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Does anyone know how Coinbase avoided this fate? I really thought it would be them to fall, but they proved everyone wrong. There’s some key difference between

Does anyone know how Coinbase avoided this fate? I really thought it would be them to fall, but they proved everyone wrong. There’s some key difference between Coinbase and an exchange like FTX. Is it because FTX had a token, and then leveraged themselves using their own token? Binance has a token too. Are they in similar danger? It would be an interesting contrast to know why one exchange is safe vs another. Here’s SBF testifying in front of congress in Dec 2021 that FTX is completely transparent and therefore safe: https://www.tiktok.com/t/ZTRxC7XrT/ https://www.tiktok.com/t/ZTRxC7XrT/ Consumers need to be able to research claims like these. Is there a way to make a “Warning: this exchange is over leveraged” indicator? Or is it just impossible to know?

zoklet-enjoyer 4y ago
Binance has a token, but it is a lot more useful than FTX's coin. Binance has their own blockchain with a lot of applications. Their coin, BNB, is used to pay for fees on that network. As far as I know, FTX's coin FTT was used by FTX customers to get cheaper trading fees and for price speculation.
RC_ITR 4y ago
Coinbase makes money on fees and doesn’t lend out deposits. Seriously look at their balance sheet! They have zero risk of this kind of insolvency, their only risk is people stop using them to trade. Say what you will about that being a weird/dumb model but here we are.
- gonzo41 4y ago
  They are facing a systemic risk of crypto having such bad PR that no one will be willing to go near them.
  - RC_ITR 4y ago
    >their only risk is people stop using them to trade.
    - gonzo41 4y ago
      ahh my bad. Moving a bit quick. So much is going on.
- stephen_g 4y ago
  In theory they make money on fees... They posted a net loss of $544.6M on a 64% decline in transaction revenue in the quarter ended Sep 30 [1]. This next big drop probably doesn't bode very well for them... Coinbase may eventually run out of money and go out of business because their operating costs presumably exceed their revenue, but the customer funds won't evaporate if/when they do, unlike the shadier exchanges. 1. https://www.reuters.com/technology/coinbase-reports-third-quarter-loss-volumes-drop-2022-11-03/ https://www.reuters.com/technology/coinbase-reports-third-qu...
- colinmhayes 4y ago
  Coin base doesn’t offer margin loans?
  - RC_ITR 4y ago
    They stopped in 2020. Like I said, the model is sort of stupid and weird but it’s less stupid than FTX’s at the moment!
    - colinmhayes 4y ago
      I mean really it seems like FTX’s issue is that it got raided to serve as a hedge funds piggy bank. They’re not stupid, they wouldn’t accept such a massive amount of collateral in their own token if it wasn’t mostly owned by their hedge fund that they want to funnel assets too.
- Thorrez 4y ago
  Another risk is if they get hacked.
- graeme 4y ago
  > They have zero risk of this kind of insolvency, their only risk is people stop using them to trade. US regulated companies can, in fact, go bankrupt, and frequently do. They can also misuse funds or make foolish decisions that cause them to to under even if customers keep using them. There is even have a system for scoring this risk, called the Altman Z score. A good score is above 3. A grey zone score is 1.8-3.0. Coinbase’s current score is 0.15! In the distressed zone with serious possibility of bankruptcy within the next two years. https://www.gurufocus.com/term/zscore/COIN/Altman-Z-Score/COIN https://www.gurufocus.com/term/zscore/COIN/Altman-Z-Score/CO... Anyone who disagrees with this solvency risk assessment is free to purchase some of their outstanding bonds. Their bond coming due in 2028 goes for 53 cents on the dollar. If they don’t go bankrupt, you’ll double your money in five years. A yield of 13.3% per year! https://markets.businessinsider.com/bonds/coinbase_global_incdl-notes_202121-31_regs-bond-2031-usu19328ab62?op=1 https://markets.businessinsider.com/bonds/coinbase_global_in...
