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I know nothing about the world of crypto currencies, but I do know finance. The exchange does not hold the trades instruments/currencies/securities as assets.
by surfsvammel 4y ago
I know nothing about the world of crypto currencies, but I do know finance.
The exchange does not hold the trades instruments/currencies/securities as assets. The business of a normal exchange is normally risk free (just matching buyers to sellers). Some exchanges step in as middle man in the trades, a process that I believe is called novation of the trade. The original trade between the buyer and the seller is novated, transformed into two trades, both against the exchange, one for each party and opposite direction. In this case the main risk is counterparty risk, the risk that one of the counterparties fail in some way.
An exchange never holds its own positions.
What is the difference in these cases? Have the crypto exchanges somehow used their users cryptosecurities as assets?
- startupsfail 4y agoCrypto exchanges usually combine a function of an exchange and a clearing house. And tend to create ad-hock financial instruments. Hence the risk. To me it feels like it is time to rethink at least the proof-of-work coins, particularly the CO2 emissions and energy use. It is crazy that people go cold in Europe while the energy is spent to mine bitcoins. And that the amount of CO2 produced by mining bitcoins is that of a small country. While the benefits of of all these coins seem to be nonexistent.
- drexlspivey 4y ago> The business of a normal exchange is normally risk free (just matching buyers to sellers) tell that to RobinHood