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Customer deposits are liabilities, but if the exchange acts as one would expect, each $ of liabilities has a corresponding $ of assets (ideally, in a segregated
by c7b 4y ago
Customer deposits are liabilities, but if the exchange acts as one would expect, each $ of liabilities has a corresponding $ of assets (ideally, in a segregated account, so that they're not considered the company's asset in the case of a default). But one may always doubt whether things are as they should, afaik Binance has never had a full audit report (not just proof-of-reserves or similar).
Banks work a bit differently, btw, they should also have more $ assets than liabilities, but there's generally no direct 1:1 link as described above.
- complex_exp 4y ago> Banks work a bit differently, btw, they should also have more $ assets than liabilities, but there's generally no direct 1:1 link as described above. The total difference between assets and liabilities is the common stock (equity). This also shows why it's a very bad thing when the stock of a bank goes to zero, it means some liability will not be covered and thus the bank can be considered bankrupt. I'm simplifying here. From this point we can take a history tour to the 2008 meltdown, when we had this situation everywhere: bank A would short the common stock bank B because bank A had a lot of assets in bank B (which show up in bank B as liabilities). Bank B did the same thing to bank A for the same reasons. This is not as stupid as it sounds, because banks are not the only players in capital markets, using those shorts they essentially spread the default risk all over the equity markets. While this whole clusterfuck of nobody-trusts-nobody is going on the SEC comes out all of a sudden and bans the short sale of bank stocks, because shorting is evil or something. Imagine how much that made things worse after the only way to hedge entire banks going under was suddenly removed.
- c7b 4y agoI think you're confusing market capitalization and (accounting) equity here. What the stock price does does not directly affect the balance sheet (where you see the equity).
- complex_exp 4y agoI'm not confusing (the market cap and the book value), but rather simplifying things on purpose.
- rr888 4y ago> there's generally no direct 1:1 link as described above yes there is, its accounting.
- complex_exp 4y agoNot quite. Your deposits are usually redeemable on a short notice, while most of bank's assets are usually loans and mortgages and other long term debt.
- MuffinFlavored 4y agoWhy doesn’t Binance (who has gone through the effort to post proof of reserves) post proof of liabilities? How are we not supposed to interpret their lack of doing so as “hiding something ugly”?
- vishnugupta 4y ago> ideally, in a segregated account, so that they're not considered the company's asset in the case of a default Correct, they should be parked in an escrow account on which the exchange has limited control. Also, such accounts are monitored by third party auditors, banks as well as government regulators. At least that’s how it’s in India.