The issue is, traditional exchanges are able to avoid taking custody of funds by a whole system of laws and contracts which provide for how the actual transfer

The issue is, traditional exchanges are able to avoid taking custody of funds by a whole system of laws and contracts which provide for how the actual transfer of one thing for another takes place, completely separate from the exchange (typically, through the Depository Trust & Clearing Corporation). The whole process of making a trade for traditional securities takes a total of 2-3 DAYS. Crypto exchanges, on the other hand, mostly operate as broker-dealers, who happen to be engaging in off-exchange transactions (which are mostly illegal, or heavily regulated at least, in traditional assets). Furthermore, some, such as FTX, have taken it upon themselves to act as banks on top of this all. It's true that you can borrow money from a traditional broker-dealer, however, behind the scenes, regulations T, U, and X govern the process by which the BD pledges securities held in your account as collateral (which you allow them to do when you sign a margin agreement), in exchange for money from the bank, who in turn is governed by a heck of a lot of regulations and in turn is backed by the Federal Reserve and FDIC. Basically, they're trying to be the entire financial system spun up in a few lines of html, javascript, and whatever flavor of the day scripting language they happen to be using is. Big surprise -- it's not working very well. At the end of the day, the ones doing a better job are the ones that at least are leaving the banking side of things out of it, and charging a higher spread on executed trades, so that they can avoid needing to monetize simply holding your assets. This isn't a surprise -- if someone's charging you less than 1% on your trades, you should be VERY supicious.