Genesis' Crypto-Lending Unit Is Suspending Withdrawals in Wake of FTX Collapse
coindesk.com
coindesk.com
Forget all the super degenerate stuff (shorting, options, yield farming, nth order derivatives, speculating on NFTs, etc.), this whole insanity is happening because people are seemingly allowed to lend willy nilly without any regulatory pushback.
White collar prosecution is expensive and complex, and prosecutors care about their careers. They want certain wins, preferably fast.
So the SEC are waiting for slam dunk cases to establish precedent.
In practice this means they wait for something large and obvious to implode, and prosecute months/years after the fact.
is: (1) an investment of money, (2) in a common enterprise, (3) with the expectation of profit and (4) to be derived from the efforts of others.
They're beholden to the established financial system and players and "regulating" crypto would also mean giving crypto a stamp of approval, which they seemingly do not want to do.
But this might never happen. I can launch a lending protocol completely anonymously, pump it on Twitter/Telegram, and get 7+ figures TVL overnight. It might not even be predatory (even though a lot are), but who would the SEC even go after at that point?
Sure, people will use VPN's and side-loaded apps, but would limit the damage quite a bit.
If it's so easy with such high rewards, why don't you try an MVP the next weekend and see how it goes?
[1] https://coinscreed.com/defi-top-10-list-of-crypto-rug-pulls....
1. OneCoin: Not even a cryptocurrency, a centralized currency. https://en.wikipedia.org/wiki/OneCoin
2. Thodex: A centralized cryptocurrency exchange. https://en.wikipedia.org/wiki/Thodex
Actual DeFi cannot be rug-pulled, by design. Not even the US can taken down something like Tornado Cash. What a smart contract can or cannot do is written in open source code. How are you going to rug-pull it, if it's not coded there?
1) Create code with subtle but privately known "bug" that allows profitable behavior far outside the bounds of what you advertise to the public as your code doing.
2) Wait for liquidity pools within the contract to build up.
3) Exploit the "bug"
Yes according to "Code-is-law" you're not doing anything "unlaw(code)ful." But it's a rug pull in everything but name. De-fi is basically never introduced as "there's contract 0x343cdc.... on the blockchain, go read the EVM code as nothing will be explained" so intent in the way something is introduced is instrumental here.
But IMHO this is still a better approach. Serious contracts go through multiple audits, deploye hefty bug bounties and if you are very risk averse you can avoid a new deployed contract for certain amount of time until it's not only audited but battle-tested. As a user perhaps you don't know and shouldn't care about the specificities of the contract or its security but you can rely on the thousands of other eyeballs that do.
For instance, a few audits of Uniswap:
- https://github.com/ConsenSys/Uniswap-audit-report-2018-12/bl... - https://rskswap.com/audit.html
Bug bounty program of Uniswap (up to 0.5M USD per critical bug):
I could also get rich knocking people in the head with bats and taking their wallets. For a little while.
It's telling some people who let their true colors show, espousing ideas like "hey if I can make good money hurting others I'll do it, and why haven't you!"
Crime is not hard, most houses are easily broken into, many people can be tricked, the human body is fragile, and society runs on a shockingly large amount of trust. Do not conflate the fact that most don't engage in the worst of crimes with the actual difficulty in doing it.
Genesis seems to have been acting as what's called a "non-bank bank" or "non-depository institution". They took deposits and lent them out. Whether this is legal in the US is open to question. "Non-bank banks", until now, were for qualified institutional clients, like other banks, brokerages, and such. They did not take retail deposits. They could make loans, from their own money. Anybody can make a loan. It's taking deposits that's regulated. Because, 1929.
I'd thought nonbank banks taking deposits was illegal. It may turn out to be. The Consumer Finance Protection Board is asking some questions.[1]
[1] https://www.consumerfinance.gov/about-us/blog/the-cfpb-final...
Securities exist only in the context of legal systems and regulators that label things as securities. They have literally no meaning outside of that context.
If you can create a token in a way that either is not clearly in the jurisdiction of one of these bodies or in a way where it is impractical for those bodies to enforce those rules, then people can scream "security" all they want but it's not going to have any practical effect.
