5 ms·

This shows exactly why financial regulations helps tbh. If there was a crypto FDIC or SIPC, almost all funds would have been covered

xxpor 4y ago
But if there were, no one would get away with fractional reserves (at least anywhere near the reserve requirements banks that deal with dollars have). A huge reason why the FDIC works is that the fed can always bail them out in the worst case (see also: 2008). Can't do that with crypto for obvious reasons.
matheusmoreira 4y ago
This regulation is only necessary because these exchanges are actually banks in disguise. They're leveraging customer deposits and taking on the risk of fractional reserve banking with none of the backstops to protect them. Cryptocurrencies were meant to be used in a decentralized manner. These centralized pseudobanks are everything that's wrong with this space and I hope they do get regulated.
- xwolfi 4y ago
  Cryptocurrencies were meant to extract value from naive anarchists. They do work.
voidmain0001 4y ago
I have to admit that I like Erik Voorhees' opinion stated here, https://open.spotify.com/episode/5a0pw6MQCOOGxjSrYTPrGj https://open.spotify.com/episode/5a0pw6MQCOOGxjSrYTPrGj, which is don't use an opaque centralized exchange but use DeFi which is transparent as it's all code that's readily available.
- paulgb 4y ago
  That may be his opinion now that the market has gone to crap, but a year ago he was telling me that Bitcoin had a 1-15% yield (presumably via exactly that sort of opaque, centralized exchange, although he was coy when I brought up counterparty risk). https://twitter.com/ErikVoorhees/status/1466541326510428160 https://twitter.com/ErikVoorhees/status/1466541326510428160
  - px43 4y ago
    Bitcoin is hard to wedge into DeFi, so the yields he was talking about were probably on centralized exchanges. He was likely even referring to Celsius, which has since popped. What has changed since then is DeFi tools like Thorchain single sided vault deposits that let people earn yield on Bitcoin without giving up custody. Unsurprisingly Erik has been one of the most vocal proponents of Thorchain itself. For a really quick summary, Thorchain provides Uniswap style liquidity pools such as BTC/RUNE that allow people to do one shot trades that can be routed across major blockchains, and liquidity providers collect fees on every trade. Typically liquidity providers are also exposed to RUNE due to the nature of how XYK liquidity works. These new vaults are special because they lack RUNE exposure, but they are also only allowed to make up something like 10% of the liquidity pool, so deposits are limited. I've been incredibly vocal about how anything promising >10% yields is a scam. It's the reason I built ponzi.finance (which never got popular, but was fun while it lasted). Yields greater than 10% are always either temporary, or straight up fraud. I'd still tend to agree with Erik though that your claim that you can't earn yield on BTC was incorrect, though the counter-party risk at the time was not ideal. Counter-party risk is, of course completely unavoidable in legacy finance systems, and the overhead costs to properly mitigate it are (IMO) unsustainable in a world with easily accessible DeFi tooling.
    - lottin 4y ago
      Counter-party risk is what makes lending useful. The lender gives up control of the resources so that the borrower can use them. This is where the risk arises from. Defi has invented a new form of lending, without counter-party risk. It's "interesting" indeed but not very useful.
  - MacsHeadroom 4y ago
    >presumably via exactly that sort of opaque, centralized exchange Obviously Erik did not mean via centralized exchanges. You can lend your Bitcoin on countless decentralized protocols for those yields- even risklessly with flash loans via a dApp like Aave. With non-risk-free lending you can assess and knowingly accept your desired level of risk via fully auditable open ledgers.
- rich_sasha 4y ago
  The difference in fees and throughput of a DEX and something like FTX or Binance (or even Coinbase / Kraken) is so enormous that there isn't a difference. Normal exchanges don't go bust all the time, it's not rocket science.
- sbierwagen 4y ago
  Solend is a defi protocol that is open and transparent, which means everyone can see that it’s insolvent after the value of SOL went down: https://twitter.com/patio11/status/1590294985668448256 https://twitter.com/patio11/status/1590294985668448256
paulusthe 4y ago
True. But getting FDIC coverage is a privilege which certain entities have earned as a result of compliance with an extensive regulatory apparatus whose goal is the stability of the financial system. Crypto entities haven't earned that privilege yet, and are quite commonly openly antagonistic to any regulation at all.
SkyMarshal 4y ago
We really don't need taxpayer money insuring speculative crypto operations. It's also bad for crypto in the long run, as it makes it more dependent on centralized, govt-backed intermediaries. Decentralized trust-less/minimized exchanges are the ultimate goal, but they're hard to do. Removing incentive to continue innovating on that front is harmful to crypto in the long run.

