The FTX Saga & Implications
While FTX, valued at $32 billion just a few months ago, was spiraling down to bankruptcy in a matter of days, the exchange users suffered unthinkable financial losses and emotional stress. Concerns over FTX financial health and tweets between FTX and Binance CEOs triggered a massive selloff in FTX token (FTT) and billions of dollars in withdrawals from FTX. But many account holders soon found out that they were unable to withdraw their digital assets held in their FTX wallets due to a liquidity crunch. According to Reuters, FTX CEO quietly lent $10 billion of its customer funds to its affiliated company Alameda Research. FTX was unable to cover the sudden surge in customer withdrawals.
What made the matter even worse was that FTX’s own wallets got hacked that may have drained ~$600 million of customer funds estimated by FTX, soon after FTX and dozens of its affiliated companies filed bankruptcy in Delaware, leaving very little chance for FTX customers to recover their frozen then stolen assets. Learning about a top exchange misusing customer funds, freezing customer withdrawals, then losing more of customer funds shook the crypto industry to its core, which resulted in more FUD and a steep crypto market crash.
Custodial vs. Non-Custodial Wallets
While crypto investors, especially FTX customers, are beyond angry with this mismanaged exchange, we should not ignore the fundamental flaw in using a custodial wallet controlled by a centralized entity that holds the private key required to gain access to a customer’s digital assets.
Custodian wallets provide users with the convenience factor of not having to manage their private keys. However, custodian wallets are more vulnerable to financial losses when 3rd parties take control of the private keys. The FTX saga brought to light the question of who has “real ownership” of digital assets deposited by customers?
“Real ownership” means having full control of an asset at all times and being able to freely transfer the asset. When a user deposits assets into a custodial wallet controlled by a centralized exchange, the real ownership of the assets is transferred from the user to the exchange, which contradicts a core concept of Web3 — decentralization.
The alternative approach to managing digital assets is using a non-custodial wallet, which allows users to control their private keys. However, having a single user manage a wallet’s private key can be risky too, because that user might lose the private key or inadvertently expose the private key to hackers. For organizations and businesses, relying on a single user to manage the private key to access an entity’s assets lacks decentralization and creates a single point of failure.
Momentum Safe’s Multi-Signature Non-Custodial Wallet Solution
The optimal solution is to use a multi-signature non-custodial wallet that requires two or more private keys to sign and send a transaction, similar to accessing a safety deposit box in a bank’s vault by the box owner.
Momentum Safe’s multi-sig wallet solution (MSafe) eliminates single points of failure and reduces risks associated with having a single person authorize fund transfers, giving financial institutions, enterprises, and individuals peace of mind. Built on Aptos / Move, MSafe enhances security through its proprietary chain-level security system that passed the audit by multiple top-tier auditing firms. MSafe enables true decentralization that is missing in custodial wallets and single-signature non-custodial wallets but needed to prevent bad actors from transferring assets out of wallets.
Momentum Safe’s mission is to enable mass adoption of next-gen financial services by providing secure, decentralized & interoperable wallet solutions. Since launching on Aptos mainnet in Oct 2022 as the first multi-signature wallet solution in the Move-based ecosystem, Momentum Safe has rapidly gained traction with DeFI, NFT projects & marketplaces, DEX, Stablecoins, asset management developers and more.
What happened to FTX’s customer funds was very unfortunate. We cannot change what already happened in the past, but the Web3 community can move forward and adopt secure and decentralized wallet solutions such as MSafe. To learn more about how MSafe enables the masses to truly own their digital assets and securely manage their assets in various use cases, follow Momentum Safe at https://m-safe.io/ and join our community on Twitter and Discord.