There are other ways they can do proxy enforcement and such but if your question is seriously "how can this exist", id say that's a pretty straightforward answer and the potentially interesting question is "what is the framework for preventing this" and "do we have/ are we willing to allocate the resources and manpower to actually do those things"
Until you figure that out, these things will be around
I suppose that the answer to this question generally, which applies to banks, is: I don't think anyone wants a world where you have to be an accredited investor just to open a savings account. The definition of a security is complicated enough that the US Supreme Court weighed in.
https://www.kramerlevin.com/en/perspectives-search/when-migh...
So, complex subject with lots of ambiguous legal precedent, grey zones, inconsistent enforcement. And new technology that doesn't perfectly fit into the previous system of rules. Yeah, it's a mess, and it will probably be decades before it all gets sorted out.
This [likely] isn't one of the firms trying to squirm around securities laws. And those securities laws don't prevent losses or anything specific from occurring.
That's supposed to be a feature, not a bug.
At least that's what all the advertising posters and billboards and streaming audio commercials kept telling us.
1. Interfacing with the traditional (fiat) banking system: today this can be done with regulated fiat-backed stablecoins like Paxos USD, Gemini USD or Circle's USDC. It's critical that these institutions be carefully regulated by government entities to ensure the deposits are protected, but this is feasible (Paxos and Gemini are regulated by NYDFS, Circle's regulation story is more complex but there is one.) This regulation is crucial to ensure that "the assets are in the bank", but you only need a few such issuers to be regulated. This is much more scalable than trusting every two-bit crypto exchange in the world.
2. Custody of signing keys: this can also be technically managed by centralized institutions. Anchorage Digital and Fireblocks are examples of this. These centralized solutions can't ever perfectly eliminate risk (they are centralized, after all), but they can make you much resistant to rubber hose attacks. The actual technology is based on hardware security modules and MPC, plus lots of excellent security engineering.
In theory once you have reliable building blocks for these two components, the rest can be achieved using smart contracts without the need for further centralization or trust risk. (You will, of course, risk bugs in the smart contract. But this is a technical problem that we can potentially solve using technical means, not a fundamental problem of human trust.) In general the idea here is to optimize your "trusted human base" so that it is as small as possible (and have those parts carefully regulated), and then you can covert the rest into problems that have purely technical solutions.
Obviously this story only works if you're doing fiat-crypto conversion and storage of assets. The minute you start lending assets to people then you're back to trusting human beings to actually pay you back, so you'd better make good judgements about their (possibly illiquid) collateral.
Their is no business plan to account for such swings. The thing we've been saying for ten years on IRC is Bitcoin loans are gifts, because that's what they are. I've had enough loans defaulted on to definitely tell you and agree with this premise: once lending enters the picture, your money is just another row in a database.
2. If you're using an exchange for exchanging currencies (as opposed to speculation) you can send your money there, exchange it, and immediately send it back out. You're only exposed for at most an hour or two. If you've chosen a well-reputed exchange that's been around for 10+ years, chances are effectively nil that it suddenly disappears during that small window with no warning signs beforehand.
Which exchange does this? I'm not talking about finding some mom and pop accounting shop to issue a 1 page report stating they checked on a certain date and the reserves were there, where the majority of the 1 page was a disclaimer stating that this wasn't technically an "audit" and should not be relied upon as such.
More info:
> They only verify BTC and ETH
Click the link and you see this isn't true: "ADA ADA.S BTC BTC.M DOT DOT.S DOT.P etc etc"
> they don't audit liabilities at all
All liabilities were verified by the auditors and included in the merkle tree, and as mentioned, all users can independently verify that their specific liabilities are present. What more would you expect?
> the audit they did last December was the second in 8 years
Their most recent audit was end of Q2 this year. They do audits semi-annually.
Where in the report do they verify off-chain liabilities?
