7 ms·

I think Coinbase does fractional banking, I don't have any proof so not completely sure but you can judge yourself, this happened a few months ago: - nuCypher

I think Coinbase does fractional banking, I don't have any proof so not completely sure but you can judge yourself, this happened a few months ago: - nuCypher just randomly started going up on Binance - the price was still low on coinbase - the normal thing to do was to withdraw from coinbase and sell on binance "Oops withdrawal of nucypher is temporarily locked", it stayed locked for 8 hours, all the crypto subs on reddit were screaming about it etc... a normal shitshow. No explanation whatsoever was given, the only one that makes sense to me is that they do fractional reserve like everyone else, since there is no way everyone is going to withdraw at the same time right? in the 2021 bullrun coinbase received a lot of non technical people who are ok with keeping their funds on their website, so I guess they figured out they could just imitate the banks and start lending the funds people keep there and have you trade imaginary tokens you can't withdraw if you see a better opportunity.

sauwan 5y ago
Couldn't this just be that they keep some amount in cold storage that's not super easily accessible?
- KingOfCoders 5y ago
  8h? Iceage storage.
  - dannyw 5y ago
    It is entirely reasonable to use hardware security modules that enforce timelocks for signing.
    - vermilingua 5y ago
      If it were entirely reasonable they probably would have disclosed that as the reason.
- snarf21 5y ago
  They're an exchange. Cold Storage is not their job. It isn't much of an exchange if I have to wait 8 hours to put in a sell order.
  - nanidin 5y ago
    I wonder what your statement would be if a hacker compromised the hot wallet and drained all of the funds?
    - snarf21 5y ago
      I would expect them to have insurance against theft like everywhere else I store money.
      - nanidin 5y ago
        Hmm. I would expect them to have layers of security, with one of those layers being funds in a cold wallet with serious access control around it. If I were asked to insure them, the premiums and coverage would hinge on security layers and mitigations in place to prevent loss. I don't think it's unreasonable to have funds in a cold wallet.
  - matheusmoreira 5y ago
    They don't need hot wallets for exchange trading. That's just normal accounting, numbers in a centralized database. They could have zero reserves and it'd still work. Only when you withdraw cryptocurrency from the exchange and into your own wallet do they need to produce actual coins for the transaction.
  - nybble41 5y ago
    Coinbase definitely doesn't keep all their funds in a hot wallet. They keep enough readily accessible to cover the projected volume of withdrawals; the rest can be kept offline. They even specifically offer a "vault" service for managed cold storage. When you put in a sell order through the normal "retail" interface you're trading with Coinbase itself. Those coins can stay offline in cold storage, as they're just moving numbers around in their database, off-chain. Only withdrawals and periodic internal rebalancing operations (making up for an imbalance between buys & sells) strictly require online access to the keys, and those only affect a small part of the total.
loceng 5y ago
Coinbase regularly "goes down" or at least large amounts of users unable to login whenever there seems to be a "bank run" - which conveniently will help reduce the downward pressure on the price plummeting, so whatever billion dollar buffers or reserves waiting to buy during large selloffs they have - to also counter a total crash - would have pressure reduced on them as well; it might be a very short period of time that a user might need to be blocked out from selling in order to stop "hysteria" or panic selling.
- datadata 5y ago
  Interestingly, trading for regular stocks on US exchanges is halted for many reasons including when the price moves too fast, a 10% move in 5 minutes automatically gives a 5 minute halt. https://www.nasdaqtrader.com/Trader.aspx?id=tradehaltcodes https://www.nasdaqtrader.com/Trader.aspx?id=tradehaltcodes
  - throw10920 5y ago
    Yeah, the conventional financial markets are rigged, despite (or because?) of layers of regulation and "oversight" - the Robinhood-GME incident and banks/individuals that contributed to the 2008 crash getting off scott-free should have been enough to convince most individuals of this.
    - seabird 5y ago
      2008 crash is a decent example of finance being rigged. Robinhood's handling of GameStop is not. They may be a pretty shit brokerage, but DTCC collateral requirements hit everybody, and they just didn't have enough money lying around to deal with that in the way a lot of customers would have wanted.
      - deleted 5y ago
        [deleted]
      - MegaButts 5y ago
        So you agree the DTCC doesn't know how to manage their collateral requirements? It's one of their primary reasons for existing. It seems like something they should've been able to foresee or handle, rather than force brokerages into PCO when they already lost control of the situation. It's really akin to the LME trade halt fiasco, which then became even worse when they retroactively reversed trades. The point is, when they're about to lose money they'll change the rules of the game. If you don't recognize that then you're the sucker at the table.
once_inc 5y ago
Jan 3rd is Proof-of-Reserves day, and all of the larger actors have ignored it for far too long. I believe Kraken has committed to it now, which is great. Also: obligatory "not your keys, not your coins" and "don't keep your coins on an exchange".
- vimy 5y ago
  > Also: obligatory "not your keys, not your coins" and "don't keep your coins on an exchange". Unless lobbying can still stop it the EU parlement will outlaw self hosted wallets. Only coins on exchanges will be allowed.
  - reedjosh 5y ago
    That's just evil, but also, likely not terribly enforceable. It would just bring crypto back to its roots as a government resistant alt currency. Being uncontrollable was the whole point. Particularly regarding Bitcoin and Monero.
    - lxgr 5y ago
      At least at this point in time, if you control all of the on/off-ramps, you can very effectively make any cryptocurrency non-viable as money.
      - reedjosh 5y ago
        I think it could slow adoption, but I've been primarily buying offline. Soon I'll have a lightning node too--improving my BTC privacy. Defi exchanges are the next major advancement to government resistance as well. This space would rapidly mature under government regulating away self custody.
        lxgr 5y ago
        If all of that ends up working out, and considering no other restrictions are put in place: How are people going to pay their taxes? Being the exclusive currency accepted for tax payment is an important part of what makes fiat currencies money.
matheusmoreira 5y ago
They absolutely do that. Binance itself imposed limits on cryptocurrency withdrawals not too long ago. If people leave their money in the exchange, they'll lend it out to borrowers which means they're generating inflation. They even have savings accounts and everything. Exchanges are banks. They have the exact same problems, only with less regulation.
3np 5y ago
The above is not an indication of fractional reserve. Likely explanation: Customer funds are divided between hot/cold wallets where only a fraction is immediately available for withdrawal, and a separate process (at most exchanges involving manual approval, not sure about Coinbase) is required to move top it up with funds from cold storage. It's a security thing to limit impact of hacks etc. If you need assets to be immediately available to make on-chain transactions, you should not keep them under custody of centralized exchanges - they can and will delay withdrawals for a variety of reasons and most of them (including CB) do make this clear in ToS. Now with Travel Rule regulation coming in (CB already started enforcing this in some countries but it will become mostly global over time), you need to specify name and physical address of recipient when withdrawing and this can be subject to manual checks as well, so withdrawals being delayed will become the norm IMO.

