The recent lawsuits filed by FTX, targeting NFT Stars and Delysium over undelivered tokens, are more than just legal wranglings. They’re flashing neon signs pointing to the systemic instability just below the shiny surface of the crypto market. We’re talking about serious cash—all of it yours. It might fade into the digital ether due to lack of accountability and a Wild West attitude.

Due Diligence Missing In Crypto Deals?

Let's be blunt. The most notorious example of crypto mismanagement, FTX, alleges that it spent $325,000 on SENATE and SIDUS tokens from NFT Stars. On top of that, it bought a staggering $1 million worth of AGI tokens from Delysium. The catch? They allegedly never received them. This isn't about a misplaced Amazon package. This isn’t about tens of thousands, hundreds of thousands, millions of dollars disappearing without a trace.

How did this happen? Where was the due diligence? Were these deals on par or done with greater scrutiny than you might see from a standard private financial institution. After all, FTX, even before it went belly-up, allegedly splashed around eye-popping amounts of cash. This casts serious doubts on the credibility of the whole ecosystem. This should be a wake-up call to all of us. We need to inspect each agreement, each commitment, and every new shiny token before making an investment.

The AGI Token Release Schedule Fiasco

The Delysium situation is particularly telling. The AGI tokens were supposed to be released according to a schedule, initially starting in April 2023, then extended, and ultimately halted by the FTX collapse. This highlights a crucial vulnerability: the reliance on promises and future deliverables in the crypto space. It’s akin to purchasing a car today based on an artist’s rendering and a handshake, in hopes that it eventually comes into being.

Now picture betting on a company before it’s even incorporated, with no recourse for investors if it fails to deliver. That’s the harsh truth facing most crypto investors—and the FTX-Delysium lawsuit is a stark example.

  • Lack of immediate value: Tokens with delayed releases often hinge on future project success, making them speculative assets.
  • Vesting Schedules: These schedules can be manipulated or changed, leaving investors vulnerable.
  • Centralized control: The entity controlling the token release holds immense power, leading to potential conflicts of interest.

The obvious knee-jerk response to these types of scandals is always for more regulation. We would all agree that some regulation is most certainly called for, to protect investors. Yet we need to move with immense care. Too much regulation will kill innovation and drive crypto activity into the shadows. This misguided approach ultimately harms the very industry it seeks to protect. It’s as if you were trying to perform surgery with a chainsaw.

Regulation: Stifle Innovation or Save Investors?

We need regulation that focuses on:

We should be careful that in trying to clobber existing models that we don’t create a regulatory environment so burdensome that it chases innovation offshore. The U.S. will miss out on the great opportunities that the blockchain revolution holds if we take an entirely negative and punitive approach. Are we just going to allow fear to control and choose our future for all of us?

  • Transparency: Requiring projects to disclose clear information about their operations, financials, and tokenomics.
  • Accountability: Holding individuals and companies responsible for their actions.
  • Investor Protection: Implementing measures to prevent fraud and manipulation.

FTX has gone on the offensive on X (formerly Twitter). In short, they pledge to take other companies to court to defend… but this action appears to be closing the barn door after the horses have fled. It's a PR move designed to reassure creditors, but it doesn't address the fundamental issues that allowed this mess to happen in the first place.

All of that makes the silence from NFT Stars and Delysium all the more deafening. Their non-response is precisely what deepens the swampy perception that they’ve got something wrong. In any real world business transaction, you would expect an immediate clarification and a desire to fix it. Their silence speaks volumes.

The joint FTX lawsuits are a serious reminder of the extreme risk involved in the crypto marketplace. Even with all this opportunity, this environment is still incredibly tenuous. We need to address these hallmarks of due diligence, transparency, and responsible regulation. If we fail to do so, more scandals will continue to shake the industry, further shaking public trust and undermining the industry’s sustainable long-term growth. We must do better than to learn from such mistakes and instead make them again. The future of crypto depends on it.

Ultimately, the FTX lawsuits are a stark reminder that the crypto market, despite its potential, remains a risky and volatile environment. Until we address the underlying issues of due diligence, transparency, and responsible regulation, these kinds of scandals will continue to plague the industry, eroding trust and hindering its long-term growth. We need to learn from these mistakes, not repeat them. The future of crypto depends on it.