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The problem with suspending withdrawals for crypto firms is the market interprets it as your exchange is insolvent (as that has usually been the case so far).

The problem with suspending withdrawals for crypto firms is the market interprets it as your exchange is insolvent (as that has usually been the case so far). This will crash markets (lowering your liquidity even more) and make people want to withdraw even more once you reopen. The situation is made worse because a lot of exchanges issue their own token: CRO in Crypto.com's case. This token provides extra liquidity to your exchange, sometimes in the billions (on paper at least), that you can borrow against. The moment you mention pausing withdrawals, your custom token will crash to the ground and you'll lose a lot of potential liquidity (See Terra/LUNA & FTC/FTT).

dragontamer 4y ago
CRO crashed yesterday. Crypto.com's ability to raise money from CRO is much much less, and possibly non-existant now...
dragonwriter 4y ago
> The problem with suspending withdrawals for crypto firms is the market interprets it as your exchange is insolvent That’s a problem with suspending withdrawals, especially by individual institutions, generally, I think, which is one reason why government deposit insurance is the better solution, in practice. Even the 1933 Bank Holiday in the US, a government-declared suspension of banking, probably only succeeded because the government established temporary emergency deposit insurance during the break.
pjc50 4y ago
> issue their own token: CRO in Crypto.com's case. This token provides extra liquidity to your exchange Yeah, this is where the fraud happens. They're treating the token like a bond when it's just .. a made-up thing? It's not a promise to pay, it doesn't have a claim on anything, it doesn't buy you votes, it's just a shiny Pog that you can trade? This would be like a casino claiming its chips as assets.
- jasonwatkinspdx 4y ago
  > This would be like a casino claiming its chips as assets. This phrasing is a great way to get the idea across.
- Bud 4y ago
matheusmoreira 4y ago
> The problem with suspending withdrawals for crypto firms is the market interprets it as your exchange is insolvent As it should. Inability to withdraw obviously means they don't have the money. Any limits on withdrawals are and should be major red flags. Exchanges should be punished by the market every single time they pull stunts like that until they learn the lesson.
- notahacker 4y ago
  And to underline the difference: suspending withdrawals can allow a bank's customers to [eventually] get their money back when the bank's creditors get repaid. And the bank never pretended it wasn't making loans in the first place. If a crypto exchange suspend withdrawals, on the other hand, there's no reason to suspect they're just waiting on a bunch of loans to ordinary people and businesses to come in, especially since it usually means they lied about custody of assets.
  - kasey_junk 4y ago
    Clarification: depositors are considered a banks senior creditors. They get paid before the other creditors. The reason a bank would suspend withdrawals is so it can be either taken over in an orderly fashion (in the US supervised by the FDIC) or so they can get a liquidity infusion (in the US, depending on their charter, from the fed). Those regulatory agencies and bankruptcy rules don’t exist for a crypto exchange so there is very little an exchange can be doing when suspending withdrawals that doesn’t end with the exchange going bust.
- lupire 4y ago
  You can't "punish a market" after everyone stopped putting money in and started taking money out.

dragontamer 4y ago

CRO crashed yesterday. Crypto.com's ability to raise money from CRO is much much less, and possibly non-existant now...

dragonwriter 4y ago

> The problem with suspending withdrawals for crypto firms is the market interprets it as your exchange is insolvent That’s a problem with suspending withdrawals, especially by individual institutions, generally, I think, which is one reason why government deposit insurance is the better solution, in practice. Even the 1933 Bank Holiday in the US, a government-declared suspension of banking, probably only succeeded because the government established temporary emergency deposit insurance during the break.

pjc50 4y ago

> issue their own token: CRO in Crypto.com's case. This token provides extra liquidity to your exchange Yeah, this is where the fraud happens. They're treating the token like a bond when it's just .. a made-up thing? It's not a promise to pay, it doesn't have a claim on anything, it doesn't buy you votes, it's just a shiny Pog that you can trade? This would be like a casino claiming its chips as assets.

jasonwatkinspdx 4y ago
> This would be like a casino claiming its chips as assets. This phrasing is a great way to get the idea across.
Bud 4y ago

matheusmoreira 4y ago

> The problem with suspending withdrawals for crypto firms is the market interprets it as your exchange is insolvent As it should. Inability to withdraw obviously means they don't have the money. Any limits on withdrawals are and should be major red flags. Exchanges should be punished by the market every single time they pull stunts like that until they learn the lesson.

notahacker 4y ago
And to underline the difference: suspending withdrawals can allow a bank's customers to [eventually] get their money back when the bank's creditors get repaid. And the bank never pretended it wasn't making loans in the first place. If a crypto exchange suspend withdrawals, on the other hand, there's no reason to suspect they're just waiting on a bunch of loans to ordinary people and businesses to come in, especially since it usually means they lied about custody of assets.
- kasey_junk 4y ago
  Clarification: depositors are considered a banks senior creditors. They get paid before the other creditors. The reason a bank would suspend withdrawals is so it can be either taken over in an orderly fashion (in the US supervised by the FDIC) or so they can get a liquidity infusion (in the US, depending on their charter, from the fed). Those regulatory agencies and bankruptcy rules don’t exist for a crypto exchange so there is very little an exchange can be doing when suspending withdrawals that doesn’t end with the exchange going bust.
lupire 4y ago
You can't "punish a market" after everyone stopped putting money in and started taking money out.