  - wmf 4y ago
    The point is that if Coinbase goes bankrupt their customers will not lose any money because customer assets are segregated from Coinbase's assets.
    - iseeyou 4y ago
      Because custodially held crypto assets may be considered to be the property of a bankruptcy estate, in the event of a bankruptcy, the crypto assets we hold in custody on behalf of our customers could be subject to bankruptcy proceedings and such customers could be treated as our general unsecured creditors https://finance.yahoo.com/news/coinbase-warns-customers-could-lose-103534095.html https://finance.yahoo.com/news/coinbase-warns-customers-coul...
      - RC_ITR 4y ago
        >may There’s no precedent. Disclosures are always worst case scenarios And again, will anyone please read their fucking balance sheet? Liabilities of $105bn, $101bn which are deposit liabilities vs. $101bn of customer assets. Even in a worst case scenario depositors get a <4% haircut. THIS IS VERY DIFFERENT FROM WHAT FTX DID
cuteboy19 4y ago
Binance's claims about 1:1 backing for BUSD seem legitimate but then again FTX also seemed like a legitimate exchange. People who use exchanges should withdraw their crypto asap. Does not matter if it's binance or coinbase or kraken. There is 0 benefit to keeping it on any exchange and unlimited risk for doing so
- TedDoesntTalk 4y ago
  > There is 0 benefit to keeping it on any exchange Conversion to/from fiat
  - cuteboy19 4y ago
    Keeping as in long term, more than a day or so
hailwren 4y ago
Coinbase avoided this fate by being a us regulated company. FTX.us is still above water. It’s the Bahamas based company that was able to cook the books and is now defunct. As for Binance, they have the SAFU (https://academy.binance.com/en/glossary/secure-asset-fund-for-users https://academy.binance.com/en/glossary/secure-asset-fund-fo...) which they just topped up to $1B at current market prices (today). You can verify the balances on chain, but there aren’t any statements about outstanding obligations, and there are no guarantees that those funds haven’t been earmarked for other things.
- TedDoesntTalk 4y ago
  Coinbase is listed on NASDAQ and has significant reporting requirements because of that. Civil and maybe criminal penalties for the board if they lie on SEC filings.
- hanniabu 4y ago
  > FTX.us is still above water FTX.us has been under SEC investigation for security fraud for months, so still too early to make this call
  - djbusby 4y ago
    They making the claim of "above water" for $NOW. It's not to early call $NOW but it is too early to call $NOW+30D
- denlekke 4y ago
  $1B doesn’t rly reassure me unless I’ve misunderstood. Ftx had $6B in withdraws in 72hours (which they fulfilled) so I don’t rly think binance has shown anything that would provide real protection against a bank run like we just saw.
  - deleted 4y ago
    [deleted]
- dav43 4y ago
  So their "Secure Asset Fund for Users (SAFU)" are crypto funds. If that's not pulling the wool over everyone's eyes. This industry needs to die.
sanxiyn 4y ago
CZ says the primary lesson is "never use a token you created as collateral", and Binance has never used BNB for collateral, and (by implication) FTX did use FTT for collateral. https://twitter.com/cz_binance/status/1590103159506341888 https://twitter.com/cz_binance/status/1590103159506341888 As far as I can tell, this seems to be the correct analysis. The technical term for why you should avoid this is "wrong way risk".
- denlekke 4y ago
  Devils advocate: how do we know binance hasn’t used BNB for collateral other than a tweet (which isn’t proof at all)
  - sanxiyn 4y ago
    We don't, but it's good for Binance, so we can expect Binance to do so out of self interest. Avoiding wrong way risk is standard part of risk management.
