Evisceration of Trust
Can we trust each other?
It’s one of the fundamental questions that, after the still unbelievable demise of FTX, our industry is struggling to answer.
No, we can’t.
Trust is an incredible accelerant and it’s formed at many layers. Historically, the legal system has formed the bedrock of trust among large societies. It’s one of the greatest social inventions we’ve conjured as a species, creating a coordination layer that’s enabled commerce and growth to exist at the scale we see today. However, as we’ve often discussed, it requires a long, arduous and subjective process that doesn’t prevent violation, but rather penalizes infractions after the fact (in a long, painful way for the aggrieved).
Over the last decade, our industry has worked to introduce a more objective, scalable, global mode of trust. By enforcing contracts cryptographically, we’ve enabled coordination among strangers on opposite sides of the world with a complete delegation of trust to the blockchains processing their transactions. Self-enforcing programs help reduce the need for trust at higher layers and eliminate tail risk events that could result from default.
Arguably still, the most important layer of trust lies in the social contract. Religion, culture, historical context have combined over time to help us create a highly flexible, scaled model of trust. American business culture actually does pretty well at this level. There’s a general understanding of good-faith business, a positive sum mindset, and an assumption of mutual economic reward as a result of cooperation. As opposed to low-trust cultures, this does really great things for the pace of business, capital availability, and general social happiness.
FTX’s alleged misconduct would likely have been seen as fraud 100 years ago. The fact that it’s surfaced in an industry predicated on abstracting trust is a cruel trick. Folks across many walks of life are hurt. A false messiah captivated an audience broader and larger than others in our industry ever have before. Faith in institutions across society has continued to falter, and crypto institutions are no exception. Maybe now more than ever, there’s a great collective pressure to build stronger, faster trust layers. In an environment of degrading social trust, crypto and abstractions of trust are more relevant than ever.
Even still, the negative consequences of the dissolution of trust bear heavily on our industry, and in my opinion, greatly outweigh the positives. Low trust slows innovation and progress dramatically. Crypto infrastructure is still young, the capital environment is relatively soft, and the surface of uncertainty is large. In a resource scarce environment with large challenges, greatly increased trust cost can be really painful. There are great looming regulatory, technology, and market structure challenges we need to address and deep collaboration within the industry is requisite. Even the trust models we’re working on consistently fall back to the social coordination layer as the final line of defense! The road towards building trustless environments is still built on a lot of trust.
Rebuilding the social contract is going to be tough. Like others, we’re struggling to trust counterparties, trust partners, trust any corner of the system. But we’re determined to try. As the pain begins to subside, the natural camaraderie is redeveloping. The shared experience is slowly turning into a rallying cry to build the world we’ve been working towards. Builders are hunkering down.
We don’t have the antidote, but we’re here to figure it out, together.
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