The fall of FTX, cryptocurrency, and a crypto winter. How Upstream’s unique methodology was built to prevent these issues and enforce failsafes

By Vanessa Malone

Upstream, a MERJ Exchange Market, is the first regulated exchange for digital securities and NFTs powered by a blockchain.

As a blockchain-powered trading app, Upstream sometimes gets mistakenly looped into the cryptocurrency sector of the greater blockchain industry. We don’t list cryptocurrencies on our market, though we do allow the use of digital currency in the form of USDC stablecoin to invest in tokenized stock or purchase NFTs.

As a non-custodial, Ethereum layer-two trading app with a transparent orderbook, Upstream was built to marry core blockchain principles with appropriate investor protection measures found in traditional financial markets.

As an adjacent industry player, it’s important to know the pain points in the digital currency sector and how Upstream’s unique methodology was built to prevent these issues and enforce failsafes.

A brief overview of 2022’s ‘crypto winter’ fallouts

  • The term ‘crypto winter,’ a period of market cooling, was said to have been used first in 2018 when the price of Bitcoin dropped by more than 50% from its all-time high.
  • May 2022- Cryptocurrency prices were already down following the broader market downturn but in May, TerraUSD and the Luna token collapsed with an estimated $60 billion lost.¹
  • July 2022, Celsius Network, which enabled users to deposit crypto and earn interest, filed for bankruptcy after barring its 1.7M users from withdrawing or transferring funds.²
  • July 2022- Crypto brokerage service Voyager filed for bankruptcy.³
  • Nov 11, 2022- Cryptocurrency exchange ‘FTX’ filed for bankruptcy with Reuters reporting $1–2 billion worth of customer funds lost.⁴
  • Nov 28, 2022- Cryptocurrency firm Blockfi filed for bankruptcy protection.⁵
  • The market cap of the largest 100 cryptocurrencies was $2.7 trillion on Nov. 24, 2021. The market as of Nov. 14, 2022, fell to about $837 billion.⁶

FTX and other cryptocurrency market pains point to a lack of investor protections

Jim Needham, Head of Strategy from MERJ summarized the problem with the current cryptocurrency market.

“For an industry that frames itself as building a newer, better, financial system, there have been a lot of really big mistakes copied from the past. At MERJ we have been asking ourselves the same question for years: Why does the crypto industry have to keep relearning the lessons of tradfi from 10, 30, 50 years ago?

All the recent crypto lessons — FTX, 3AC and Celsius — have been learnt before.

The rules and regs that are applied to traditional markets are based on bitter experience. The system isn’t perfect but it’s a lot better than no system at all.

At the core of FTX’s collapse was the failure to fully back customer assets 1:1. The exchange was aggressively lending or trading customer deposits without any way to cover its losses.

In traditional financial markets, cash is stored with secure, highly regulated financial institutions. These financial accounts are typically insured by organizations like the Securities Investor Protection Corporation (SIPC) or Federal Deposit Insurance Corporation (FDIC) which offer users financial compensation if an eligible financial provider fails.

This isn’t the case with cryptocurrency exchanges like FTX. This lack of safeguarding and the consequential loss of billions of users’ dollars has led to fear and an increased rally cry for clearer crypto regulation.

Balancing decentralization in a centralized world

There’s been something counterintuitive about the growth of blockchain technology thus far. For a technology built on the principles of decentralization, many of the applications surrounding it have become increasingly more centralized.

Many of the popular cryptocurrency trading venues today are centralized, private, off-chain, and custodial. We believe this not only contradicts core blockchain founding principles but takes away from the true power that operating on a public blockchain can harness.

A blockchain is a decentralized, distributed ledger that enables people to transact directly with one another. It removes the need for a fully “centralized,” authority.

Contrarily, a centralized exchange utilizes a middleman to conduct transactions on behalf of a user and hold a customer’s assets. It’s ironic because this requires traders to put their trust, and private keys, in the hands of a central authority.

The problem is that whoever controls the private key controls the assets. You are entrusting that company to keep your private keys, and therefore assets, safe with whatever measures they choose to implement.

