Topic: Why are so many Derivative Exchanges are filling for Bankcruptcy ? (Read 523 times)

There is a lot of competition in the exchange industry. Just have a look on how many exchanges exist right now.
Also, consider that the most major services are accumulated by those exchanges giving no room to the smaller ones to be differentiated and make users trade on their platforms. Having said that ,trading volume is being accumulated in 2-3 exchanges making the others struggle to survive and eventually go bankrupt.

Well could be one more reason that most exchanges use api's from various companies for generating wallet, rather than running their own node , and it could be possible that they even do not have control over the crypto funds, so hey ultimately stake peoples funds in someone else hands and promise such high returns on trading and staking that may result in collapse

I will agree that engaging in crazy-ass degenerate gambling can become contagious when witnessing others doing it, and being rewarded by such behaviors.. so within those atmosphere's it can become quite extreme to the extent that what they are doing is known..., and when it comes crashing down, then it does become more known than it was.. and it becomes more obvious that we should have known about the extremely risky and degenerate gambling that had been going on, so sure there is ongoing lack of due diligence from a lot of folks and negligence and even thoughts from those who know some of it, that they will get out before the others.. which sometimes happens and sometimes does not.

I will still proclaim that even though there are extremes, we still have to be careful about painting everyone (or even a majority) as if they are all engaging in the same levels of extremes, or in the same levels of blissful ignorance or failures to employ adequate risk management strategies.  Maybe we are not going to agree about how to quantify or to clarify and I am largely just quibbling with you about semantics more than anything.


Yes.. you do recognize the existence of variance.  Great.


You could be worse.  I will admit.


Sure, the list is long even including the variance... the good guy scammers and some of the innocent scammers... although we might not agree in which pigeon hole to put each one.

I agree with you also that there may well be a decent amount of futility of going through all the various scammers, even though there are people who dedicate a lot of time in the creation of such indexes.. even with descriptors regarding known direct evidence and inferred facts/logic.

And sometimes there could be a bit of a slippery slope in which they seem to start out as angelic but then somehow fall into a gambling trap... that ends up becoming more and more degenerate... whether they had such evil in them from the start or not.


Even though it seems that I agree with you that the progression of dumb and degenerate gambling does seem to get worse and worse, I am still not going to presume the outcome of a downfall due to such ongoing degeneracy to be inevitable, and sure Blackrock brings both capital to the scene but also a lot more skills/techniques in terms of using other people's money for degenerative corporate profits... that may well bite both of them in the ass - who knows?... sure Blackrock is likely NOT going to be whipping Coinbase into shape, but such infusion of capital may well facilitate a longer life to Coinbase and changes in the way that they are gambling with the funds of their customers - perhaps even bringing some greater skills in terms of which of them are allowed to gamble and how they are allowed to gamble.


Maybe I am using the "money laundering" term differently from you?  And I had not thought about this for years, so I might be forgetting some of the details, but what I am trying to say is that if Cotton took $100 million in customer funds and made it look like he was trading such funds because he created like 1,000 accounts in various exchanges, then there may well have been other accounts that were his that were able to profit from such known trades.. so he could have known that he was going to dump $100k in Novocoin, and since that market is so illiquid, he could have other accounts (that are not known to be his) playing the other side of those trades and making a lot of money... so in the end, if he ends up making $10million from the $100 million from which he started, that $10million may well NOT be known because those were other accounts that were controlled by other identities (of his)...

I am not claiming to know any details of how to do it exactly..but I know some scammers do those kind of more sophisticated things


Sure.. some things might have been part of a plot and some things might have unravelled in directions that they had not expected, and it is possible that Cotton and one or two of his partners might have been planning to exit in a certain kind of way.. but then one of the partners double crossed the other, and maybe Cotton still ended up dead but not based on what he had thought was the original plan.. and surely like you suggest a lot of variations of what could have had happened because there does not seem to be enough evidence (at least not so far).. .. and it also could be that certain witnesses have evidence that will never be known because either they have gone to the grave or they know that there is no one else that knows some information that they know.. but the release of such information is not good for them.. and might never be good for them (on their deathbed will they speak?  perhaps? but maybe not)..