> 14) Compare the total liabilities from the Client Liability Report extracted from Kraken’s production database as observed within Procedure 5 to the total assets controlled by the Kraken custodied addresses (the “In-Kind Assets”) as of the specified date and time of the assessment time and calculate the collateralization ratio based on the In-Kind Asset-to-Client Liability mapping provided by Kraken Management
Ex: I am Kraken. Someone deposits 1 BTC with me. I then sign a contract with someone else saying "You give me 1 BTC now, I will give you 1.2 BTC in a year". I then sell 1 BTC. In my wallet, I will have 1 BTC, exactly matching my client liabilities. But my total liability is 2.2 BTC. And if those contracts start calling in early (IE, margin calls), I'll end up in a liquidity crisis.
Or more simply, what if Kraken just uses the BTC as collateral for normal loans from a bank? If they fail to pay them, then they'll fork over the client BTC.
Your defense against these tail risks is to remember, "not your keys, not your coins", and self-custody when you're not actively exchanging. In the end you do have to hope that the < 1 hour it takes you to exchange your coins and transfer them back to your own wallet doesn't overlap with the moment they decide to torpedo their 10+ year old business with no prior warning or red flags. But these are infinitesimally small tail risks.
But there is a very easy way to prove that there are not contracts external to the blockchain.
That's the whole point of an audit.
And it's very telling that they don't want their books audited, but repeatedly point to a clearly incomplete (from the perspective of someone who is concerned that the business might go under) as proof of solvency.
>Administered by Armanino LLP, the Proof of Reserves audit is the second of its kind conducted on our exchange since 2014, and it affirms that more than $19 billion worth of client bitcoin and ether is safely – and provably – on our platform. This includes the $3.5 billion worth of ether held in Kraken’s secure on-chain staking service, the industry’s leading ETH2 validator.
Though the audit covers just two of the over 100 assets available for trading on our exchange, it adheres to, and seeks to advance, recommended standards for new cryptographic audits that we hope will become widely embraced in the digital asset sector.
Nevertheless, from the most recent "audit" report:
>"We were not engaged to and did not conduct an examination or review engagement, the objective of which would be the expression of an opinion or conclusion, respectively, related to the platform account liabilities and asset balances represented by Kraken. Accordingly, we do not express such an opinion or conclusion. Had we performed additional procedures, other matters might have come to our attention that would have been reported."
So once again, they're not saying anything al all about Kraken's overall assets or liabilities, merely confirming that the customer accounts have the correct number of coins in them at a point in time.
> The procedure cannot identify any hidden encumbrances or prove that funds had not been borrowed for purposes of passing the audit.
In other words, this is a fancier version of the kind of attestation that Tether makes, the ones that leave loopholes you can drive dump trucks through.
100% and this just drives me bonkers. I'm not entirely unsympathetic to wanting to avoid financial regulation, like while I disagree it's a good idea, I can understand wanting to build a system that is built on math and not people. Fine.
But isn't the whole point of crypto radical transparency? As in: you know at all times where all the coins are and the details of every transaction that has ever occurred? Shouldn't this meet 100% of your auditing needs? Why are audits even useful? Well, they're really helpful if you want to run a shell game off chain, but still assure customers that you're not gambling with their money so they keep giving you more of it.
Like, arguing in good faith here, this is just a worst of both worlds situation. You have an extremely slow financial transaction system that you still have to hand audit.
If I can passively generate wealth by doing nothing but waiting, so can everyone else. Only suckers would work.
This is basic macroeconomics but for some reason crypto believers just choose to live in an alternative reality.
Also, it worked for thousands of years with gold. Whole civilisations have run on gold, for thousands of years.
Every time in history when some innovation comes up people doing the old way were saying "that's not possible. it will never work. you don't understand the basics of X". History surely rimes.
Would lending be allowed in your model? If so, what makes it different from the status quo (fractional reserve banking and ultimately debt becoming money itself)? If not, how do I start a business or purchase a home without the lump sump required to do so under my pillow?
How do you adapt the monetary base to increased or decreased production capacity in a world based on the Bitcoin standard?
Not every fundamentally broken economic model is an innovation, and just because everybody tells its proponents so does not make this idea some kind of underdog stroke of genius.