    - rnk 4y ago
      if it was a mistake for ftx to avoid that, it was a mistake for all the other firms, yet the other firms did it like ftx. Probably all these other firms would have claimed they did standard risk management, yet so many have died, one after another. So it's not satisfactory to say surely binance wouldn't do that, because it seems many of these companies were doing similar things but always claiming they were safe.
  - djbusby 4y ago
    Aren't they publishing their books, or audits? IIRC them and CoinBase has/have/had audits to show 1:1.
    - denlekke 4y ago
      i don't think they've done either. binance has just today linked to some wallets of some of their holdings but haven't provided any info on any liabilities they have
deleted 4y ago
[deleted]
paxys 4y ago
Coinbase is a perfectly normal company. They take your money and exchange it for crypto (and vice versa), taking a cut in the process. There's no funny business with tokens or lending out customer deposits. They are also regulated as a public company by the SEC and Delaware courts. If they do go out of business it'll be due to good old fashioned operating losses.
- sanxiyn 4y ago
  Note that Coinbase does have lending business. The reason it's not visible in their balance sheet is because it's not popular. https://www.coinbase.com/borrow https://www.coinbase.com/borrow
  - paxys 4y ago
    I didn't know that, but considering that half the page is disclaimers and legal notices I guess they at least somewhat know what they are doing.
wmf 4y ago
We don't know what happened at FTX (if anyone says they know, they're speculating). FTX said, right up to the weekend, that they weren't leveraged at all. Maybe that was a lie or maybe the problem is elsewhere. It may take a few months for the truth to come out.
rnk 4y ago
I'm not an expert, but the reason this keeps happening is the financials of these firms are opaque. No one really knows how much they have, how much they have leveraged various investments to make new investments with loans on them. They are not audited. They all claim they are in excellent financial health and then boom they are gone because there are too many withdrawals and they can't pay back all their customers. Of course normal supposedly well-regulated companies also fail like ltcm. But that's systemically limited from regulation mandated from previous problems (like us 1930s). I'm curious about why was he buying out all those other failing crypto firms? Did he not understand his own situation? Was it binance's triggering via the sale of ftx that triggered customers pulling their money out? Who knows about binance now. Any external investments they had went down in value, their crypto holdings went down. There's not particular reason to worry about binance. I've never bought into these inexplainable crypto giants anyway. How many more are left to fail?
rich_sasha 4y ago
It sounds like FTX wasn't unfortunate but fraudulent. The business model of running an exchange is pretty solid, and reasonably risk-free financially. Crypto exchanges could be hacked, there are technology risks, counterparty risks against individual traders etc. but in general an exchange takes very little financial risk. Exchanges merely facilitate the shuffling if money and assets between people, risk-free for them (mostly). Same as bookmakers, who mostly match off people betting on opposite sides. In the bookmaker analogy, it sounds like FTX took the betted cash and spunked it away to prop up Alameda. Nominally this was a loan backed by the FTT token, but at best this was a risky asset, and FTX could no longer promise they can pay out all the bettors - because FTT could, and did, drop in value. Note that at no point during the various crises of past 15 years has any fiat exchange been under financial pressure. Banks, funds and insurers, yes, but they take outright financial risks. But not a single exchange.