I agree with not everyone, but this not everyone can be 1 out of 1000 and 999 out of 1000 at the same time, more bad guys than nice guys can also mean 501 to 499 and again 999 to 1.  

So, we could look at the most known figures, the largest exchanges, and do a bit of superficial math, how many were genuinely in just for the money, how many ended up bankrupting their exchange with greed, and how many encountered "hacks" or "sudden death by natural causes" and the ones that did not do even once something that would make your blood boil.
As I'm truly a good and nice guy and I'm also pretty fair when it comes to things like this  I will take care of the list with the PoS (not the protocol) and list every single scammer, liar, fraudster and you can have the angelic figures. We can start as soon as I figured out how much free space bitcointalk has on its server  


Responsible? No, even with the first quarter decline they still pushed and bet on NFTs and all other hype products and here are the result of those actions, fresh report:
https://s27.q4cdn.com/397450999/files/doc_financials/2022/q2/Q2-2022-Shareholder-Letter.pdf
TL;DR

Hmm, it would have been a complicated thing, if you use something to launder money you don't lose things, casinos that are used for money laundering don't go bankrupt like this, and neither are all those restaurant chains or even small businesses when local mobsters launder their extortion revenues. If he would have mainly done so then it would have made little sense to tap the customer funds, and I think that when you launder money you're looking at keeping a low profile, so why embezzle all this and make yourself a target for the police for a whole new truckload of reasons? Also, if those losses would be coming from money laundering do you think anyone would file reports for that?

And if we go further down the theory with the money laundering, on one side his "death" starts making sense as he wash probably eliminated but the cause could only have been by him again putting his full fist in the honey jar and trying to compensate his friends by robbing his customers till there was nothing left to rob.
Too complicated, and we have way to little info to speculate further than this anyway!

Take a look at this post as well: https://www.reddit.com/r/CryptoCurrency/comments/vy84rw/3ac_borrowed_millions_from_voyagerblockfi_user/

3AC didn't just gamble on GBTC; they also gambled on NFTs. They spent more than $2 million at the time on individual NFTs, including such priceless NFTs as pictures of DickButt. The fact that places like Celsius and Voyager lent enormous sums to 3AC to gamble on such stupidity is nothing short of a scam.

To be fair, there were many of us who spent months or even years warning people that these ridiculous returns were obviously unsustainable and the whole thing would collapse eventually. We were ignored, obviously, because "20% gains oh em gee!"

Well, at the end of the day, it's all about poor management, and also the lack of interest in the people from the exchange. many people see the exchange of its liquidity. however, some of these exchanges have low liquidity. even with this, we know that the exchange will not last long. even more so if they invest in other coins using people's assets. yeah, that's really bad. I've heard a lot about this kind of exchange closing. In fact, these two points can represent almost the entirety of why many exchanges have closed. As users, we need to do some research before depositing our money on a new or unknown exchange.

one big reason that famous among startup is they lack of fund to burn, you know that to gain more people come startup usually need money to burn and keep competitive and its hard especially in current hard time, crypto winter is really hit market so if the company cant control in this situation they will be like this

I am pretty sure that there were several companies that lent to Three Arrows Capital on the basis that 3AC was paying much higher than realistic rates, but the fact that many others were lending to 3AC, they ended up not providing any collateral.. so Genesis (the company behind GBTC) lent something close to a billion dollars to 3AC because 3AC had been the largest owner of GBTC shares - and then Voyager also  lent at least $600million to 3AC based on mere personal credit - which is just stupid... Voyager was making such amateur mistakes to be lending something like 58% of all of their money into risky bets like 3AC.. without realizing that 3AC was just continuously underwater because their bet on their having had purchased so much GBTC was a bet that an ETF would be approved in the USA and then end up narrowing the 30% discount of those shares.. and that's just pure gambling that did not work out in terms of the ETF gettin approved nor in regards to the BTC price NOT going below a certain amount (maybe they were betting on the BTC price not going below the 200-week moving average... and then the BTC price went down to $17,593 which was about 20% below the 200-week moving average and even then such low prices were not guaranteed to be the bottom either.)... in which everyone would start to want to ensure that they had the BTC that they claimed to have had.

