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It is striking to me that the crypto community is re-enacting a classical bank run in a "decentralized" system where such a thing wasn't supposed to happen. Wh

It is striking to me that the crypto community is re-enacting a classical bank run in a "decentralized" system where such a thing wasn't supposed to happen. What's even more impressive is how quickly the crypto community is speed-running the history of financial fraud from penny stocks to bank runs. From Wikipedia, > Several leading Wall Street bankers met to find a solution to the panic and chaos on the trading floor.[14] The meeting included Thomas W. Lamont, acting head of Morgan Bank; Albert Wiggin, head of the Chase National Bank; and Charles E. Mitchell, president of the National City Bank of New York.[15] They chose Richard Whitney, vice president of the Exchange, to act on their behalf.[citation needed] > With the bankers' financial resources behind him, Whitney placed a bid to purchase 25,000 shares of U.S. Steel at $205 per share, a price well above the current market.[16] As traders watched, Whitney then placed similar bids on other "blue chip" stocks. > On October 28, "Black Monday",[17] more investors facing margin calls decided to get out of the market, and the slide continued with a record loss in the Dow for the day of 38.33 points, or 12.82%.[12] > On October 29, 1929, "Black Tuesday" hit Wall Street as investors traded some 16 million shares on the New York Stock Exchange in a single day. Billions of dollars were lost, wiping out thousands of investors. The panic selling reached its peak with some stocks having no buyers at any price.[18] The Dow lost an additional 30.57 points, or 11.73%, for a total drop of 68.90 points, or 23.05% in two days.[19][20][21][22] ... > Many people blamed the crash on commercial banks that were too eager to put deposits at risk on the stock market.[49] > In 1930, 1,352 banks held more than $853 million in deposits; in 1931, one year later, 2,294 banks failed with nearly $1.7 billion in deposits Does any of this sound familiar?

pamplemoose 4y ago
FTX was a completely centralized entity. The decentralized aspects of crypto ("defi") has been operating just fine through this entire shit-show.
- Gwypaas 4y ago
  Decentralized exchanges are equal to public bug bounties. https://beincrypto.com/top-ten-defi-hacks-2022-hackers-daring/ https://beincrypto.com/top-ten-defi-hacks-2022-hackers-darin...
  - pamplemoose 4y ago
    Stick to protocols that have been around for even a year and you'll do much better than those listed in that article. How much has been lost via hacks from Uniswap, Aave or MakerDAO? Most of those examples you linked are bridges that aren't considered Defi or half-baked protocols that scream "scam".
    - deleted 4y ago
      [deleted]
    - cannaceo 4y ago
      I believe the CEO of MakerDAO was liquidated from his position recently.
      - legutierr 4y ago
        An example of the algorithm working exactly as intended.
  - pmarreck 4y ago
    Assuming all detected hacks have well-written postmortems, this would be one actual contribution to society from them
  - idiotsecant 4y ago
    And yet decentralized exchanges exist that have been operating successfully for years. Survival of the fittest is a good thing in this case. I would trust a defi exchange that's had people trying to break it constantly for years much more than I would trust, for example, the security of my money in a local bank. People get their money stolen in confidence scams and other exploits every day and that money is just as gone.
    - archontes 4y ago
      The more robust a system, the more spectacular its eventual failure.
- JeremyNT 4y ago
  > The decentralized aspects of crypto ("defi") has been operating just fine through this entire shit-show. There's a reason that exchanges like FTX are central to "crypto" as a practical matter, regardless of the technical underpinnings of crypto itself. These things are required to facilitate speculation and attract users who otherwise would be capable of interacting with the actual distributed stuff. Without the much needed fiat currency of this class of users, the pyramids couldn't have been built nearly so high.
- nullc 4y ago
  To most people defi = blockchain-ized ponzi schemes. Programs that have you deposit assets in exchange for unsustainable 'yield' drawn from other deposits, collateralize by illiquid magic beans. There were massive 'defi' failures earlier this year. FTX itself appears to have been primarily invested in varrious defi schemes while being short Bitcoin, resulting in the current insolvency.
koonsolo 4y ago
> It is striking to me that the crypto community is re-enacting a classical bank run in a "decentralized" system where such a thing wasn't supposed to happen. A bank run can only happen with fractional reserve system. An exchange that keeps a 1:1 ratio of assets is not exposed to a bank run. Fiat banks on the other hand are by definition exposed to it.
- qorrect 4y ago
  Are there laws on requiring crypto exchanges be 1:1 ?
  - andrepew 4y ago
    I think FTX acted fraudulently rather than breaking a securities or banking law. They told users they were 1:1 and didn’t gamble with user deposits but did it anyway.
ahepp 4y ago
What does this have to do with centralization? Decentralization doesn't preclude panic selling. Maybe it wouldn't be a "bank run" because everything would be marked-to-market all the time, but you could presumably still see your account become worthless in the blink of an eye, no?
- JoeAltmaier 4y ago
  Good question. Is it intrinsic to digital currency that it be in an exchange, and convertible to dollars? But it didn't go that way. If you want to trade/spend something that is in increments of tens of thousands of dollars, you have to have an exchange. Where all of the fraud, panic and crime happened. Because it was decentralized (no supervisory authority)
SideQuark 4y ago
> >In 1930, 1,352 banks held more than $853 million in deposits; in 1931, one year later, 2,294 banks failed with nearly $1.7 billion in deposits > Does any of this sound familiar? Why did you remove the "citation needed" part of that latter quote? There is no source for that claim, and you removed that piece of information. This [1] (with ample sources) claims there were over 24,000 banks at the start, 8000 in the Federal Reserve System, 16,000 not in. This [2] claims total losses from banks, over a wider period than your list (and including two sets of bank runs [1] and [3]), were $1.3B (again with decent sources). There's a reason things get tagged on Wikipedia as "citation needed". It's important not to delete those from a quote. [1] https://www.federalreservehistory.org/essays/banking-panics-1930-31 https://www.federalreservehistory.org/essays/banking-panics-... [2] https://www.fdic.gov/about/history/timeline/1930s.html https://www.fdic.gov/about/history/timeline/1930s.html [3] https://www.federalreservehistory.org/essays/banking-panics-1931-33 https://www.federalreservehistory.org/essays/banking-panics-...

