As the FTX liquidity crisis unfolds, there are growing fears of a contagion similar to that following the Terra-LUNA collapse back in May. Crypto lender BlockFi announced on Twitter Friday that it is halting withdrawals citing the “lack of clarity” on the status of FTX and Alameda Research. U.S. financial regulators such as the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) have begun their probe on the embattled exchange, while the state of California has commenced an investigation of its own.

Comments made on Friday include:

Jake Chervinsky, executive vice president and head of policy at the Washington, D.C.-based Blockchain Association, said on Twitter that there is no law the U.S. Congress can push to prevent another FTX crisis:

“FTX’s failure doesn’t justify a rush to regulate in the US. FTX is a non-US exchange based in the Bahamas. By design, it didn’t have any US customers so that it wouldn’t be subject to US jurisdiction. There is no law Congress can pass to prevent the failure of an offshore firm.

“US policymakers see all the damage that FTX caused and naturally want to do something—anything—to help, and to stop this from happening again. That’s good. But punishing US firms won’t help. It would do the opposite, driving more activity to unregulated offshore venues like FTX.”

Ben Caselin, vice president of AAX exchange and head of AAX Trends, told Forkast that exchanges need to put more consideration into their operations in preparation for post-FTX:

“We need to pay very close attention and map out: who are the investors in FTX, what are their holdings and what’s their current risk profile. So, there’s a bunch of exchanges. There’s a bunch of, I think there’s a teachers’ pension fund in Ontario, a bunch of players have come in and have gained exposure to FTX’s assets or tokens. It’s not really about judging whether that was right or not. This is really about, how do we really think about the future of this space.

“Perhaps we should change the way that we operate. Now, on the exchange side, you could see already Binance is calling for proof of reserve. I think BitMEX has come out with something and AAX is exploring proof of reserve. So I think this is a good development. But again, we need to see what does it mean to be transparent in this space? Do users actually want to be exposed to that type of information? You hold your holdings on an exchange, do we want that type of transparency or is it more about other mechanisms that we can that we can simply prove almost with zero knowledge, simply prove that we have the reserves, we have the funds. So this is something that all exchanges need to figure out at the moment.”

Sherrod Brown, a Democratic Senator from Ohio and chair of the Senate banking committee, called for regulation and an investigation into FTX’s “misconduct and abuses”:

“The recent collapse of FTX is a loud warning bell that cryptocurrencies can fail, and just like we saw with over-the-counter derivatives that led to a financial crisis, these failures can have a ripple effect on consumers and other parts of our financial system.

“The cryptocurrency market’s continued turmoil is why we must think carefully about how to regulate cryptocurrencies and their role in our economy.

“It is crucial that our financial watchdogs look into what led to FTX’s collapse so we can fully understand the misconduct and abuses that took place. I will continue to work with them to hold bad actors in crypto markets accountable. I’m committed to finding the best path forward to protect consumers and the stability of the U.S. markets and banking system.”

Bradley Duke, founder and co-chief executive officer at ETC Group, said it’s evident that the capacity of a crypto company does not ensure protection of client assets:

 “The fact that Binance explicitly cites “mishandled customer funds” in their tweet explaining the decision to abandon their acquisition of suggests, at a minimum, a lack of disclosure and transparency on the the part of FTX or worse, putting customer deposits at risk for business bets FTX was making.

“We will know the full truth in time but what is clear is that even some of the largest companies in crypto are failing to ring-fence and protect customer assets and give the requisite transparency about deposits in custody.”

Mikkel Morch, Chairman at EU-based alternative investment fund ARK36, said the crypto industry needs to take the chance to do some soul-searching:

 “With reports that FTX is facing investigations from the SEC, the CFTC, and the Department of Justice, yet another supposedly reputable and trusted industry player goes down as a huge disappointment, to put it mildly.

“Despite all the talk about the maturation of crypto, it seems like now more than ever the industry is due for some soul-searching … There are some positive changes happening already. Binance is pushing for major exchanges to adopt proof of reserves as an industry standard. Some have already started publishing it. Newcomers to the space are discovering the importance of self-custody of their assets. And investors are learning the hard way the advantages of working with properly regulated entities. These are the growing pains of a nascent industry – but crypto will come out of this stronger and more resilient than ever before.”

Atty. Rafael Padilla, cofounder of BlockDevs Asia, said that an industry-led bailout seems impossible:

“Many of us in the crypto community learned some important lessons the hard way, whether through Mt. Gox, Bitfinex, The DAO, Bitconnect, QuadrigaX, or more recent examples such as Terra, 3AC, Voyager, Celsius and now FTX. Considering the offshore nature of the transactions in [FTX], it might be unrealistic to expect that financial regulators would be able to help FTX customers recover lost funds, especially if it’s true that FTX allowed Alameda Research to use those funds to trade or lend.

“An industry-led bailout seems impossible also in view of the gaping holes discovered by Binance during the due diligence it conducted when they explored the possibility of acquiring FTX. We’ll just have to learn from this experience, move forward, and encourage transparency by patronizing exchanges that periodically report proof-of-reserves or attestation reports, and boycotting those who don’t.”