Each chain engaging in risky behavior and failing to do adequate due diligence and even logic should tell us that companies should not be able to pay more than 6% to 10% unless they had proof.. but no one asked companies to show proof of how they were earning such 6% to 10% because the ones loaning the money just loved receiving such guaranteed above market rates (until their principle completely disappeared.. then the 6% to 10% or even higher than that did not look so good anymore and then it became more clear that maybe the lender should have been asking questions regarding how such high interest rates were sustainable.. so it ONLY starts to seem obvious that they are not sustainable once the music stops and everyone needs to find a chair.. and there are twice as many peeps as there are chairs.).

The amount of money to keep it operational is so high that, when you take this much risk and go wrong just even once, it puts you at the brink of bankruptcy. That's the problem with all those suit types, they do not realize that all those things they spend outside of keeping it running makes it higher cost and causes them to bankrupt quicker.

If everyone made it as little as possible and put it all back in and reinvest, then they would have kept it going further. Derivative is a highly sensitive exchange type and that means you would have good days and you would have bad days and on bad days you will have to have some money to back it up until its good days again.

they will definitely go bankruptcy because there's no difference in them from other centralized institutions that make business and gambling with our money, they also loose atimes because of liquidity, don't be surprised that banks also lend money from other sources, example is from government.


All these remains constantly as some of the causes with no doubt.

Three Arrows Capital seems to have been a good example of how poor their risk management has been so far. Obviously the problem is risk management causing its position to be liquidated, oh but it's not as simple as we think because it might be described as a leak in the hull of the ship that took some time before sinking.

If a large company can be liquidated due to poor risk management issues, then I each of us probably can experience it faster mainly because there are no large backups in the vault.

Yeah, funny, isn't it? All these corporate types suits and ties, beating their chest about how they're paving the way for the future of money, decentralised finance, freedom and crypto, et cetera, when all they're really doing is adding new products to their old way of doing things. Under-collateralised gambles and networked guarantees, just piling on the dominoes atop the same old house of cards.

But as pointed out also, not everyone is guilty of bad risk management, it seems to be the newcomers (relative to being in business for decades) making those mistakes.

It seems that the more accurate term would be "bad risk management" - which is more specifically addressing what seems to have gone with companies that were loaning money to three arrows capital but not getting collateral... so yeah, maybe you tbct_mt2 are saying the same thing. but using a term that is less descriptive of how the listed companies failed to account for risk, but then the bad risk management of some companies caused cascading events towards other companies who might not have been engaging in the bad risk, but the fact that they entered into a relationship with some other entity that was employing bad risk management caused their own liquidations.


Holy shit you are exaggerating.

Yes... when some of these services end up going belly up, we end up seeing that they had been swimming naked, but that does not mean that everyone operating an exchange or everyone involved in various kinds of bitcoin businesses are without ethics, morals and/or even engaging in the same kinds of fraud and/or misrepresentations and/or failures/refusals to employ sufficient and/adequate risk management.

I am not defending the scammers because surely there are quite a few scammers... who try to act highfalutin and as if their shit don't stink.

Sure, I will give you some benefit of the doubt to speculate that there are more of some of the persons and exchanges playing loosey and goosey with customer funds and/or employed degenerate gambling strategies and engaging in self-dealing rather than mostly sound business practices who have so far NOT gotten caught with their pants down and they may have been able to get by so far, this time... Coinbase surely seems like one of them. and maybe it is a matter of degree too, that some of the ones engaging in risky behavior will have had learned to clean up their shit a bit so that they do not end up going bankrupt.. become more responsible.



For sure, not everyone sinks to those low levels.


My tentative theory is that Cotton (and perhaps others) were using the exchanges as ways to launder money, so it is probably not accurate to call it losses, even though technically there were losses involved.. in other words, Cotton was NOT likely so innocent as to have had been gambling with customer funds to try to get the money back, but instead just using those techniques as ways to get money to himself and/or to anyone who he was sharing with.


Yep.. the story of super incompetence does not add up... for sure.

