Here Come the Crypto Hypocrites | Hacker News Reader

Here Come the Crypto Hypocrites

theatlantic.com

23 pointssamizdis13 comments

"FTX fell apart not because of whatever possible fraud Bankman-Fried may have committed, but because a sell-off in the value of its own fake currency sparked a huge run on the bank, which FTX did not have the funds to meet. As a result, any crypto traders on an unregulated exchange have to be wondering now whether their money is safe."

A run on the bank wouldn't have mattered if there was no fraud. Funds were stolen and used to make losing bets.

An actual bank run where an exchange is solvent but doesn't have the liquidity would still be a problem if there's no lender of last resort.

An exchange that doesn't play with customers deposits can't really lack the liquidity to return those deposits, because the deposits are there.

That’s true in the absence of margin. However these were primarily margin products (“perps”) meaning the exchange has “jump to default” risk if the person on one side of a trade suddenly goes bust and liquidating the collateral isn’t enough to make the other side of the trade whole. In that case if that person immediately tried to withdraw the funds wouldn’t be there even without any kind of fraud.

Normally I believe real-life exchanges have insurance to cover this eventuality.

Sounds like they were stealing the customers deposits in order to provide those margin services then.

It certainly sounds like they were misusing/stealing customers' deposits to cover losses etc, although it's possible to run an exchange which offers margin responsibly and still have the "run on the bank" scenario above occur. If left unchecked, losses could impact clients even if the exchange had not been misusing customer deposits as I explain above. When that looks like it will happen in normal financial markets, exchanges intervene to prevent it, although it is extremely controversial. For example, when LME halted nickel trading and canceled some deals recently[1].

[1] https://www.reuters.com/business/lme-suspends-nickel-trading...

Yeah, but crypto exchanges subsume the roles of broker dealers, clearing houses, depositories and shadow banks.

I have said all along that the only thing government had to do to kill crypto was ignore it and allow it to collapse under the weight of it's own corruption and incompetence.

By the way, what did the last Republican administration do to regulate crypto? Absolutely nothing. Since when do Republicans cry out for more government regulation?

Re your last paragraph you could make the same argument about legal abortion

Accountability and control are two sides of the same coin. Crypto gets both or none. Splitting the two after the fact of (chapter 7/11) is rhetorical nonsense. Generally speaking AGs can't keep up with crime. They have to manage where they put their resources. Calling it selective prosecution is also BS

Wasn’t a crypto problem. It was a problem of centralized entities (exchanges) engaging in all the usual corruption that decentralization was hoped to eliminated.

In the lead up to this mess FTX was NOT treated the same by regulators as the other exchanges.

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