The same thing that incentivizes people to spend their USD today instead of passively getting rich using VTSAX
You have to have a lot of institutional checks and balances and almost unshakable faith in those institutions for things to functions. That really doesn't exist in reality.
I will give you that a perfectly managed currency (with cycles of inflation and deflation) is better than a deflationary currency for economic activity. But, you have to see that no such thing exists. The US dollar central management have been reasonably good - but that's the exception, not the rule.
TIL nobody uses the euro, pound, yen or renminbi.
Basic here means fundamental, not surface-level.
It's like saying carbon is a basic building block of life. It doesn't mean that if you dig deeper, it's actually something else. It means that carbon is where everything starts, and you go from there.
I personally have a bit more than a single undergrad econ class under my belt.
Sure, no eating, heating, transport, comms, but you can do that. Also very ecological. Plus you safe like 0-2% per year on prices.
> This is basic macroeconomics
What do they say happens when you have 2% deflation?
LocalMonero https://localmonero.co/?language=en
Even exposure to improperly run crypto exchanges and OTC desk is so limited, when using them properly.
I don't understand how this is still so foreign a decade plus later.
It's especially tiresome the fact that people keep pointing at these disasters claiming "crypto has failed", when reality is the exact opposite: CEXs are the exact antithesis of the core crypto idea of decentralizing trust. "Not your keys, not your coins" keeps being proven right.
Further - why do you believe that ownership is related at all to the fact that you can keep ledger entry with your wallet on it?
Ownership !== ledger entries. Ownership is a shared concept enforced by social constructs. It is not a fucking technical matter solved by a ledger.
EX: You sign a contract to send me 1 bitcoin in exchange for my car. I give you the car, but you never send me the bitcoin.
Who owns the coin? Because the ledger is going to let you spend it, but the courts are going to give me your shit. Same in reverse - I get your coin and then drive off with the car. Do I own the coin now? Because again - the ledger says yes, but our concept of ownership includes the idea of dispute and fraud - and the ledger doesn't fucking know or care.
Basically - your idea of "ownership" being limited to "my wallet, my coins" is both limited, childish, and insufficient.
However, you're also not bound by arbitrary rules by arbitrary people that may or may not hold their end of the deal. YOU own your Bitcoin, and until YOU send it to someone it's YOURS. On the other hand, money in the bank is "yours", but they can freeze your money anytime for whatever reason, or change the terms because whatever.
"It doesn't happen", sure. Until it does. And fyi "then it means you deserved it" is an excuse that reeks of first-world privilege.
Even if Bitcoin won't become the world currency, the concept of "ownership" can be useful elsewhere, especially games. Lots of games have "gems" or whatever currency the game uses. But you don't "own" these "gems", they're just a number on a database that you paid the company for. Not unlike Bitcoin, yes, but you have the added bonus of being able to exchange them freely. It's a net upgrade. The same applies to skins: you pay Epic Games for a Fortnite skin but... it's stuck there. You cannot trade it because you don't "own" it. With NFTs you do. I'd spend $10 on a skin if they gave me an NFT that I could eventually sell instead of a database entry. Out of the two options, the Postgres database is more of a scam if you think about it.
So the question is: is money on a blockchain any more yours in a meaningful sense that money in a bank? Sure there's a record on a ledger that you have some bitcoin, but the value of that currency can be manipulated, you can be coerced into transferring those funds to someone else, or your currency can be blacklisted[2].
With the example of games, you can be banned or the item you "own" can be banned arbitrarily as well. Nothing on blockchain prevents the game from keeping a blacklist of items that are not allowed to be used. Sure you can trade stuff (maybe), but that's already possible on e.g. Steam. IMHO, one of the biggest outcomes of that has been illegal gambling rings that use CS: GO items as a proxy for currency - which is hardly a positive development.
[1] https://en.wikipedia.org/wiki/Man%27s_Search_for_Meaning
[2] https://cryptoslate.com/despite-tornado-cash-fiasco-bitcoin-...
Can you functionally use them in the way you intend to?
Are they fungible currency for which you have access to goods and services (hah! they're not that even now...)
