Source: https://www.linkedin.com/feed/update/urn%3Ali%3Ashare%3A6948302792478396417
#CryptoExchanges Already “Secretly Insolvent”: After throwing lifelines to troubled #digital #currency #platforms #BlockFi and #VoyagerDigital, Sam Bankman-Fried, the 30-year-old billionaire founder of FTX, warns that some #cryptoexchanges will soon fail: https://lnkd.in/g8ru9SZX :
The question on everybody’s mind in the #crypto world is whether we’ve reached the market bottom. Nearly $2 #trillion in crypto #marketvalue has evaporated since November. Two bellwether #digitalassets #Luna, a $40 billion #crypto #asset associated with #TerraUSD, a $16 billion #stablecoin designed to maintain #parity with the U.S. dollar, have collapsed. Earlier this month #bitcoin traded for below $20,000, its lowest level since December 2020.
But the fallout is far from complete. Earlier this month, Singapore-based Three Arrows Capital (3AC), a highly levered #crypto #trading firm with $200 million of exposure to Luna revealed that it was nearly insolvent. Three Arrows’ had borrowed large sums from numerous crypto firms including New Jersey’s Voyager Digital and New York-based BlockFi. In order to survive Three Arrows default, the two #digital #asset #exchanges turned to billionaire Sam Bankman-Fried, founder of FTX and the richest person in crypto, worth some $20.5 billion. Between FTX and his #quantitative #trading firm #Alameda, he provided the companies with $750 million in credit lines. There is no guarantee that Bankman-Fried will recoup his investment.
Fried’s FTX, along with #Coinbase, #Kraken and #Binance, are giants among digital asset exchanges. They have millions of customer accounts and functionally they operate similarly to #online #stock #brokerages. But outside of these whales, there are more than 600 #crypto #exchanges around the world operating in a largely #unregulated #frontier. Never heard of AAX, Billance and Hotbit? You aren’t alone, but like #Coinbase they trade #bitcoin, ether and #dogecoin and offer generous margin loans–as much 20 times their initial capital— to their clients. Lacking any meaningful #regulatory #oversight many crypto exchanges have been vulnerable to #scammers and #hacks.
Japanese exchange #Coincheck was #hacked for $530 million in crypto in 2018, Singaporean exchange #KuCoin lost $275 million in 2020, and then in December 2021 Cayman Island-based #Bitmart was #breached for $200 million. Back in 2016, #Bitifinex was #hacked to the tune of nearly 120,000 bitcoin worth $2.5 billion now.
As Forbes reported in its analysis of 60 #crypto #exchanges, the #digital #asset #exchange business generally lacks #standards to certify a new entity before or after they start soliciting client #funds. The #SEC doesn’t #regulate the #exchanges and the #CFTC has oversight of only a handful of #crypto #derivatives #markets. In the US there is no member organization like #FINRA to self- #regulate #crypto #exchanges.
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