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Comment by Galanwe | Hacker News Reader

> They are not prepared at all for a "bank run"

Nobody is prepared for a bank run, that would be idiotic. It would mean storing strictly only liquid assets.

> USDC on the exchange are not backed by real USDC. Therefor they need to market buy them.

That's pure speculation on your side... Withdrawal pauses have happened many times in the past, it's not really alarming. Only when something bad happens afterward do people remember there was a withdrawal pause before, but there has been countless pauses before with no problem afterward.

> Binance and Binance related coins such as BNB, BUSD and Tether.

What...

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> Nobody is prepared for a bank run, that would be idiotic. It would mean storing strictly only liquid assets.

Binance is a broker, not a bank. A bank run on a broker simply shouldn't be possible. A broker is supposed to hold whatever the customers want to hold on their behalf (in so-called segregated accounts, so that the assets belong to the users, even if the broker should go bankrupt). If the users want to withdraw, you just give them whatever you were holding on their behalf.

A broker is not supposed to invest users' funds into something else. If you're acting honestly as a broker, there can't be a mismatch between users' deposits and their assets. Don't fall for this nonsense touted by SBF, the problem is that they are acting dishonestly (and cluelessly, it seems), not that there was any sort of unfortunate liquidity crisis or whatever.

Holding does not mean holding _now immediately liquid assets_. For the 10000th time: no single broker has ever been instantaneously liquid.

Sure, but they are solvent enough, aren't they? Curious, if banks screw up and ruin customers nobody is out there defending traditional banking. Still, there are people defending SBF, FTX and Binance. Not sure how Binance will do, but it doesn't look good, does it?

> Holding does not mean holding _now immediately liquid assets_

What do you mean by liquid? USDC is an ERC-20 token on Ethereum. 'Holding' it means having the private key to a wallet that has been credited with a positive balance in the smart contract. Transferring it is as easy as calling the transfer(address to, uint amount) function from that wallet - you'll have to charge the user for the transaction fee, but that's fair game. According to CZ's tweet, they don't actually hold USDC on behalf of the users, but they try to buy them on the market when users request withdrawals, which is simply not how a broker is supposed to act, and a recipe for disaster. Stop defending this practice.

> no single broker has ever been instantaneously liquid.

Really? If Vanguard had to transfer all of my cash and all of my ETF holdings to directly and everyone elses too I would expect that to be zero hassle for them bar the likely collapse of their future business.

Go ahead then. Log in to your Vanguard account, withdraw everything, sell your ETFs, and tell me when the funds are wired in your bank account.

> Nobody is prepared for a bank run

It's an exchange. Your money should be 100% liquid. Everyone should be prepared for a bank run. Unless they're just as dodgy as FTX and using everyone else's money for shenanigans.

I don't know why people are defending this as if it is a good thing.

Sorry but no.

No single broker on the planet is instantly liquid. At the very best daily liquid.

Most currency settlements are between 1 and 3 days for DM. Your "feeling" of instantaneous transfers is just front office display, the real back office takes days.

If your exchange is taking your deposits and market selling them before you have them on the market then they are front-runners and they cheated you.

I don't know how else to say it, your buying power is not their buying power just because they have it on deposit and you trusted them.

That's the thing we trusted them not to do, and that's how exchanges like FTX lose the trust of their customers. If you think this is just the cost of doing business, you're a fool.

Crypto currencies do not take days to move from point a to point b. That is old world baggage.

Brokers use conventional bank accounts for your dollar or euro account balances. The eurozone has instant SEPA now. That is as fast as it gets. Faster than most cryptocurrencies.

What a ridiculous statement.

Every legitimate exchange is prepared for a “bank run”. because they don’t behave like banks since they’re exchanges.

Being exchanges, they have your money in exactly the form that shows up in your account.

Binance (and FTX before that) apparently doesnt, because it’s behaving like a bank and lending out your money despite claiming to be an exchange and not a bank.

Banks are, up to whatever the legally guaranteed deposit insurance is, prepared for bank runs. And I never heard of actual banks limiting or even pausing withdrawls, non-cash, ever. And those cases where they do, e.g. Libanon, are a dead give away the economy is fucked. So, drawing from that parallel, the crypto economy might very well be fucked.

>And I never heard of actual banks limiting or even pausing withdrawls

Most banks pause withdrawals every night. They are only open during the day. You can't just show up at 2 am and be able to withdraw 10 million dollars.

I can withdraw 1k at 2AM in any ATM in the world. The only reason why you can't withdraw 10 million at that time is purely for KYC purposes. Withdrawals aren't paused because the bank doesn't have the money, merely because there's noone physically present to handle it (partly because, even with 10 millions, you're not worth the time of an employee, and because nobody _needs_ to withdraw 10 million suddenly in the middle of the night)

You could, following regulatory and bank internal processes, trabsfer those ten million in one go to any bank account in the world so. Assuming you have internet and a phone.