You don't get to "opt out" from society with a clever technical trick and some cryptography. For better or worse, we're in this together.
Society is not a thing you can delegate to other people. It's literally the deal we're all working with as a group. If you think the group is making bad decisions... make a compelling argument and put it in front of the group. Or Leave. Or rebel.
The ledger entry doesn't do you much good when you're bound by the covenants of the society you live in, and they think the ledger is wrong.
---
The only place it may help is if you plan on intentionally breaking the covenants (ex: committing crime and fraud, such as black market deals - where I do actually believe crypto has a compelling use case [and have used it for such on the og silk road]). But now it's just a twist on the "rebel" category, and governments can and will treat it as such (see: China).
Anything that can be easily traded for currency can also act as currency so you quickly fall down the KYC rabbit hole if you want to - for example - keep children from gambling.
Also, be mindful of what the FDIC (or its equivalent in your country) insures per bank account. It might be worth it to use multiple accounts.
Do not put money into any crypto exchange, relying on the FDIC to protect you in the event the exchange goes bust.
That list seems to include buyouts, though, i.e. cases in which the FDIC didn't actually have to directly disburse funds.
In Europe, there were two bank failures that I know of in the last few years that required tapping into the regional FDIC equivalents. In at least one of them, quite a few depositors actually lost money (due to having savings in excess of the insured maximum).
"Purchase and Assumption Transaction. This is the preferred and most common method, under which a healthy bank assumes the insured deposits of the failed bank. Insured depositors of the failed bank immediately become depositors of the assuming bank and have access to their insured funds. The assuming bank may also purchase loans and other assets of the failed bank."
Now, that could change and we could see a recurrence of the wave of bank failures that started in 2008 and slowly tapered off, but your argument for that can't just be a hand wave at "trying times" and "fractional reserve" because the numbers currently show the opposite: https://www.fdic.gov/bank/historical/bank/
Still smart to keep total accounts per type per bank under the insurance limit (currently $250,0000), and to directly verify that your accounts are actually insured using the FDIC's tool: https://closedbanks.fdic.gov/aii/
But they were bailed-out by larger banks, and eventually the taxpayer. Next time, there might be bail-ins instead. [2]
[1] - https://www.investopedia.com/articles/economics/09/financial...
[2] - https://www.investopedia.com/articles/markets-economy/090716...
[1] https://www.americanbanker.com/opinion/will-fdic-keep-protec...
There can be clawbacks for anyone getting their money back within 90 days of bankruptcy filings. I wouldn't spend it all just yet.
(Gemini uses Genesis for their lending program, Earn.)
https://media.tenor.com/jVpPsiwNI-gAAAAd/indiana-jones-door-...
This Bloomberg article has more:
> Crypto brokerage Genesis is suspending redemptions and new loan originations at its lending business after facing what it described as “abnormal withdrawal requests” in the aftermath of the collapse of FTX.
https://www.bloomberg.com/news/articles/2022-11-16/crypto-br...
There's also this interesting bit:
> Last week, Genesis said it would get a $140 million equity infusion from its parent company, Barry Silbert’s Digital Currency Group, after disclosing that its derivatives business had $175 million in funds locked in an FTX trading account. The lending business had previously been affected by its exposure to bankrupt crypto hedge fund Three Arrows Capital, to which it had made a $2.4 billion loan.
FWIW, Digital Currency Group is the company behind the popular GBTC closed-end fund, which is available to US investor brokerage accounts. This fund has had problems of its own, trading at a relatively large (and growing) discount for some time:
https://www.bloomberg.com/news/articles/2022-05-13/grayscale...
Oddly enough, the Genesis Trading yield farming page makes it look like nothing unusual is going on. No announcement, no notice, no nothing. Situation normal.
I'm not the most plugged-in to the cryptocurrency community; anyone know what proportion of cryptocurrency business this makes up?
Are they allowed to do that?
None of that exists in the crypto space. The exchanges control the price and regularly trade against their own customers, and recent events have shown that they are all co-mingled and propping each other up.
