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Crypto exchange AAX suspends withdrawals

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Re: Crypto exchange AAX suspends withdrawals

#91

Post by giancarlostoro »

benjaminwootton wrote: post #26
lbriner wrote: post #7

Forgive my ignorance but it seems that one major problem with crypto-exchanges is that they don't necessarily have any assets other than the crypto that has been deposited there, which means all overheads (which I am assuming for some of these guys is $Ms/year) can only come from trading crypto unless they are charging reasonable money for the privilege of using their exchanges. In the FIAT world, banks make tonnes o…

They should make money in the same way that the New York Stock Exchange does - by taking a small fee from every trade.

This is how CoinBase works basically.

Re: Crypto exchange AAX suspends withdrawals

#92

Post by fallingknife »

lbriner wrote: post #7

Forgive my ignorance but it seems that one major problem with crypto-exchanges is that they don't necessarily have any assets other than the crypto that has been deposited there, which means all overheads (which I am assuming for some of these guys is $Ms/year) can only come from trading crypto unless they are charging reasonable money for the privilege of using their exchanges. In the FIAT world, banks make tonnes o…

It would be fine if it were only an exchange. If the only assets are those of the customers deposited, then everyone can withdraw at the same time without issue. The problem is that they are also lending on margin, which means they are lending customers money to use to buy more crypto.

Each customer has their margin loan secured by the crypto in their account, but in a steep drop in crypto valuations, the value of the crypto can drop below the loan principal. And if individuals don't cough up the cash to pay the balance, the exchange is on the hook for it.

And it gets worse. Where does the exchange get the cash to lend in the first place? They borrow it, of course. And like the individual traders use the securities in their account as collateral for their loans, the brokerage uses all of the securities they hold as collateral for their loan. Problem is that they don't own these securities, but rather hold them on behalf of customers. So in a situation where the exchange as a whole is undercolateralized, the brokerage as a whole can get a margin call. And then they will have to liquidate securities they hold (your crypto). This means that even if you are a customer with a low risk portfolio, you can lose your securities because the exchange took on risk to finance someone else's risky trade. This exact process happened at MF Global back in the financial crisis, and would have happened to a lot more firms if the government hadn't bailed them out.

Margin lending in the stock market is heavily regulated, and I'm sure you can see why. Crypto is the wild west. A lot of lessons were learned about this in the crash of 1929, and the crypto market is learning them now.

Re: Crypto exchange AAX suspends withdrawals

#93

Post by melenaboija »

lbriner wrote: post #7

Forgive my ignorance but it seems that one major problem with crypto-exchanges is that they don't necessarily have any assets other than the crypto that has been deposited there, which means all overheads (which I am assuming for some of these guys is $Ms/year) can only come from trading crypto unless they are charging reasonable money for the privilege of using their exchanges. In the FIAT world, banks make tonnes o…

With your description I am guessing that what you call FIAT world is a financial system that is regulated where in fact banks (not exchanges, although they are also regulated in terms of what they can do with whatever is deposited and how they create revenue) are forced to hold cash to handle the risk and ensure some safety for the deposits.

> If this is true, how does it get fixed?

So far the only way to fix this seems to be with regulations, which seems to go against one of the main arguments in favor of these assets.

Re: Crypto exchange AAX suspends withdrawals

#95

Post by culanuchachamim »

I'm sorry for the ignorance, but why a crypto exchange is expected to keep the money of the customers in case they want to change back their crypto, and it's not like a regular exchange house where you exchange one currency for another currency, and once the transaction was made, they not obligated to exchange back.

Re: Crypto exchange AAX suspends withdrawals

#96

Post by flanked-evergl »

spywaregorilla wrote: post #72
flanked-evergl wrote: post #42

Earlier quoted context omitted.

In the real world all organizations are regulated and fraud is illegal. But sadly something being illegal does not prevent if from happening, and greasing political palms always help: https://fortune.com/2022/11/10/sam-bankman-fried-ftx-joe-bid... ( https://archive.ph/BBpQN#selection-417.0-424.0 ) > The 30-year-old Bankman-Fried has been a major force in Democratic politics, ranking as the party’s second-biggest indi…

SBF spent about 33% Republican / 66% Democrat EDIT: Not accurate ^ Yet 18 of the 25 top donors were Republican leaning. Billionaires comprise 20% of Republican funding vs. 14% for Dems. Most republican megadonors were entirely republican. The big ones are from hedge funds. So yeah, SBF donated to the dems. We need more regulation to get money out of politics. But let's not kid ourselves into thinking the republican p…

> So yeah, SBF donated to the dems. We need more regulation to get money out of politics. But let's not kid ourselves into thinking the republican party is immune to this. They are in it. They tend to be more in it.

Fair enough and thanks for the context, but politically connected is politically connected. Can be politically connected to democrats or republicans.

Re: Crypto exchange AAX suspends withdrawals

#98

Post by p0pcult »

jacknews wrote: post #77

This all seems like less a problem of crypto as such, and more that exchanges are making a virtual fractional reserve currency by leveraging customer deposits for loans/investments. ie it's a 'banking' problem, specifically a 'fractional reserve banking' problem, not a crypto problem. This is exactly why fractional reserve banking is heavily regulated.

This is the correct take, and why American regulators need to address crypto sooner rather than later.

Re: Crypto exchange AAX suspends withdrawals

#99

Post by jeremyjh »

speakfreely wrote: post #32

> Due to the failure of our third-party partner, some users' balance data were found abnormally recorded in our system. Hence, limiting our services to prevent further risks, the technical team has had to manually proofread and restore the system to ensure maximum accuracy of all users’ holdings. "Abnormally recorded" ... "prevent further risks" ... "manually proofread" ... "maximum accuracy". Wow.

We’ve already stolen your money, but hopefully as a community we can work through these troubling times together.
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