FTX should never been in this position. They are an exchange. Nobody should be able to obliterate them by playing around with their crypto.
Customers' assets (either crypto or fiat/USD) should be backed 1:1. The only reason for FTX to pause withdrawals and then assure investors that their money is safe is a sign that they are using customers' assets/funds to participate in the market.
How long before SEC/regulators wake up and regulate these shadow-banks disguised as exchanges as other exchanges?
There is a strong, vested interest in portraying FTX's collapse as a one off. Binance doing them dirty doesn't cast a pall across the industry. Fundamental problems, likely replicated systemically, does.
Yes, although the limitation with this line of thinking is that in most market-related activities (including running an exchange) it's hard not to be structurally long the market in various important ways. For example as an exchange your commissions are going to be highly correlated with market activity and may also be per unit in some cases and so would be directly correlated with market prices in that case.
As a second-order effect, customers' trading limits are going to be affected as prices fluctuate even if you don't directly offer margin yourself, because not only does the value of the thing they've deposited with you change and therefore affect how much other stuff they can sell this for but also they may have made that deposit by pledging collateral elsewhere and borrowing against that to create margin so that margin loan will be affected.
You can definitely try harder to avoid the problem than FTX though which seems to have been pretty much all-in on it's own illiquid token (FTT) and Alameda using leverage on FTT as their main source of funding. One of the things I learned at Goldman during the crisis is that you can't rely on a mark for anything illiquid - you have to have a real liquid market price.
Very long in this case, as SBF was the biggest donor to the Biden campaign.
Last few weeks he was even trying to involve himself in writing the regulations he wanted, trying to kill DeFi and make it comfy for himself against other CEXes, no doubt.
Some people say that's what triggered CZ to act.
And now the whole of FTX and $8 buys you a mosquito net, what a world.
Those are for company controlled pacs as well, so not just SBF.
For individuals the best info I could find doesn’t list SBF as a major donor.
https://www.opensecrets.org/2020-presidential-race/joe-biden...
That's not necessarily a bad thing, btw.
> The shadow banking system is a term for the collection of non-bank financial intermediaries (NBFIs) that provide services similar to traditional commercial banks but outside normal banking regulations.[1] Examples of NBFIs include insurance firms, pawn shops, cashier's check issuers, check cashing locations, payday lending, currency exchanges, and microloan organizations.[2][3] The phrase "shadow banking" is regarded by some as pejorative, and the term "market-based finance" has been proposed as an alternative.[4]
The only way this happens is if the prop trading business is over-leveraged somehow and the exchange bailed it out with FTT.
Customer deposits should meet liabilities 1:1. If they don't, somebody is lying.
That’s not how banking works. You hold illiquid assets. Sometimes they move in price. If they move enough in price you’re insolvent. Limiting bank runs is a genuinely hard problem.
This should be illegal, and people who do this should go to jail.
Customer funds should be 1 to 1 backed with assets.
Case A, tell your customers that their funds have asset backing, and have asset backing: fine.
Case B: tell your customers that their funds have no asset backing, and have no asset backing: fine. (Those customers deserve what they get.)
Case C: tell your customers nothing, and do whatever you feel like: fine. (Those customers deserve what they get.)
Case D: tell your customers that their funds have asset back, and have no asset backing: bad.
SBF claimed that assets WERE backed, while it appears that they were not.
That is exactly what is happening. There is lots of lies being told, with no transparency, and then people's money disappears.
Instead of that, if people money disappears, we should arrest the people who made it disappear.
Though to be honest, it is well known that the long term fate of any crypto exchange is to go bust. So no one could really claim that they didn't know it was coming.
Crypto is glorified gambling. (At least so far. In principle, crypto can mature over time into something more serious.)
I don't think anyone has an inherent right to take advantage of people's ignorance solely for their own profit even if those people "deserve what they get." We make plenty of other ways of abusing people illegal, why allow that one?
My formulation of 'deserve what they get' was perhaps a bit snarky.
There are good reasons for people to invest in risky ventures. Eg when you invest in a startup, you might be able to get your money back, if you ask nicely, but there's no guarantee, and there's not necessarily any liquid assets backing your funds.
I think investing in risky assets should be legal.
I also think that it should be legal for people to invest in assets that have no official classification into whether they are risky or not. Ie when the company taking your funds makes no claims (as in C), in practice the customers should assume the worst.
If you want to forbid C, alas, that leads to a lot of bureaucracy. Because you have to define what an adequate level of disclosure looks like. And then there will be lots of paperwork.
Educated rumor is suggesting FTX may be insolvent, not only the victim of a bank run type scenario.
An exchange on the other hand is facilitating trades by matching buyers with sellers. At least that's how it works in stock markets. Even if NASDAQ were to become a market maker they would have to spin a separate entity, bring their own funds to provide liquidity. Even then I don't know if it's allowed by regulation.
It isn’t, precisely for this reason. The US Equity and Equity Derivative markets have tried a few times to get approval for initiatives using their already existing BDs (to facilitate inter-market order routing), and in every case it’s been blocked by the regulators as too risky to the underlying business.
The issue here has more to do with the lack of a centralized C&S clearing house in crypto, and is one of the reasons counterparty risk remains such a massive issue there. Having to maintain an account at each exchange, much like you would a BD, and praying things don’t suddenly go pear shaped, strikes me as insane (and is one of the primary reasons I’ve avoided getting involved in the crypto space)
Futures: ... with margins of up to 101x.
Leveraged Tokens: ... up to three times the leverage. ... the leveraged coins offered by FTX don’t require any margin.
Options: (standardish).
MOVE: ... wager on the price movement ... a play on volatility.
Spot Markets: ... more than 100 different spot trading pairs.
https://ftx.com/markets/futures
https://help.ftx.com/hc/en-us/articles/360024780511-Futures-...
How many exchanges will need to go under for the market to decide that isn't a great way to operate one? How much educating of users/customers will it take?