[STRML]

It shouldn't work this way. Customer funds should be segregated from whatever prop trading the rest of the business is doing.

The only way this happens is if the prop trading business is over-leveraged somehow and the exchange bailed it out with FTT.

Customer deposits should meet liabilities 1:1. If they don't, somebody is lying.

[barry-cotter]

> Customer deposits should meet liabilities 1:1. If they don't, somebody is lying.

That’s not how banking works. You hold illiquid assets. Sometimes they move in price. If they move enough in price you’re insolvent. Limiting bank runs is a genuinely hard problem.

[zeven7]

Exchanges aren't banks, and crypto exchanges especially shouldn't be banks. Crypto is liquid and can be redeemed in its own denomination instantly if you hold it in a simple wallet. That's what exchanges should be doing. They shouldn't be doing fractional reserve banking, and a run shouldn't be possible. Preventing runs on a crypto exchange is exceedingly easy if the operators aren't taking risks with client funds.

[eru]

Well, it seems the word 'exchange' in this case is used with a different meaning when applied to FTX than the meaning you have in mind.

[stale2002]

Which is exactly the problem.

This should be illegal, and people who do this should go to jail.

Customer funds should be 1 to 1 backed with assets.

[eru]

As long as noone is being lied to, I don't see any problems.

Case A, tell your customers that their funds have asset backing, and have asset backing: fine.

Case B: tell your customers that their funds have no asset backing, and have no asset backing: fine. (Those customers deserve what they get.)

Case C: tell your customers nothing, and do whatever you feel like: fine. (Those customers deserve what they get.)

Case D: tell your customers that their funds have asset back, and have no asset backing: bad.

[majormajor]

B and C are perfectly fair game for a government to attempt to prevent, regulate, and prosecute in my book.

I don't think anyone has an inherent right to take advantage of people's ignorance solely for their own profit even if those people "deserve what they get." We make plenty of other ways of abusing people illegal, why allow that one?

[zeven7]

Case D is what we are seeing over and over again, including this circumstance

[stale2002]

> As long as noone is being lied to

That is exactly what is happening. There is lots of lies being told, with no transparency, and then people's money disappears.

Instead of that, if people money disappears, we should arrest the people who made it disappear.

[stripedfish7]

Except none of these 4 cases happened with FTX.

SBF claimed that assets WERE backed, while it appears that they were not.

[vba616]

Are you saying that fractional reserve banking should be illegal, or that insolvent banks should be illegal? I think the second one already basically is. Or at least with a real bank, they get shut down and the FDIC bails the depositors out.

Educated rumor is suggesting FTX may be insolvent, not only the victim of a bank run type scenario.