If customers deposit 3 billion and that goes up to 50 billion. Did they lose 3
They purchased an asset. If that asset goes up or down, FTX shouldn't be in financial risk if they're operating honestly. They're only an exchange and/or storage. If i buy a car and it goes up drastically in value, it doesn't effect the dealership at all, because the asset was purchased and the order fulfilled at time of the purchase. It's the customers business at that point. Now what FTX was doing was taking money and not setting aside the assets already purchased by the customers. They figured only a certain percentage of people would take their coins from the exchange at one time. And they figured they could reinvest the customers funds and make a ton more money and no one would be the wiser. The problem is that crypto went down big time and interest rates went up, and this exposed them.
They purchased an asset. If that asset goes up or down, FTX shouldn't be in financial risk if they're operating honestly. They're only an exchange and/or storage. If i buy a car and it goes up drastically in value, it doesn't effect the dealership at all, because the asset was purchased and the order fulfilled at time of the purchase. It's the customers business at that point. Now what FTX was doing was taking money and not setting aside the assets already purchased by the customers. They figured only a certain percentage of people would take their coins from the exchange at one time. And they figured they could reinvest the customers funds and make a ton more money and no one would be the wiser. The problem is that crypto went down big time and interest rates went up, and this exposed them.
Great explanation thanks.
But it seems like they could have kept spinning the plates if not for the $400 million dollar hack that caused a bank run.
I agree. They could have kept this going way longer.