zoklet-enjoyer 4y ago

Binance has a token, but it is a lot more useful than FTX's coin. Binance has their own blockchain with a lot of applications. Their coin, BNB, is used to pay for fees on that network. As far as I know, FTX's coin FTT was used by FTX customers to get cheaper trading fees and for price speculation.

RC_ITR 4y ago

Coinbase makes money on fees and doesn’t lend out deposits. Seriously look at their balance sheet! They have zero risk of this kind of insolvency, their only risk is people stop using them to trade. Say what you will about that being a weird/dumb model but here we are.

gonzo41 4y ago
They are facing a systemic risk of crypto having such bad PR that no one will be willing to go near them.
- RC_ITR 4y ago
  >their only risk is people stop using them to trade.
  - gonzo41 4y ago
    ahh my bad. Moving a bit quick. So much is going on.
stephen_g 4y ago
In theory they make money on fees... They posted a net loss of $544.6M on a 64% decline in transaction revenue in the quarter ended Sep 30 [1]. This next big drop probably doesn't bode very well for them... Coinbase may eventually run out of money and go out of business because their operating costs presumably exceed their revenue, but the customer funds won't evaporate if/when they do, unlike the shadier exchanges. 1. https://www.reuters.com/technology/coinbase-reports-third-quarter-loss-volumes-drop-2022-11-03/ https://www.reuters.com/technology/coinbase-reports-third-qu...
colinmhayes 4y ago
Coin base doesn’t offer margin loans?
- RC_ITR 4y ago
  They stopped in 2020. Like I said, the model is sort of stupid and weird but it’s less stupid than FTX’s at the moment!
  - colinmhayes 4y ago
    I mean really it seems like FTX’s issue is that it got raided to serve as a hedge funds piggy bank. They’re not stupid, they wouldn’t accept such a massive amount of collateral in their own token if it wasn’t mostly owned by their hedge fund that they want to funnel assets too.
Thorrez 4y ago
Another risk is if they get hacked.
graeme 4y ago
> They have zero risk of this kind of insolvency, their only risk is people stop using them to trade. US regulated companies can, in fact, go bankrupt, and frequently do. They can also misuse funds or make foolish decisions that cause them to to under even if customers keep using them. There is even have a system for scoring this risk, called the Altman Z score. A good score is above 3. A grey zone score is 1.8-3.0. Coinbase’s current score is 0.15! In the distressed zone with serious possibility of bankruptcy within the next two years. https://www.gurufocus.com/term/zscore/COIN/Altman-Z-Score/COIN https://www.gurufocus.com/term/zscore/COIN/Altman-Z-Score/CO... Anyone who disagrees with this solvency risk assessment is free to purchase some of their outstanding bonds. Their bond coming due in 2028 goes for 53 cents on the dollar. If they don’t go bankrupt, you’ll double your money in five years. A yield of 13.3% per year! https://markets.businessinsider.com/bonds/coinbase_global_incdl-notes_202121-31_regs-bond-2031-usu19328ab62?op=1 https://markets.businessinsider.com/bonds/coinbase_global_in...
- wmf 4y ago
  The point is that if Coinbase goes bankrupt their customers will not lose any money because customer assets are segregated from Coinbase's assets.
  - iseeyou 4y ago
    Because custodially held crypto assets may be considered to be the property of a bankruptcy estate, in the event of a bankruptcy, the crypto assets we hold in custody on behalf of our customers could be subject to bankruptcy proceedings and such customers could be treated as our general unsecured creditors https://finance.yahoo.com/news/coinbase-warns-customers-could-lose-103534095.html https://finance.yahoo.com/news/coinbase-warns-customers-coul...
    - RC_ITR 4y ago
      >may There’s no precedent. Disclosures are always worst case scenarios And again, will anyone please read their fucking balance sheet? Liabilities of $105bn, $101bn which are deposit liabilities vs. $101bn of customer assets. Even in a worst case scenario depositors get a <4% haircut. THIS IS VERY DIFFERENT FROM WHAT FTX DID

cuteboy19 4y ago

Binance's claims about 1:1 backing for BUSD seem legitimate but then again FTX also seemed like a legitimate exchange. People who use exchanges should withdraw their crypto asap. Does not matter if it's binance or coinbase or kraken. There is 0 benefit to keeping it on any exchange and unlimited risk for doing so

TedDoesntTalk 4y ago
> There is 0 benefit to keeping it on any exchange Conversion to/from fiat
- cuteboy19 4y ago
  Keeping as in long term, more than a day or so

hailwren 4y ago

Coinbase avoided this fate by being a us regulated company. FTX.us is still above water. It’s the Bahamas based company that was able to cook the books and is now defunct. As for Binance, they have the SAFU (https://academy.binance.com/en/glossary/secure-asset-fund-for-users https://academy.binance.com/en/glossary/secure-asset-fund-fo...) which they just topped up to $1B at current market prices (today). You can verify the balances on chain, but there aren’t any statements about outstanding obligations, and there are no guarantees that those funds haven’t been earmarked for other things.

TedDoesntTalk 4y ago
Coinbase is listed on NASDAQ and has significant reporting requirements because of that. Civil and maybe criminal penalties for the board if they lie on SEC filings.
hanniabu 4y ago
> FTX.us is still above water FTX.us has been under SEC investigation for security fraud for months, so still too early to make this call
- djbusby 4y ago
  They making the claim of "above water" for $NOW. It's not to early call $NOW but it is too early to call $NOW+30D
denlekke 4y ago
$1B doesn’t rly reassure me unless I’ve misunderstood. Ftx had $6B in withdraws in 72hours (which they fulfilled) so I don’t rly think binance has shown anything that would provide real protection against a bank run like we just saw.
- deleted 4y ago
  [deleted]
dav43 4y ago
So their "Secure Asset Fund for Users (SAFU)" are crypto funds. If that's not pulling the wool over everyone's eyes. This industry needs to die.

