Comment by SilasX | Hacker News Reader

Comment by SilasX | Hacker News Reader

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That’s why I hate when people in these discussions refer to needing/providing “liquidity”. It feels like such a weasel word. Unless you know enough to conclude it’s really a cash flow mismatch, then don’t mince words or overcomplicate it.

Money. They need some g/d m/fing money. Maybe they need it as arms-length loans on legitimately illiquid capital. Maybe they need underpriced loans for the risk of the business. Maybe they just need a giant dump of free cash.

But it’s money they need. To weasel it away as “liquidity” is to assume something you probably have no way of knowing until later.

It was particularly dubious in the case of FTX, whose assets were in popular cryptocurrencies, which are traded every millisecond. You can absolutely find a buyer instantly! At about the same price it traded for five minutes ago! Just not at the price you need it to be.

“No, no, the fair market price is actually much higher, it’s just that there’s only one guy who would actually buy it all right now!” No. Stop. We already have a word for an asset that exactly one person wants to pay a positive price for: worthless (because they only have to outbid everyone else).

Sorry, /rant

I agree "liquidity" is a cop out implying they need time to sell things.

In my case I deposited some USDC coins and have asked them to return said USDC coins but it seems no. I think theft is a more accurate term. As in we stole some customer funds to gamble with and having lost them need more funds to cover it up. Not really "liquidity".

There is a reason stablecoins are not the same as fiat in a deposit account: a government will make you whole via deposit insurance if something happens to your USD due to institutional failure.

This is somewhere between a gross oversimplification and wrong. Sure, most problems can be solved by “money” — if someone just gave FTX $10bn in the form of a wire, they’d probably be fine. But this misses the point.

If a bank holds short term debt, due in one week, but a customer is withdrawing funds now, the bank needs liquidity — they need dollars today, and all they have is dollars next week. If a dealer owes a customer 500 BTC that they’re trying to withdraw today, they need liquid Bitcoins, not money. There are many ways a financial company can fail, and lumping them all together as “money” loses all nuance and understanding.

I thought my comment made clear that liquidity is a valid concept, and there are valid times to bring it up -- just that most usages in these crises are by people who are throwing the term around hastily, without sufficient basis to isolate liquidity per se as "the problem".

If you agree with that, you're agreeing with my original comment, even and especially if you (correctly) believe that some problems are rightly called "liquidity crises".

As it turns out, FTX was not merely illiquid; no amount of time or low-interest loans would have coordinated the cash flows, and yet every apologist was happy to identify the core deficiency as one of "liquidity", rather than honestly say what they could reasonably have known, at the time, from their perspective: no money, with specifics to be filled in later.

>If a dealer owes a customer 500 BTC that they’re trying to withdraw today, they need liquid Bitcoins, not money.

Even granting the tenuous propositions that Bitcoin isn't a money nor could be purchased therewith, the right diagnosis still wouldn't be "they don't have enough liquidity", but rather "they don't have enough Bitcoin", since the former is specifically making a (bold, overconfident) assertion that the exchange is good for the money if only they could get a few loans. That assertion was false, and almost certainly lacked sufficient basis from its proponent even at the time.

Liquidity means something though. Think of a bank. If everyone withdraws their funds at the same time they may not have the liquidity to pay out. In order to be able to pay out everyone at the same time, they would need to keep it all uninvested/unlent, and then charge you a banking fee instead of paying you interest on it. So there is a tradeoff there.

But banks don't really pay interest anymore, so in some sense I'd expect them to keep it uninvested.

They have fixed costs though

> You can absolutely find a buyer instantly! At about the same price it traded for five minutes ago! Just not at the price you need it to be.

this is extremely stupid. you can't just sell arbitrary amounts of coin without moving the market a ton and paying a fortune in slippage. they do need liquidity.

You are strengthening their point though. It now becomes:

You can absolutely find a buyer instantly! At about the same price it traded for five minutes ago, actually scratch that, it even worse, it is that price MINUS SLIPPAGE! Just not at the price you need it to be.

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