So after SBF came out yesterday and said FTX was totally fine.. it turns out they were insolvent and needed to get bailed out to cover withdrawals?
Never a dull moment in the world of crypto.
Never a dull moment in the world of crypto.
https://twitter.com/SBF_FTX/status/1589598285798707202
The Bagehot quote is not SUPPOSED to apply.
They're liars. They are literally banks with all of the drawbacks and none of the benefits. They do fractional reserve banking with user deposits.
The problem is they leverage user deposits as gambling money. These corporations can't bear to watch a pile of money sitting around doing nothing while in their custody. They just need to loan it out.
Exchanges aren't subject to bank runs. If an exchange (or even broker) cries run, they were taking novel risks.
Nobody backstops FTX or any other crypto exchange so its better described here as 'the yolo lifestyle'.
A modern day bank run in traditional finance is functionally impossible* (up to the FDIC insurance limits, and often higher in practice - there were no imposed limits at WaMu for instance).
Levine spoke about brokerages. When brokerages extend credit, they can be subject to run dynamics. Not exchanges.
There's a reason the perp exchanges have a fund, it's the capital that protects them from losing money on overleveraged customers. Or rather it's the rainy day fund that they lose out of when the delev happens.
Not sure this is related though, mechanics of today are not clear to me from what I've been able to find.
Not at all. Bank runs still happen, the backstops just soften the blow with liquidity injections. Every time you see a withdrawal limit, there is no doubt a bank run is occurring.
This is not accurate. Withdrawal limits are there to control fraud.