Never attribute to stupidity that which is adequately explained by greed. Or both. A short rant from someone who holds very little crypto but is excited about its infrastructure.
It was for a reason that governments started imposing liquidity regulations on banks. The business model of centralized asset holders is to make money off the leverage of such assets, not to charge for holding them. Banks started investing assets in risky, illiquid ventures, leaving little in case customers actually wanted their assets back. This is in no way that strange to us: it continued to happen in modern times with the 2008 mortgage crisis and Argentina's corralito.
Well, history rhymes itself. This is exactly what is happening with crypto right now with Celsius or FTX. I had $600 in Celsius. Celsius used that money to invest in risky, unproven ventures and assets. Those assets went down in value. Such asset depreciation leads to a hole in the books that can't be mitigated with other investments or short-term liquidity measures.
The truth is, if we want centralized asset infrastructure, it needs to be regulated. Unfortunately, humans aren't that great at assessing risk and the anxious desire to produce revenue for shareholders gets in the way.
Wait, a silver lining
Having been in the business of disintermediation and decentralization for a while, I can say one thing for sure: centralization is a symptom of a lack of access to technology. In the absence of infrastructure that can be used by average consumers at a reasonable cost, those with leverage can hold such infrastructure and resell its services at a premium. That's how banking is set up today. It would be impractical for every customer to have a direct line of access to, let's say, ACH infrastructure, for many reasons: cost, lack of technological knowledge, lack of ease of use, etc. Allowing end consumers to write NACHA files and upload them via FTP would be, again, impractical.
Crypto is attempting to disintermediate and decentralize the banking infrastructure. It is technically and economically possible for an end consumer to hold crypto assets on their own, trade them on their own, and access aggregate value applications on top of such infrastructure to enable additional effects on their assets: lending, transfers, disbursement of royalties or entitlements, etc.
But for that, it needs to be truly decentralized and algorithmic. No more custodial services getting hacked, no more teams without proper risk assessment investing customers' money in pictures of weird-looking monkeys. Truly decentralized, each with their wallets, in a trustless network, with transparent contracts and algorithms on top.
But wait, this already exists
It does, but it's just too hard to use. Go ask the average Bank of America customer to set up their own crypto wallet, engage with a market maker to exchange fiat currency for crypto, securely store the pass to that wallet and the assets, and then, participate effectively and productively in the crypto network.
If you care about crypto, make it easy to use and invisible. The end customer doesn't need to understand how the blockchain works, the same way the end customer of a bank doesn't understand how to write a NACHA file. Ease of use trumps user education.
Do you want to create an incredibly successful crypto product for customers? Make it for your grandpa. Use simple vocabulary and easy abstractions. Make it so easy, so transparent, and so invisible. And for the love of god, make it decentralized.