Building After FTX: Armani Ferrante on Self-Custody, Compliance & Crypto's Future

On this episode of The Ledger Podcast, host Mo is joined by Armani Ferrante, founder and CEO of Backpack, the team behind the Backpack Wallet, Backpack Exchange, and the Mad Lads NFT collection. 

Armani shares his unique trajectory from Apple to Alameda Research, surviving the FTX collapse, and pushing the boundaries of crypto infrastructure. 

“I’m just somebody that loves crypto and trying to build things that are useful for the world” – Armani Ferrante

Key Highlights:

Armani Ferrante’s Background and Building Philosophy

Armani Ferrante describes himself primarily as a programmer that likes to build stuff. With experience in the crypto industry since 2017-2018, he has worked on a diverse range of projects including developer tooling, wallets, NFTs, L2s, multi-sigs, DEXs, DeFi, and now a compliant crypto-native financial institution. 

“[Crypto is] one of the coolest industries in the world” – Armani Ferrante

His journey at Alameda, initially working on trading systems, shifted to focusing on Solana’s on-chain development, including DEXs, wallets, and developer tooling.

The Genesis of Backpack Wallet and XNFTs

The initial vision for Backpack arose from the need to grow the industry on Solana by building more applications. Armani wanted to build more apps and get other people to build more apps, recognizing that a wallet was an ideal way to distribute these applications. 

This led to the xNFT concept, where instead of tokenizing an image, you tokenize code, allowing for decentralized ownership of JavaScript bundles on a blockchain and growing a decentralized app store ecosystem.

Surviving the FTX Collapse: A Defining Moment

The FTX collapse profoundly impacted Backpack, with 88% of the company’s capital gone overnight. Armani recalls being blindsided by the event; as FTX was then seen as the golden child of the crypto industry. 

He describes the company as dead for all intents and purposes, surviving through pure luck or fight or flight instinct. He very explicitly made the decision  to stick it out and fight through it no matter what. Fundraising became extremely difficult, with capital really scarce at the time.

Watch the episode here

The Role of Mad Lads and FTX EU Acquisition

The Mad Lads NFT collection gave NFT culture a breath of fresh air by generating mint funds crucial for the company’s survival. Mad Lads also served as a showcase of what Backpack was at the time and what xNFTs could be, helping to build a strong community. 

Recently, Backpack completed a full circle moment by acquiring FTX EU, the European business of FTX. This acquisition was strategic for entering the European market, which is seen as important but challenging to operate in due to its regulatory landscape. 

As part of this, Backpack has announced and opened the process for former FTX EU customers to claim and withdraw their funds. 

Centralized vs. Decentralized Exchanges: A Nuanced Perspective

Armani argues that the distinction between centralized and decentralized exchanges is often framed incorrectly based purely on technology. He suggests reframing the conversation around censorship resistance versus compliance. 

While censorship-resistant systems make compliance undefined (as they are owned and controlled by no one), compliant systems involve censorship by design by adhering to laws and rules. He believes that products should be built to take the best of both worlds without diluting their unique properties. 

For Backpack Exchange, the focus is on being a compliant financial institution that follows rules in the regions it serves, while still adopting techniques that are used in crypto to build really great technology, such as how the matching engine runs or how custody is performed.

The Future of Wallets, Self-Custody, and Identity

“The large majority of wallets are completely and totally broken” – Armani Ferrante

Armani asserts that this is due to the staggering number of people who lose access to their seed phrases. He believes that a much safer and more secure self-custody wallet will eventually be possible through centralized exchanges, allowing users to recover their wallets like a bank account, even if they lose their device. 

This relies on a clever mix of account abstraction and some nice design mechanisms. He contends that the current concept of an External Owned Account (EOA) directly controlling assets is “a big sin” of the industry’s early design decisions.

The aim is to enable users to bring their life savings onchain, making crypto anything more than a toy.

Ledger shares this focus on recovery solutions, having launched Ledger Recover, a service designed to back up seed phrases using identity verification and advanced cryptography. This involves encrypting and sharding entropy, communicating it to three entities in different jurisdictions, and reconstituting it after two identity verification processes. 

Both Ledger and Backpack foresee the increasing importance of hardware security for identity and proof of humanity in the face of rising AI-generated content, where AI is about content abundance and cryptography is about authenticity.

Institutional Adoption and the Spectrum of Decentralization

Armani believes that in the long run, there will be a premium on censorship resistance, as nation-states and businesses will gravitate towards networks that are owned by everyone and controlled by no one and where they don’t have to worry about national security risks. 

“Decentralization isn’t a spectrum, it’s really a binary thing you kind of either have it or you don’t.” – Armani Ferrante

He cites Bitcoin as an example, suggesting countries won’t adopt it as a strategic reserve if it’s perceived as unilaterally controllable by another nation. 

The most valuable assets will be those that are most censorship resistant.

Future Outlook & Expected Developments:

• Integrated Wallet and Exchange Experience: Backpack is working towards a future where centralized exchange accounts provide seamless access to the onchain economy, where the wallet and exchange effectively merge into a single account, maximizing capital opportunity without sacrificing self-custody through account abstraction.
• Continued Focus on Compliant Financial Services: Backpack aims to become a contender to be a next generation financial services provider in the next two to five years, serving users in interacting with the crypto economy, trading, sending payments globally, or accessing traditional assets.
• Emphasis on Security and Recovery: The industry will continue to evolve wallet solutions to provide more robust recovery mechanisms, moving away from current models that often lead to asset loss.
• Long-Term Building in Crypto: Armani emphasizes that survival and consistent building, rather than rapid growth, leads to long-term success, echoing the sentiment that only the paranoid survive.

Reading List

To learn more about the topics discussed, explore resources on:

• Self-Custody
• Backpack Wallet Support
• Solana
• 13 Best Solana Wallets
• Smart Contracts
• DeFi (Decentralized Finance)