Exchanges going down is bad news even if you keep your coins in your own wallets. With the exchanges gone, actually using your coins will become much harder. Worse, as power consolidates among fewer exchanges the price becomes even easier to manipulate.
A currency has no intrinsic financial investment value. Especially not an arbitrarily created crypto currency.
The only reason it's price would go up is people speculating that someone else will want to speculate on it in the future, and will pay a premium to do so.
We all know what it looks like when the future speculators dry up.
I'm not sure your point here. Derivatives absolutely are a driver on the price of the underlying assets. Derivatives are what inflated the housing bubble prior to 2008.
I generally agree with you that homes have an intrinsic value, and that currencies do not necessarily have that. But that intrinsic value of homes was probably around the bottom of the 2008 housing market, not the top. On either side of that, home values exceeded the fundamental value due do manipulation or excessive leverage. In my mental model, fundamental value merely establishes a price "floor" of a market, but beyond this price floor every market is subject to mania and bubbles. For housing, the fundamental floor is non zero, for crypto, you could argue that it is zero.
> The only reason it's price would go up is people speculating that someone else will want to speculate on it in the future, and will pay a premium to do so.
This is true for housing also. Having a intrinsic value does not mean that housing prices should be expected to go up forever. As a clear counter example, deflationary goods like computers have a clear intrinsic value, but are not a good investment as they will almost certainly lose value.
Yes derivatives are a big part of what inflated the bubble prior to 2008, but the fed purchasing them didn't do anything to maintain home prices.
The combination of (ARMs + low interest rates) and lenders being able to immediately flip mortgages to other to be combined in CDOs and other MBS derivates inflated housing. Lenders could make loans that they knew borrowers could not repay, but because it would be off their books before that time hit they continued to make them. Derivatives inflated the bubble.
But as rates continued to rise, ARMs began to reset, and buyers at the new prices dried up, prices began to crash and people began to walk away from homes. This immediately dropped home values and caused MBSes to devalue quickly. Demand for MBSes dropped immediately. Lenders stopped making loans because they realized they could no longer flip to loans to others to securitize them. As nobody wanted to buy a MBS now. This dried up the demand side, plus foreclosures added to supply side.
The fed stepped in and began buying close to worthless MBS for way above value not because of any impact on the housing market (overall MBS demand was still enormously down), but because they were buying them above their value to prop up the market so financial companies could still price them to "market" on their books and (via façade) maintain their capital requirements. They also purchased them to help inject capital into the markets and take more MBS off their book. The fed purchased these to prop up the financial system - it had nothing to do with home prices and had little impact on home prices. Lenders stopped pushing unviable loans to borrowers because they now held the risk. And they would hold the risk regardless.
The fed didn't prop up the housing market in 2008, they propped up the financial markets because so many people tried to get rich quick off mortgage backed securities and the bubble burst.
The bubble is now bursting in crypto. As you said, the floor for crypto (with little to no intrinsic value) is zero. The only question is how close to it's intrinsic value will it fall.
Wall St. pushed hard to keep MBSes unregulated, they formed a bubble and then fell back to close to their intrinsic value. Their intrinsic value was maybe 30% off of their peak value. (Maybe a bit lower, but due to the illiquid nature of housing the market never fully fell to it). So now crypto also unregulated has pushed a bubble, how far does it have to fall to hit its intrinsic value?
That's like saying "Avoiding nuclear war is propping up the housing market. If we have nuclear war then society ends, the population collapses and the housing market with it. So avoiding nuclear war is propping up the housing market."
It's a terrible analogy to attempt to make. And it's wrong.
> What was the policy objective of the Federal Reserve's program to purchase agency mortgage-backed securities? The goal of the program was to provide support to mortgage and housing markets and to foster improved conditions in financial markets more generally.
Bullshit. It exists, it's just that the UI/UX is awful and most people in the developed world have no need for it. But they do exist. My work on hub20 [0] is exactly that, to have a system that would let people and communities create their actual self-custodial "crypto banks".
[0]: https://hub20.io
The two problems with this setup are:
* The exchanges are dishonest and unregulated.