xxpor 4y ago

But if there were, no one would get away with fractional reserves (at least anywhere near the reserve requirements banks that deal with dollars have). A huge reason why the FDIC works is that the fed can always bail them out in the worst case (see also: 2008). Can't do that with crypto for obvious reasons.

matheusmoreira 4y ago

This regulation is only necessary because these exchanges are actually banks in disguise. They're leveraging customer deposits and taking on the risk of fractional reserve banking with none of the backstops to protect them. Cryptocurrencies were meant to be used in a decentralized manner. These centralized pseudobanks are everything that's wrong with this space and I hope they do get regulated.

xwolfi 4y ago
Cryptocurrencies were meant to extract value from naive anarchists. They do work.

voidmain0001 4y ago

I have to admit that I like Erik Voorhees' opinion stated here, https://open.spotify.com/episode/5a0pw6MQCOOGxjSrYTPrGj https://open.spotify.com/episode/5a0pw6MQCOOGxjSrYTPrGj, which is don't use an opaque centralized exchange but use DeFi which is transparent as it's all code that's readily available.

paulgb 4y ago
That may be his opinion now that the market has gone to crap, but a year ago he was telling me that Bitcoin had a 1-15% yield (presumably via exactly that sort of opaque, centralized exchange, although he was coy when I brought up counterparty risk). https://twitter.com/ErikVoorhees/status/1466541326510428160 https://twitter.com/ErikVoorhees/status/1466541326510428160
- px43 4y ago
  Bitcoin is hard to wedge into DeFi, so the yields he was talking about were probably on centralized exchanges. He was likely even referring to Celsius, which has since popped. What has changed since then is DeFi tools like Thorchain single sided vault deposits that let people earn yield on Bitcoin without giving up custody. Unsurprisingly Erik has been one of the most vocal proponents of Thorchain itself. For a really quick summary, Thorchain provides Uniswap style liquidity pools such as BTC/RUNE that allow people to do one shot trades that can be routed across major blockchains, and liquidity providers collect fees on every trade. Typically liquidity providers are also exposed to RUNE due to the nature of how XYK liquidity works. These new vaults are special because they lack RUNE exposure, but they are also only allowed to make up something like 10% of the liquidity pool, so deposits are limited. I've been incredibly vocal about how anything promising >10% yields is a scam. It's the reason I built ponzi.finance (which never got popular, but was fun while it lasted). Yields greater than 10% are always either temporary, or straight up fraud. I'd still tend to agree with Erik though that your claim that you can't earn yield on BTC was incorrect, though the counter-party risk at the time was not ideal. Counter-party risk is, of course completely unavoidable in legacy finance systems, and the overhead costs to properly mitigate it are (IMO) unsustainable in a world with easily accessible DeFi tooling.
  - lottin 4y ago
    Counter-party risk is what makes lending useful. The lender gives up control of the resources so that the borrower can use them. This is where the risk arises from. Defi has invented a new form of lending, without counter-party risk. It's "interesting" indeed but not very useful.
- MacsHeadroom 4y ago
  >presumably via exactly that sort of opaque, centralized exchange Obviously Erik did not mean via centralized exchanges. You can lend your Bitcoin on countless decentralized protocols for those yields- even risklessly with flash loans via a dApp like Aave. With non-risk-free lending you can assess and knowingly accept your desired level of risk via fully auditable open ledgers.
rich_sasha 4y ago
The difference in fees and throughput of a DEX and something like FTX or Binance (or even Coinbase / Kraken) is so enormous that there isn't a difference. Normal exchanges don't go bust all the time, it's not rocket science.
sbierwagen 4y ago
Solend is a defi protocol that is open and transparent, which means everyone can see that it’s insolvent after the value of SOL went down: https://twitter.com/patio11/status/1590294985668448256 https://twitter.com/patio11/status/1590294985668448256

paulusthe 4y ago

True. But getting FDIC coverage is a privilege which certain entities have earned as a result of compliance with an extensive regulatory apparatus whose goal is the stability of the financial system. Crypto entities haven't earned that privilege yet, and are quite commonly openly antagonistic to any regulation at all.

SkyMarshal 4y ago

We really don't need taxpayer money insuring speculative crypto operations. It's also bad for crypto in the long run, as it makes it more dependent on centralized, govt-backed intermediaries. Decentralized trust-less/minimized exchanges are the ultimate goal, but they're hard to do. Removing incentive to continue innovating on that front is harmful to crypto in the long run.