sauwan 5y ago

Couldn't this just be that they keep some amount in cold storage that's not super easily accessible?

KingOfCoders 5y ago
8h? Iceage storage.
- dannyw 5y ago
  It is entirely reasonable to use hardware security modules that enforce timelocks for signing.
  - vermilingua 5y ago
    If it were entirely reasonable they probably would have disclosed that as the reason.
snarf21 5y ago
They're an exchange. Cold Storage is not their job. It isn't much of an exchange if I have to wait 8 hours to put in a sell order.
- nanidin 5y ago
  I wonder what your statement would be if a hacker compromised the hot wallet and drained all of the funds?
  - snarf21 5y ago
    I would expect them to have insurance against theft like everywhere else I store money.
    - nanidin 5y ago
      Hmm. I would expect them to have layers of security, with one of those layers being funds in a cold wallet with serious access control around it. If I were asked to insure them, the premiums and coverage would hinge on security layers and mitigations in place to prevent loss. I don't think it's unreasonable to have funds in a cold wallet.
- matheusmoreira 5y ago
  They don't need hot wallets for exchange trading. That's just normal accounting, numbers in a centralized database. They could have zero reserves and it'd still work. Only when you withdraw cryptocurrency from the exchange and into your own wallet do they need to produce actual coins for the transaction.
- nybble41 5y ago
  Coinbase definitely doesn't keep all their funds in a hot wallet. They keep enough readily accessible to cover the projected volume of withdrawals; the rest can be kept offline. They even specifically offer a "vault" service for managed cold storage. When you put in a sell order through the normal "retail" interface you're trading with Coinbase itself. Those coins can stay offline in cold storage, as they're just moving numbers around in their database, off-chain. Only withdrawals and periodic internal rebalancing operations (making up for an imbalance between buys & sells) strictly require online access to the keys, and those only affect a small part of the total.