pamplemoose 4y ago

FTX was a completely centralized entity. The decentralized aspects of crypto ("defi") has been operating just fine through this entire shit-show.

Gwypaas 4y ago
Decentralized exchanges are equal to public bug bounties. https://beincrypto.com/top-ten-defi-hacks-2022-hackers-daring/ https://beincrypto.com/top-ten-defi-hacks-2022-hackers-darin...
- pamplemoose 4y ago
  Stick to protocols that have been around for even a year and you'll do much better than those listed in that article. How much has been lost via hacks from Uniswap, Aave or MakerDAO? Most of those examples you linked are bridges that aren't considered Defi or half-baked protocols that scream "scam".
  - deleted 4y ago
    [deleted]
  - cannaceo 4y ago
    I believe the CEO of MakerDAO was liquidated from his position recently.
    - legutierr 4y ago
      An example of the algorithm working exactly as intended.
- pmarreck 4y ago
  Assuming all detected hacks have well-written postmortems, this would be one actual contribution to society from them
- idiotsecant 4y ago
  And yet decentralized exchanges exist that have been operating successfully for years. Survival of the fittest is a good thing in this case. I would trust a defi exchange that's had people trying to break it constantly for years much more than I would trust, for example, the security of my money in a local bank. People get their money stolen in confidence scams and other exploits every day and that money is just as gone.
  - archontes 4y ago
    The more robust a system, the more spectacular its eventual failure.
JeremyNT 4y ago
> The decentralized aspects of crypto ("defi") has been operating just fine through this entire shit-show. There's a reason that exchanges like FTX are central to "crypto" as a practical matter, regardless of the technical underpinnings of crypto itself. These things are required to facilitate speculation and attract users who otherwise would be capable of interacting with the actual distributed stuff. Without the much needed fiat currency of this class of users, the pyramids couldn't have been built nearly so high.
nullc 4y ago
To most people defi = blockchain-ized ponzi schemes. Programs that have you deposit assets in exchange for unsustainable 'yield' drawn from other deposits, collateralize by illiquid magic beans. There were massive 'defi' failures earlier this year. FTX itself appears to have been primarily invested in varrious defi schemes while being short Bitcoin, resulting in the current insolvency.

koonsolo 4y ago

> It is striking to me that the crypto community is re-enacting a classical bank run in a "decentralized" system where such a thing wasn't supposed to happen. A bank run can only happen with fractional reserve system. An exchange that keeps a 1:1 ratio of assets is not exposed to a bank run. Fiat banks on the other hand are by definition exposed to it.

qorrect 4y ago
Are there laws on requiring crypto exchanges be 1:1 ?
- andrepew 4y ago
  I think FTX acted fraudulently rather than breaking a securities or banking law. They told users they were 1:1 and didn’t gamble with user deposits but did it anyway.

ahepp 4y ago

What does this have to do with centralization? Decentralization doesn't preclude panic selling. Maybe it wouldn't be a "bank run" because everything would be marked-to-market all the time, but you could presumably still see your account become worthless in the blink of an eye, no?

JoeAltmaier 4y ago
Good question. Is it intrinsic to digital currency that it be in an exchange, and convertible to dollars? But it didn't go that way. If you want to trade/spend something that is in increments of tens of thousands of dollars, you have to have an exchange. Where all of the fraud, panic and crime happened. Because it was decentralized (no supervisory authority)

SideQuark 4y ago

> >In 1930, 1,352 banks held more than $853 million in deposits; in 1931, one year later, 2,294 banks failed with nearly $1.7 billion in deposits > Does any of this sound familiar? Why did you remove the "citation needed" part of that latter quote? There is no source for that claim, and you removed that piece of information. This [1] (with ample sources) claims there were over 24,000 banks at the start, 8000 in the Federal Reserve System, 16,000 not in. This [2] claims total losses from banks, over a wider period than your list (and including two sets of bank runs [1] and [3]), were $1.3B (again with decent sources). There's a reason things get tagged on Wikipedia as "citation needed". It's important not to delete those from a quote. [1] https://www.federalreservehistory.org/essays/banking-panics-1930-31 https://www.federalreservehistory.org/essays/banking-panics-... [2] https://www.fdic.gov/about/history/timeline/1930s.html https://www.fdic.gov/about/history/timeline/1930s.html [3] https://www.federalreservehistory.org/essays/banking-panics-1931-33 https://www.federalreservehistory.org/essays/banking-panics-...