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FTX customers can perform leveraged trades, where they borrow money from FTX and post other assets as a collateral. In theory there could be some kind of liquid
by ufo 4y ago
FTX customers can perform leveraged trades, where they borrow money from FTX and post other assets as a collateral. In theory there could be some kind of liquidity crisis if FTX had to liquidate many margin trades at the same time. But that's irrelevant; the real issue with FTX was plain old embezzlement of customer funds.
- kgwgk 4y agoWould you qualify that collateral as "long-term assets"?
- hamburga 4y agoThe long-term asset is the money lent to the customer that FTX expects will be repaid.
- deleted 4y ago[deleted]
- kareemsabri 4y ago> In theory there could be some kind of liquidity crisis if FTX had to liquidate many margin trades at the same time. I don't think there can be. If all assets customers have title to are held 1:1 in the currency the liability is denominated in, there is no scenario I can see where FTX is unable to fulfill customer withdrawal requests. Even if customers make use of significant margin and FTX has to liquidate all of their margin positions at once due to tanking prices. The customer who pledged their assets as collateral have now forfeited them to FTX and so have no withdrawal to make, so no liquidity crisis. The customers who did not make use of margin should have their assets sitting there ready to be withdrawn. Can you explain how a liquidity crisis can occur through margin trading? FTX may lose significant sums of money, and face a solvency crisis (they may have to shut down margin trading altogether), but it should always be able to give customers their assets back. Unless they are misusing customer assets for other things.