Upstream’s balanced methodology

Upstream’s methodology has always struck a balance between blockchain and traditional capital markets, decentralized with centralized. We set out to use technology to enhance compliance, not replace it, which is proving to be critical. Here are a few key differentiators Upstream has from cryptocurrency and other blockchain-powered markets:

  1. Upstream offers Web3 in a world of Web2- FTX and other similar exchanges are Web2 solutions. Upstream is a true Web3 platform. When users sign up on Upstream they use a password and are known solely by a public blockchain wallet. When KYC is required, data submissions are kept in memory in an auto-expiring cache, never saved to a disk on our servers, and never outsourced to third parties.
  2. Upstream is non-custodial. Traders maintain complete control of their private keys and assets. Upstream never knows a users’ private keys. Conveniently, we hide all the blockchain security and sophistication behind a simple, yet incredibly secure interface. During the KYC onboarding process, we create a “key pair” in an encrypted file that is saved to your Keystore. A Keystore is a way of storing a password-protected file that contains your public and private key, together this makes a key pair. A great way to think about your private key is like a pin code to your ATM card. To transact on Upstream, we make your private key unlockable using your verified biometrics. Every time you transact you sign in using your private key. A timestamp of this record is logged on an Ethereum layer 2 rollup blockchain to maintain a transparent and protected ecosystem.
  3. FDIC-insured accounts. Upstream is a blockchain-powered stock and NFT market, not a cryptocurrency market. We are a cash-based system with USDC stablecoin as the only cryptocurrency currently accepted. Trading pairs are against USD and customer cash accounts are FDIC-insured up to $250k for all U.S. and non-U.S users. Pairs are traded 1 for 2. To further protect investors, funds can only be sent to and from the account verified during KYC.
  4. Upstream is a blockchain-powered stock and NFT market, not a cryptocurrency market. As a blockchain-powered market, Upstream features no short selling or other market manipulations enforced by Ethereum blockchain technology. Most cryptocurrency orderbooks and trading systems behind the scenes are database-driven, not blockchain driven. Upstream features best bids and offers openly displayed on a public orderbook, with trades executed on-chain. This is a big deal. Most trading apps only offer windows into an exchange. Upstream offers traders direct access to the exchange with our trading app.
  5. Necessary Failsafes. There are varying degrees of decentralization when it comes to blockchain-powered markets. Some die-hard crypto enthusiasts are all for complete decentralization, but if the assets you own can be robbed with impunity, what’s it all for? There simply are benefits to having protections in place that leverage traditional financial guardrails. For example, Upstream’s integrated KYC technology enables investors to verify who they are and have their securities returned to them if a private key is lost, stolen, or forgotten. In short, securities are controlled on a user’s smartphone wallet app and are protected by a users private key. The technology behind Upstream integrates with a regulated custodian engaged by the securities issuer so that a parallel record of all asset ownership can be maintained by a regulated entity. This way, in exceptional cases, assets can be lawfully restored to their rightful owner by the issuer’s custodian.

Closing thoughts

The lure of transparency, investor empowerment, and efficiency warrants an evolution of our financial ecosystem. However, these benefits go out the door if there is the risk that your money and assets could disappear without consequences.

There simply are benefits to the safety measures put in place by our existing financial systems. There are also companies that want to do right by their users that are being pushed away from a lack of clear registration in the U.S.

It’s common to be one of the following: regulated and custodial or nonregulated and noncustodial. It’s rare to be both regulated and noncustodial. Upstream truly believes we found this balance that will usher in the future of transparent, global trading for securities and other digital assets.

