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An actual bank run where an exchange is solvent but doesn't have the liquidity would still be a problem if there's no lender of last resort.

• detaro 4y ago
  An exchange that doesn't play with customers deposits can't really lack the liquidity to return those deposits, because the deposits are there.
  • seanhunter 4y ago
    That’s true in the absence of margin. However these were primarily margin products (“perps”) meaning the exchange has “jump to default” risk if the person on one side of a trade suddenly goes bust and liquidating the collateral isn’t enough to make the other side of the trade whole. In that case if that person immediately tried to withdraw the funds wouldn’t be there even without any kind of fraud. Normally I believe real-life exchanges have insurance to cover this eventuality.
    • djbebs 4y ago
      Sounds like they were stealing the customers deposits in order to provide those margin services then.
      • seanhunter 4y ago
        It certainly sounds like they were misusing/stealing customers' deposits to cover losses etc, although it's possible to run an exchange which offers margin responsibly and still have the "run on the bank" scenario above occur. If left unchecked, losses could impact clients even if the exchange had not been misusing customer deposits as I explain above. When that looks like it will happen in normal financial markets, exchanges intervene to prevent it, although it is extremely controversial. For example, when LME halted nickel trading and canceled some deals recently[1]. [1] https://www.reuters.com/business/lme-suspends-nickel-trading-day-after-prices-see-record-run-2022-03-08/ https://www.reuters.com/business/lme-suspends-nickel-trading...
  • unmole 4y ago
    Yeah, but crypto exchanges subsume the roles of broker dealers, clearing houses, depositories and shadow banks.