loceng 5y ago

Coinbase regularly "goes down" or at least large amounts of users unable to login whenever there seems to be a "bank run" - which conveniently will help reduce the downward pressure on the price plummeting, so whatever billion dollar buffers or reserves waiting to buy during large selloffs they have - to also counter a total crash - would have pressure reduced on them as well; it might be a very short period of time that a user might need to be blocked out from selling in order to stop "hysteria" or panic selling.

datadata 5y ago
Interestingly, trading for regular stocks on US exchanges is halted for many reasons including when the price moves too fast, a 10% move in 5 minutes automatically gives a 5 minute halt. https://www.nasdaqtrader.com/Trader.aspx?id=tradehaltcodes https://www.nasdaqtrader.com/Trader.aspx?id=tradehaltcodes
- throw10920 5y ago
  Yeah, the conventional financial markets are rigged, despite (or because?) of layers of regulation and "oversight" - the Robinhood-GME incident and banks/individuals that contributed to the 2008 crash getting off scott-free should have been enough to convince most individuals of this.
  - seabird 5y ago
    2008 crash is a decent example of finance being rigged. Robinhood's handling of GameStop is not. They may be a pretty shit brokerage, but DTCC collateral requirements hit everybody, and they just didn't have enough money lying around to deal with that in the way a lot of customers would have wanted.
    - deleted 5y ago
      [deleted]
    - MegaButts 5y ago
      So you agree the DTCC doesn't know how to manage their collateral requirements? It's one of their primary reasons for existing. It seems like something they should've been able to foresee or handle, rather than force brokerages into PCO when they already lost control of the situation. It's really akin to the LME trade halt fiasco, which then became even worse when they retroactively reversed trades. The point is, when they're about to lose money they'll change the rules of the game. If you don't recognize that then you're the sucker at the table.

once_inc 5y ago

Jan 3rd is Proof-of-Reserves day, and all of the larger actors have ignored it for far too long. I believe Kraken has committed to it now, which is great. Also: obligatory "not your keys, not your coins" and "don't keep your coins on an exchange".

vimy 5y ago
> Also: obligatory "not your keys, not your coins" and "don't keep your coins on an exchange". Unless lobbying can still stop it the EU parlement will outlaw self hosted wallets. Only coins on exchanges will be allowed.
- reedjosh 5y ago
  That's just evil, but also, likely not terribly enforceable. It would just bring crypto back to its roots as a government resistant alt currency. Being uncontrollable was the whole point. Particularly regarding Bitcoin and Monero.
  - lxgr 5y ago
    At least at this point in time, if you control all of the on/off-ramps, you can very effectively make any cryptocurrency non-viable as money.
    - reedjosh 5y ago
      I think it could slow adoption, but I've been primarily buying offline. Soon I'll have a lightning node too--improving my BTC privacy. Defi exchanges are the next major advancement to government resistance as well. This space would rapidly mature under government regulating away self custody.
      - lxgr 5y ago
        If all of that ends up working out, and considering no other restrictions are put in place: How are people going to pay their taxes? Being the exclusive currency accepted for tax payment is an important part of what makes fiat currencies money.

matheusmoreira 5y ago

They absolutely do that. Binance itself imposed limits on cryptocurrency withdrawals not too long ago. If people leave their money in the exchange, they'll lend it out to borrowers which means they're generating inflation. They even have savings accounts and everything. Exchanges are banks. They have the exact same problems, only with less regulation.

3np 5y ago

The above is not an indication of fractional reserve. Likely explanation: Customer funds are divided between hot/cold wallets where only a fraction is immediately available for withdrawal, and a separate process (at most exchanges involving manual approval, not sure about Coinbase) is required to move top it up with funds from cold storage. It's a security thing to limit impact of hacks etc. If you need assets to be immediately available to make on-chain transactions, you should not keep them under custody of centralized exchanges - they can and will delay withdrawals for a variety of reasons and most of them (including CB) do make this clear in ToS. Now with Travel Rule regulation coming in (CB already started enforcing this in some countries but it will become mostly global over time), you need to specify name and physical address of recipient when withdrawing and this can be subject to manual checks as well, so withdrawals being delayed will become the norm IMO.