the crisis has already undermined the credibility of our entire ecosystem.

It is a bitterly ironic turn of events, since the vision of DeFi is a financial system where what happened at FTX is not just improbable, but impossible. 

This loss of credibility is because the general public does not know that the misuse of user funds at FTX—where FTX apparently secretly transferred user funds to Alameda Research—would be impossible with a true on-chain decentralized protocol. Where FTX apparently concealed their insolvency with creative accounting, such opacity would be impossible on an open, immutable blockchain. It would be impossible for a true permissionless DeFi protocol to selectively discriminate against users as FTX did when the exchange transacted with Bahamian residents last week as it was collapsing. And, perhaps most importantly, where FTX users are facing the possible total loss of funds, such a calamity would be impossible for users of a self-custodied DeFi protocol.


This is not to say that DeFi in its current form is flawless. Smart contract risk, technical knowledge gaps and slow moving decentralized organizations all have their downsides. Meanwhile, some regulated, centralized entities have demonstrated that they can be valuable and trustworthy partners to DeFi.

The most pernicious situation then, is neither fully decentralized organizations nor fully centralized ones, but organizations that masquerade as DeFi while succumbing to the very tendencies that DeFi is designed to fix.

For that reason, it is essential that we clearly communicate the difference between DeFi and centralized finance. The DeFi community may know that FTX was not a DeFi project, but new users, mainstream media, regulators and politicians for the most part fail to make a distinction. 

We must make it clear that the failures of FTX are not just unlikely to afflict true DeFi, but that they would be impossible under the immutable, decentralized, transparent and permissionless nature of DeFi.

We also need to make DeFi more accessible. The collapse of FTX.com may impact up to a million customers, many of whom used the platform because it was easy and user-friendly. It’s up to us to build the dApps, wallets and educational materials that will make it easy and secure for these people to onboard into DeFi.


Many in our community are already making these points on Twitter and in crypto media. But we need to do more.

As we contend with potential regulatory interventions, recalcitrant investors and traumatized consumers, we need to communicate beyond Crypto Twitter. We need to reach out to traditional media, regulators, institutional partners and retail customers. We need to clearly explain that what we’re building is the answer—not just to the malfeasance at FTX, but to the whole history of financial fraud, exclusion, and consumer exploitation.

As painful as this moment is for everyone who cares about DeFi, it is also an opportunity to clarify who we are and what we stand for. DeFi must be understood and evaluated on the basis of its own merits. If we are indicted for the sins of centralized finance, then we have failed to differentiate our work and communicate its importance. Nothing less than the future of DeFi is at stake.

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