Cumberland: FTX collapse to trigger structural change in crypto markets, away from centralization

Quick Take

  • Cumberland’s Jonah Van Bourg said FTX’s collapse will trigger calls for significant changes in crypto markets.  
  • Van Bourg also said that industry-defining events usually come before market recovery.

The collapse of FTX last week will trigger significant market structure changes, namely moving away from a model of all-in-one platform centralization, crypto trading firm Cumberland said.

The various functions of crypto spot trading have been trending toward a model of all-in-one platform centralization, Cumberland's Head of Trading Jonah Van Bourg said on Twitter today. Van Bourg was referring specifically to liquidity, clearing, settlement, custody and lending. These functions were "coalescing under a very limited number of roofs." 

Centralized exchanges had many incentives for pushing this all-in-one model. Van Bourg said that, in hindsight, some of these were "perverse." 

Last week's developments — the collapse of FTX and its eventual chapter 11 filing — triggered a "handbrake turn," Van Bourg said. He added that the crypto market structure seems likely to mirror foreign exchange markets. Assets and capital aren't left on centralized exchanges in foreign exchange markets. 

"Instead, digital assets will reside in countless silos around the world and the functions of custody, lending, settlement, clearing, and [most importantly] liquidity will be offered by an array of intermediary nodes and providers in an interconnected but non-interdependent web."
Van Bourg said that various regulated entities should emerge in the next year to become trustworthy providers of various well-defined market services. 

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Despite the turmoil, no relevant blockchain stopped processing blocks last week, Van Bourg noted, before concluding that "these industry-defining events are usually the predecessors of market recovery."
Cumberland is the crypto arm of Chicago-based trading firm DRW.  

Disclaimer: The former CEO and majority shareholder of The Block has disclosed a series of loans from former FTX and Alameda founder Sam Bankman-Fried.

© 2023 The Block. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

About Author

Adam Morgan is a reporter covering cryptocurrency, financial markets, and economics – anything from price movements, earnings reports, and inflation to the U.S. Federal Reserve interest rate decisions and everything in between. Adam is based in London.


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