* The exchanges are exploding like a chain of firecrackers.
So crypto is going from a state of having most transactions go through dishonest exchanges to being in a state where people own crypto but trading will become almost impossible.
Is the price going to go up? Will it go down? It doesn't matter, since without exchanges you can't actually use it for anything.
Before repeating your baseless argument, please read about my project. Start with the about page. Understand that we can have global commerce with crypto without the big centralized exchanges. It's only an issue of scaling down and accepting that even though "trust" is needed for efficient transactions, this can happen at a much lower level.
A house is 99% crypto and 1% "need."
Crypto follows a similar trajectory. The vast majority is speculatory and un-"need"ed bullshit and a tiny slice is stuff where it has a comparative advantage to traditional finance/money.
There is a pretty fundamental difference between houses and crypto.
/s
/s
As in, "you have to be ready for a 90% withdrawal at any time".
This would have solved every problem.
And of course, once you've opened the door to not being fully backed, now we're just arguing about exactly how not backed things are. There are other reasons you may need to flex a bit more than you might expect.
It is probably more profitable to try to delineate what they are allowed to do rather than what they are not allowed to do.
Also, some really superficially appealing regulations cause problems if you try to manifest them in the world. My guts wants to agree that you should always have to have the exact thing your account is denominated in, but if you want to enable international transactions, surely a sensible thing to want to do, now you need to allow some flex for the fact that if there's a three-way transaction between dollars, yen, and bitcoin, there's going to be some conversion. If the exchange is going to permit this, they probably don't want to acquire the other currencies for every single transaction, paying a non-trivial overhead each time, they're going to need to be allowed to hold a certain amount of reserves of each currency they transact in, even though this will come out of the customer funds.
All this stuff makes sense and if done responsibly isn't necessarily a problem. The problem is that over the weeks, months, years, decades of it being done in a way that isn't necessarily a problem, there's all the incentive in the world to chip away bit by bit until it becomes a problem. This goes back all the way to the concept of coin shaving (the reason your coins all have ridges on the side) and I'm sure it wasn't a new idea then. Put whatever rails in you like, people always find ways of going right up to them, and then just a bit beyond, and then a bit more beyond....
I'm not a crypto guy, so this may be a very basic question: If people can hold coins in their own wallets, why did they give them to these companies acting like banks? Were they promised interest or something?
I hope that crypto exchanges are outlawed soon.
Isn't the primary use case for crypto that it's beyond the reach of laws?
And yes, most of these exchanges have programs where you earn interest or otherwise get various perks for staking your coins on the exchange. FTX was offering 8% APR at one point, which should have triggered people's too good to be true whiskers, but the greed around getting rich quick with crypto coins has people breezing right past that.
- Self custody can be hard to do securely for less technically savvy investors
- Fast access to trading; some people want to swing trade or just have it available to sell or buy in a moments notice
Actually, scratch that. Nerds will lose their crypto wallet AND their physical wallet to the rubber hose cryptanalysis. In fact, this is a great opportunity for enterprising criminal minds.
Last time I had to "verify my ID" online, it amounted to a photo of my driver's license and knowing my previous address.
They will not.
According to the Financial Times, A recent (or future?) EU legislation allow supervised crypto exchanges EU wide with the condition of 50.000 euros minimun capitalisation.
A member of the board of director of ECB commented: - Crypto providers are very hard to regulate - Banks should step in. - Crypto preys on very fragile people, i.e. poors, minorities, financially illiterates, etc...
It sounds like an injonction masquerading as a mere statement.
All of the pure shitcoin exchanges, centralised "loan" providers, etc etc are probably going under. Most people I know have had this priced in since forever, they come and go all of the time.
It's news like this that keeps me holding on to my Bitcoin. Once digital cryptocurrencies become in vogue again BTC will once again become valuable.
There already is a digital dollar. It’s called “dollar”.
Personally, rather than having obscure scores and lists in the background preventing people from getting banked with next to no recourse in case of mixups, I'd appreciate a public alternative, if only as an experiment and to encourage the banking industry to innovate a bit.