sanxiyn 4y ago

CZ says the primary lesson is "never use a token you created as collateral", and Binance has never used BNB for collateral, and (by implication) FTX did use FTT for collateral. https://twitter.com/cz_binance/status/1590103159506341888 https://twitter.com/cz_binance/status/1590103159506341888 As far as I can tell, this seems to be the correct analysis. The technical term for why you should avoid this is "wrong way risk".

denlekke 4y ago
Devils advocate: how do we know binance hasn’t used BNB for collateral other than a tweet (which isn’t proof at all)
- sanxiyn 4y ago
  We don't, but it's good for Binance, so we can expect Binance to do so out of self interest. Avoiding wrong way risk is standard part of risk management.
  - rnk 4y ago
    if it was a mistake for ftx to avoid that, it was a mistake for all the other firms, yet the other firms did it like ftx. Probably all these other firms would have claimed they did standard risk management, yet so many have died, one after another. So it's not satisfactory to say surely binance wouldn't do that, because it seems many of these companies were doing similar things but always claiming they were safe.
- djbusby 4y ago
  Aren't they publishing their books, or audits? IIRC them and CoinBase has/have/had audits to show 1:1.
  - denlekke 4y ago
    i don't think they've done either. binance has just today linked to some wallets of some of their holdings but haven't provided any info on any liabilities they have

deleted 4y ago

[deleted]

paxys 4y ago

Coinbase is a perfectly normal company. They take your money and exchange it for crypto (and vice versa), taking a cut in the process. There's no funny business with tokens or lending out customer deposits. They are also regulated as a public company by the SEC and Delaware courts. If they do go out of business it'll be due to good old fashioned operating losses.

sanxiyn 4y ago
Note that Coinbase does have lending business. The reason it's not visible in their balance sheet is because it's not popular. https://www.coinbase.com/borrow https://www.coinbase.com/borrow
- paxys 4y ago
  I didn't know that, but considering that half the page is disclaimers and legal notices I guess they at least somewhat know what they are doing.

wmf 4y ago

We don't know what happened at FTX (if anyone says they know, they're speculating). FTX said, right up to the weekend, that they weren't leveraged at all. Maybe that was a lie or maybe the problem is elsewhere. It may take a few months for the truth to come out.

rnk 4y ago

I'm not an expert, but the reason this keeps happening is the financials of these firms are opaque. No one really knows how much they have, how much they have leveraged various investments to make new investments with loans on them. They are not audited. They all claim they are in excellent financial health and then boom they are gone because there are too many withdrawals and they can't pay back all their customers. Of course normal supposedly well-regulated companies also fail like ltcm. But that's systemically limited from regulation mandated from previous problems (like us 1930s). I'm curious about why was he buying out all those other failing crypto firms? Did he not understand his own situation? Was it binance's triggering via the sale of ftx that triggered customers pulling their money out? Who knows about binance now. Any external investments they had went down in value, their crypto holdings went down. There's not particular reason to worry about binance. I've never bought into these inexplainable crypto giants anyway. How many more are left to fail?

rich_sasha 4y ago

It sounds like FTX wasn't unfortunate but fraudulent. The business model of running an exchange is pretty solid, and reasonably risk-free financially. Crypto exchanges could be hacked, there are technology risks, counterparty risks against individual traders etc. but in general an exchange takes very little financial risk. Exchanges merely facilitate the shuffling if money and assets between people, risk-free for them (mostly). Same as bookmakers, who mostly match off people betting on opposite sides. In the bookmaker analogy, it sounds like FTX took the betted cash and spunked it away to prop up Alameda. Nominally this was a loan backed by the FTT token, but at best this was a risky asset, and FTX could no longer promise they can pay out all the bettors - because FTT could, and did, drop in value. Note that at no point during the various crises of past 15 years has any fiat exchange been under financial pressure. Banks, funds and insurers, yes, but they take outright financial risks. But not a single exchange.