Join the future of trading at


Forbes | 2 CNBC | 3 Reuters | 4 Reuters | 5 Reuters | 6 Statista

About Upstream:

Upstream, a MERJ Exchange Market (, is a fully regulated global stock exchange for digital securities. Powered by Horizon’s proprietary matching engine technology, the exchange will enable investors to trade NFTs, shares in IPOs, crowdfunded companies, U.S. & Int’l. equities, and celebrity ventures directly from the app: Interested issuers can reach the team at

About MERJ:

MERJ Exchange (MERJ) operates Upstream as a fully regulated and licensed integrated securities exchange, clearing system and depository for digital and non-digital securities. MERJ is an affiliate of the World Federation of Exchanges (WFE), recognized by HM Revenue and Customs UK, a full member of the Association of National Numbering Agencies (ANNA) and a Qualifying Foreign Exchange for OTC Markets in the US. MERJ is also a member of the Sustainable Stock Exchanges Initiative. Visit to learn more.

About Horizon:

Horizon is a fintech company that builds and powers global securities exchanges with an integrated suite of software for compliant issuance, management, and secondary trading of securities. Our in-house solutions combine Wall Street and Silicon Valley to power the next generation of securities offerings and trading in the U.S. and globally. Learn more at


This communication shall not constitute an offer to sell securities or the solicitation of an offer to buy securities in any jurisdiction where such offer or solicitation is not permitted.

NFTs received have no economic value, royalties, equity ownership, or dividends. NFTs are for utility, collection, and display only.

*U.S. investors are not permitted to purchase Upstream listed securities. U.S. and Canadian citizens will only be able to trade in securities they currently own, that have been listed on Upstream, for liquidation purposes only.

If funding Upstream with an ACH or wire bank payment, users must complete Upstream’s in-app KYC process to get their new, FDIC insured, Upstream U.S. bank account details via email. Users may then initiate a funds-transfer from their bank or financial institution to this new U.S. Dollar bank account. If you haven’t completed KYC yet, or didn’t select ‘Bank’ as the ‘Deposit From’ option when you completed the process initially, then please go through KYC again selecting the ‘Bank’ payment method. Users may complete the simple KYC process by tapping the settings icon and the KYC option inside the Upstream app.

Upstream is a MERJ Exchange market. MERJ Exchange is a licensed Securities Exchange, an affiliate of the World Federation of Exchanges, and a full member of ANNA. MERJ supports global issuers of traditional and digital securities through the entire asset life cycle from issuance to trading, clearing, settlement, and registry. It operates a fair and transparent marketplace in line with international best practices and principles of operations of financial markets. Upstream does not endorse or recommend any public or private securities bought or sold on its app. Upstream does not offer investment advice or recommendations of any kind. All services offered by Upstream are intended for self-directed clients who make their own investment decisions without aid or assistance from Upstream. All customers are subject to the rules and regulations of their jurisdiction. By accessing the site or app, you agreed to be bound by its terms of use and privacy policy. Company and security listings on Upstream are only suitable for investors who are familiar with and willing to accept the high risk associated with speculative investments, often in early and development stage companies. There can be no assurance the valuation of any particular company’s securities is accurate or in agreement with the market or industry comparative valuations. Investors must be able to afford market volatility and afford the loss of their investment. Companies listed on Upstream are subject to significant ongoing corporate obligations including, but not limited to disclosure, filings, and notification requirements, as well as compliance with applicable quantitative and qualitative listing standards.

Forward-Looking Statements

This communication contains “forward-looking statements.” Such statements may be preceded by the words “intends,” “may,” “will,” “plans,” “expects,” “anticipates,” “projects,” “predicts,” “estimates,” “aims,” “believes,” “hopes,” “potential,” or similar words. Forward-looking statements are not guarantees of future performance, are based on certain assumptions, and are subject to various known and unknown risks and uncertainties, many of which are beyond the Company’s control, and cannot be predicted or quantified, and, consequently, actual results may differ materially from those expressed or implied by such forward-looking statements. Such risks and uncertainties include, without limitation, risks and uncertainties associated with (i) difficulties in obtaining financing on commercially reasonable terms; (ii) changes in the size and nature of our competition; (iii) loss of one or more key executives or brand ambassadors; and (iv) changes in legal or regulatory requirements in the markets in which we operate. The Company assumes no obligation to publicly update or revise its forward-looking statements as a result of new information, future events or otherwise

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