The Big Whale: FTX has just gone bankrupt in what looks like a massive scam. What's your take on the affair?
Pascal Gauthier: It's a very complicated situation because we don't yet have all the facts. What is certain is that there are many victims and that all this could have been avoided if cryptos were properly secured. That's what we've been saying for seven years at Ledger.
You have to realise that at FTX only a few people were able to access and manipulate the funds of more than a million customers. It's completely crazy. Fortunately not all exchanges work like this. When you go to Kraken, they advise you to keep your cryptos yourself.
Does this case mark the end of centralised platforms?
There has been a debate between centralisation and decentralisation for years.
We had a good feeling recently that it was centralisation that was holding sway with big players like FTX becoming really big, with crazy valuations ($32 billion for FTX before the scandal, ed. note), and considerable influence.
In the US, Sam Bankman-Fried had become one of the key contacts for regulators and authorities, particularly on the subject of regulation. SBFs and other players in the ecosystem have been using crypto jargon for months to give themselves credibility, to make themselves unavoidable, when in reality they have little to do with 'real' crypto.
FTX is just a very traditional, centralised marketplace... We had the same example with Celsius in the spring . For months, they talked about "DeFi" and "decentralisation" to promote an ultra-centralised product, just like FTX.
How do you explain the success of these players with regulators?
They speak the same language. It's very comfortable for a regulator to have a crypto player come in with a centralised solution. SBF was the wunderkind in the US because he was exactly what the regulators wanted to see and hear.
The best example is probably what he said about Bitcoin this summer (he said Bitcoin was not a good payment solution, ed. note). When we heard him, we thought he didn't believe at all in the value proposition of cryptocurrencies and decentralisation. SBF was just in it to make money.
Since the fall of FTX, there's been almost nothing but talk about Ledger. The best way to learn that fire burns is to get burned. You burn yourself once, and then you'll see that you won't do it again. That's exactly what just happened with FTX.
Many investors knew there was a risk and they've just experienced it. Some have lost a lot of money, and they won't want that to happen again, so they're taking a Ledger. The number of people who have turned to us since the crash is insane.
We've had one record-breaking day after another for over a week now, with daily sales of several tens of thousands of Nano (usually a few thousand). And it's not just hardware sales that are soaring: the Ledger Live application, which lets you manage the cryptos stored in a Ledger, has been downloaded more than a million times in recent weeks.
Are you having any supply problems?
We've anticipated everything with production lines, stocks, suppliers... Everything has been thought out for this kind of situation. The pace increased and we were able to manage it.
And what about the other exchanges? We've seen that several of them like Binance wanted to implement more transparent solutions...
It's all very well to want to improve things, to talk about "Proof of Reserves", but we need to bear one thing in mind: platforms should be used to buy and sell cryptos, not to hold them.
We have set up a custody solution for companies (exchanges in particular) with Nomura and CoinShares called Komainu. This system, which works with Ledger security, ensures key safekeeping as well as good governance to avoid cases like FTX.
Users are right to want more security, but we need to know what security we're talking about. An exchange has two solutions: either it takes a Ledger-style system, or it entrusts its corners to Komainu, which is an independent structure secured by technology like ours. The rest is not up to scratch.
Do you think the FTX affair will change everything?
We are living through an important moment for the industry. It would be a serious mistake to think that exchanges can be satisfied with "trust me" with a few changes like the introduction of the "Proof of Reserve" which, I would remind you, makes it possible to show that there are funds at a given moment, but does not prevent these funds from being transferred immediately afterwards...
The real solution would be for custody and exchange activities to be clearly separated. After that, if people want to go into DeFi, that's another story. With Uniswap and Paraswap you can do your crypto swaps and then you get them back into your Ledger.
Controlling DeFi and holding your cryptos yourself isn't necessarily obvious. There are risks that go with owning your cryptos. Don't intermediaries have a bit of a positive?
Yes, of course, but it all depends on what the intermediaries bring to the table, and when it comes to custody, it's really very debatable, to put it mildly...
What's very interesting is that a lot of people refuse to unlearn what they learned with Web2. But once they've taken the plunge, once they've understood how it works, it seems obvious to them. It's just a matter of education. Web3 was lagging behind in terms of user experience and ease of use. We're working on it.
What's the goal?
We've always said that we wanted to do with the wallet what Apple did with the smartphone. Apple sells 250 million devices a year. That's a good target for us, I think (laughs). But to reach that target, we're already going to be selling a few tens of millions of devices a year.
At the moment, we're at 5.5 million Nano's sold, and fairly quickly we hope to exceed 15 or 20 million with the aim of selling 10 million Nano's every year. After that, to reach Apple's level, we're going to have to integrate into phones and computers, and we're working on that.
Will the crypto sector be permanently impacted by the affair?
The FTX affair is a vast fraud and has nothing to do with crypto. It's also interesting to see that the market hasn't reacted that much. It fell, but compared with the scale of the scandal, that's not significant. The fundamentals are still there, and if anything we can expect much better practices in the months and years to come.
