5 ms·

Why doesn't Binance flex and encourage a complete withdrawal by say Jan 1? Wouldn't that kind of power move boost its reputation above all competitors?

• jacquesm 4y ago
  Chances are they'll be dead if enough people act on that. So they're doing the opposite: reassuring people that everything is fine. If there is one common element that precedes every bank run and run on crypto exchanges and such then it is the 'everything is fine' phase just prior to the implosion.
  • hn_throwaway_99 4y ago
    One clarification: 1. For a bank run on an actual bank, it is known that a bank doesn't keep all your assets on hand - they are loaned out, which is (largely) what allows you to earn interest. So it is known that if everyone tries to withdraw at the same time that there won't be enough money. 2. For an exchange/brokerage, your money/assets are explicitly NOT supposed to be lent out without your permission. So, in theory, if everyone asked for their assets all at once, the assets should be there.
    • jacquesm 4y ago
      Indeed. But we already have a whole bunch of examples of (2) where the funds ended up in all kinds of places where they should not have been.
    • wkdneidbwf 4y ago
      these are the key points that get overlooked. i keep seeing that folks expect these brokerages to work like banks work.
      • jacquesm 4y ago
        The problem is that these brokerages do work like banks work but pretend that they are holding all of the reserves on the books. They are leveraging and borrowing from the customer funds with abandon, just like a bank but without the associated regulatory oversight and rulebooks.
    • chasd00 4y ago
      If there’s a single case of an exchange using a customer’s assets to make bets isn’t that a fraud charge? Or with the unregulated nature of crypto is it not that explicit?
      • jacquesm 4y ago
        Dipping into customers funds for operating expenses or other uses (loans to associated parties, investment, leveraging) is a big no for an exchange, obviously, whether or not it is fraud is ultimately for a judge to determine but it sure looks like that to me. The lure of those balances is invariably too great to resist.
        • happyopossum 4y ago
          > The lure of those balances is invariably too great to resist. I think the folks at JP, etrade, and all of the other regulated exchanges would object to that characterization.
          • jacquesm 4y ago
            Regulated exchanges are obviously a different branch entirely, but the rest of them have serious problems keeping their hands off the customer funds. And as was pointed out to me upthread even the regulated exchanges may not have enough of a wall between the crypto they hold for customers and their operating funds to guarantee that those customer funds are going to be there if the company fails. Time and again we find that exchanges have been dipping in and using money that wasn't theirs in ways that would never fly in a regulated environment.
          • ceejayoz 4y ago
            Guess how most of those regulations came into existence?
    • tpudlik 4y ago
      Re 2: this is not true if you're doing margin or futures trading, which was FTX's main business (and may be Binance's). This type of business is what characterizes an "exchange" (as opposed to a non-margin brokerage or a custodial bank).
      • hn_throwaway_99 4y ago
        Hence the "without your permission" caveat. Point being, when you lend your assets to brokerage, it's explicit, unlike a fractional reserve bank, where deposits are inherently lent out (and no need to comment that fractional reserve banking doesn't "really" work this way, I get it, but deposits are still part of the capitalization of the bank).
        • imtringued 4y ago
          To be fair, it would be better if you explicitly lent money via certificate of deposits to the banks because it means their job is much less risky. The fractional reserve banking model isn't really something to imitate, it is a rather ugly hack that we cannot do without when people don't get enough CDs.
      • HDThoreaun 4y ago
        Perpetual futures don't require any margin. All it requires is matching buy side and sell side market participants and transferring money between their accounts as the underlying changes in value. The exchanges don't actually hold any underlying with perps, so there's no need to borrow money.
        • sdwr 4y ago
          How does a perpetual future actually work?? What happens if 5 people buy the "sell" side and 1 person buys the "buy"? There's no way to redeem to the underlying, and I don't think the 1 person pays out 5x the price movement to the other side. An exchange can hedge vs excess buy orders by buying the underlying, but how do they hedge vs excess sells? I've been trying to figure out how to short BNB, and perps feel pretty much as risky as trying to do it on binance itself.
  • VagueMag 4y ago
    In the runup to the Lehman Brothers bankruptcy, the CFO Erin Callan would come on CNBC week in and week out to talk about their "fortress balance sheet" and it would always pump the stock a little bit. Was absolutely infuriating to watch, but you can't get too mad at the people doing it, regardless of how bad things get their incentives are 100% aligned with projecting confidence and praying they can hold on long enough for the market to turn back up.
  • stanleydrew 4y ago
    This is true, but there is some availability bias. There are presumably cases where "everything is fine" turns out to be pretty accurate (at least for a while), but we don't keep track of those.