There are very interesting technologies being developed in this space as well, e.g. Taler offering one-sided anonymity for payments.
- you're already at the mercy of the "guys with guys" and the judges who direct them.
- central banks struggle to get timely complete information to make decisions. CBDCs offer a path to finally fixing this.
- central banks are very limited in what they can do today and in particular can't pop individual asset bubbles without cratering the economy. CBDCs offer a path to finally fixing this.
I know the crypto libertarians simply hate the govt, but frankly I love the (US) government:
- military that's reasonably competent (vs random warlords trashing everything)
- airports, roads, subways and infrastructure (vs every man for himself?!)
- air, water, food, etc that's reasonably clean (vs actually being poisoned or living in bubble?!)
The list goes on, but you get the idea.
Money == power.
Alternative currency not created and vetted by the government will mean a loss of power for the politicians.
Ideally, in a world where everybody has access to a checking account covered by adequate deposit insurance and interbank transfers are instantaneous, the difference is purely academic – but depending on where you live, reality falls short of that ideal.
There are two possible solutions: Regulate the desired status quo into being (or trust the market do do it, or any combination thereof), or create a public alternative. These aren't in any way mutually exclusive.
I mean, people withdraw bitcoin for stacks of $100s.
No cash, and everything is traced. Nobody gets to be "paid under the table", no exchanging cash with your dealer for drugs, no buying things you may be ashmed to buy with cash.
That is quite a leap in logic, or "implies" is doing a lot of work in that sentence.
Unlike other currencies, all US currency ever issued remains legal tender [1]. Honestly, if you want untraceable transactions - using US cash is going to be way better than any digital currency.
Even if that were to happen, you could still get paid under the table will gold, gemstones, bushels of corn, pallets of durable goods, etc. meatspace won’t simply end when a central bank issues a digital currency.
But its existence will give independent digital cryptocurrencies like Bitcoin more legitimacy, which translates into higher demand, which translates into a higher price.
I foresee countries like Russia, China and other rogue nations betting big on digital cryptocurrencies to evade sanctions. From what I gather they're already doing this now, but in the future more non-aligned countries in Africa, Asia and South America may join them. The best way for them to do so would be to use Bitcoin since most financial networks (SWIFT) are controlled by Western nations.
These countries are fed up with the West's incessant financial terrorism and misuse of financial institutions to strangle them or to put them on a leash.
You mean beside paying taxes or going to jail, right?
How exactly? The legitimate uses will move to the legitimate digital currencies which will leave only illicit and speculative users, further tanking Bitcoin's reputation.
I have reasonable risk management and decided the returns weren't worth the risk, but it seems that many people either have worse risk management or were desperate to better their financial situation and saw a high-risk bet as the only option.
I hope we haven't raised people with such poor risk management, so I wonder if people are desperate to gamble because they don't see a better solution.
Over at Genesis, there's this news article: "Crypto lender Genesis accepts NFTs as collateral for loans" [1] or [2]. That's in the Financial Times today. Does this mean that on the same day, Genesis stopped withdrawals and started accepting NFTs as collateral? What this seems to say is that Genesis borrows money at a high interest rate and lends it out on even riskier loans. What could possibly go wrong? Or, more to the point, what has already gone wrong?
[1] https://www.ft.com/content/ce600e79-93cf-40c8-928c-e9bbd6607...
Edit: I see it's only for their savings wallet.
No, this is a ponzi scheme running out of suckers: the fundamental source of crypto growth and liquidity was getting new people and new money in, and that flow largely stopped this spring. Without that inflow, the bubble explodes because it has unsound fundamentals, there is nothing in the crypto space today that could justify a 1 trillion dollars value creation. Maybe some day crypto will create that value and some people want to be there and invest today, but this is only a belief, and a belief shared by enough people and with no basis in reality is called a bubble.
Of course, the first to go are the most fraudulent and sketchy shops, like FTX turned out to be, and it would apear they "caused" the crisis, like Lehman in 2008. But the economic reality is that the crisis was unavoidable, it's intrinsic to the limited real world utility of crypto.