It is not like Binace is limiting cash withdrawls, they a halting wire trabsfers. For me that's a dead sign the money isn't there anymore.

>Withdrawals aren't paused because the bank doesn't have the money, merely because there's noone physically present to handle it

Which is what is happening to Binance.

Impossible to tell apart without properly prepared, and audited, balance sheets.

No. When I can't withdraw, it's because my bank teller is sleeping.

Binance has a bank teller, but he's telling you "uh hold on we need to buy your money from another teller that's sleeping because we don't actually have it. Do you want to get our monopoly money instead?"

Binance is about to pull the rug.

Is the tweet then a canary in the coal mine signal for special friends that can’t be called directly?

"legally guaranteed deposit insurance" up to insurance limit. You're not always guaranteed to get all your money back.

Disclaimer: not defending Binance, not into crypto, just a note.

Depending on jurisdiction, and your net worth in cash deposits, well you very well are. In the EU each single account is guaranteed up to 100k Euro cash, anything above that is quite often subject to bank specifoc guarabtees and insurances. Also, banks are, since 2008, undergoing regular stress tests. They always have published audited balance sheets, have rules and regulations around the use of customer deposits, which again are controlled. Heck, even during the Wirecard collapse nobody lost deposited money as far as I am aware.

As soon as a bank fails to provide audited balance sheets, authoroties can step in and halt operations. Mainly to make sure customers deposits are still there and can be withdrawn by the legal owners. It is almost hilarious how Crypto is relearning, at a redicioulous pace, all the lessons tradotional finance and banks learned over the last 100 odd years. And still fails to see that all the answers are already there. In a sense, it is almost peak start-up cliche disruption. Can almost be a good thing so.

How did you end up comparing Binance to a bank? The closest equivalent to what Binance is would be a broker.

Now I challenge you to find any broker on the planet that can promise instant FX swap settlement on the same day for a cash account.

Don't compare apples and bananas.

If I have someobe holding my crypto currency, that is as close to a crypto bank as it gets. Otherwise crypto woupdn't be money but some form of security. In which case, one has to ask, it is not regulated as such.

And show me one broker that refused, regardless of transaction fees or other contractual stuff, customer wothdraels of funds. Other than those brokers that actually "lost" customer funds. Which is, by the way, also fraud.

So if a securities broker is holding my USD, does this make USD a form of security and specifically not money?

> If I have someobe holding my crypto currency, that is as close to a crypto bank as it gets.

You don't get to define what is a bank, and "anyone holding my money" is definitely far from the definition of a bank.

USDC is _not_ USD. When you deposit 100 USDC to Binance and ask to withdraw USD, you are effectively making an FX swap between two currencies, even if these currencies are 1:1 pegged.

Again, there is simply no broker on the planet that will do that instantaneously. USD is 1 day settlement, you just won't get any better than that, unless the broker accepts to take the counterparty risk of paying you upfront. No existing broker will do that for any substantial amount.

Ok but there is a big problem with your argument. If that is the case why did the Binance CEO have to make an announcement on Twitter if the business terms already include that USDC to USD settlement takes a business day? The banks being "late" is not unusual, it would happen every single day.

> Now I challenge you to find any broker on the planet that can promise instant FX swap settlement on the same day for a cash account.

Don't compare apples and bananas.

If I deposit Shmollars to a regulated brokerage they will hold my Shmollars in Shmollar denominated account and upon request will instantly (subject to technicalities of the transfer) transfer those Shmollars back. No FX swap needed.

Now if they convert those Shmollars to anything else without my explicit request then they are no longer a brokerage and more comparable to an unregulated bank. Which is what Binance apparently did.

I've seen a bank branch being temporarily out of cash and hence pausing withdrawals in a relatively functioning economy before. Happens.

ATMs at my bank in Germany were down because of a strike.

But we still could transfer money out to other accounts at other banks, couldn't we? And that is what those crypto exchanges are blocking.

Crypto exchanges need sophisticated hot/cold wallet management for security. Hot storage is their equivalent to cash on hand. Hot storage can be quickly depleted.

If a crypto exchange just disables withdrawals of one asset, users technically still can sell it for BTC, ETH or another stablecoin and withdraw that.

Sometimes my banking website is down for maintenance.

Nobody is prepared for a bank run, that would be idiotic. It would mean storing strictly only liquid assets.

No bank is prepared for a bank run. It's not supposed to be a bank. Banks make money by using customer deposits to generate revenue through loans. Exchanges make money through fees and aren't supposed to be using customer deposits at all.

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