This is where I learned that I should not carelessly store my coins in any exchange. I only trust exchanges whose owners are really trustworthy people. good because of his great wealth. or do they have a history of their own that makes people believe it. therefore I only use the number 1 exchange, namely binance. because new exchanges are sometimes very prone to bankruptcy. well with reasons like the op mentioned. or for other reasons that can be free on the reef.

but a more logical reason is that they went bankrupt because they could not fulfill their obligations. such as debts that are not paid, electricity bills that they fail to pay and others. as happened to Voyager Digital Ltd and Compass Mining.

They are not derivative exchanges actually. Voyager for example is not really an exchange. But regardless, the fact is that their design must not really be sustainable. They were operating smoothly because the market was doing good. But by the time the market experienced severe turbulence they easily fell.

Of course there are a number of reasons for this. Other than an unsustainable design, they are also probably guilty of inflating their volume. They must have also made wrong investment decisions. Add to it the overall economic situation in the global level.

But this is somehow good to the market because because this will only retain the robust companies. Those that are weak will be gone and will be replaced with stronger ones.

I have not completely read through this thread yet.. so maybe I will edit this post after I read through the thread, but for now I was looking for a place to post this article and to discuss a few of the points.

Maybe there is a better thread for this discussion, but for now, let me place this Voyager news here.

https://news.bitcoin.com/voyager-to-allow-cash-withdrawals-for-customers-with-us-dollars-held-in-accounts/

Here are the bullet points that I found most interesting:

>>>>>>>
● On August 4, 2022, the Wall Street Journal reported that Judge Michael Wiles of the U.S. Bankruptcy Court in New York approved the release of $270 million in cash deposits held by Metropolitan Commercial bank (MCB).
......

● “We anticipate resuming access to the Voyager app for cash withdrawals only, starting on Thursday, August 11th,” Voyager said on Friday. “Customers with cash (U.S. dollars) in their accounts will receive an email with more details before cash withdrawal access in the app becomes available.”

● At the same time, Voyager is “simultaneously pursuing a standalone restructuring process and a potential sale of the company.” Bidding for the company begins on August 26 and the sale hearing will be “held on September 8th.”
<<<<<<<

Upon reflection, my tentative theory is that Voyager is ONLY opening up dollar withdrawals of up to $100k - so that customers cannot make claims against them through the FDIC insurance process for any other money that Voyager might end up losing through the whole bankruptcy process since FDIC insurance only covers dollar claims? and accordingly Voyager is allowing customers to withdraw their dollars up to the $100k insurance limit. 

Accordingly, whoever has  assets on Voyager that goes beyond dollars are going to get locked into some kind of a long process of settling the amounts owed from whatever assets that Voyager may still have (absent the $100s of millions that it tends to cost to go through a bankruptcy proceeding) unless Voyager happens to get  lucky with some kind of a purchase that is able to make customers whole. 

The company will likely be able to achieve a higher sales price if they have resolved some of the potential for customers to dispute the dollar values that they had held on the exchange when Voyager had given them the opportunity to withdraw the FDIC insurance limit amounts.

Any thoughts?

Derivative exchange is just a way riskier model than a spot exchange. It's an abstraction, based on expectations of the behavior of an asset, one way or another. And given how volatile the crypto market is, it can lead to unexpected changes and failure to deliver.
Taking a look at Celsius and Voyager, they risked the money of their customers a lot. Also, of course, it's often hard to tell if something is an honest failure (mismanagement of funds) or a deliberate strategy to perform an exit scam.
People should try to learn a simple rule: not your keys, not your coins. So instead of keeping tons of money on an exchange that can do what it sees fit with that money, you should hold your coins in your own wallet and use an exchange when you need to buy or sell (unless you're a trader, of course, and in that case you should do research to determine the safest exchange and still withdraw profits regularly).

The parking the funds part usually do not get a lot of profit, I mean maybe a little but not a lot. I have worked with exchanges before and saw how they were dealing with profits, and even worked with one that bankrupted as well and know how.

The operational costs are not the trouble they usually have, it is the reward promises that kills them because they end up with less profit than they assume they would. But one thing is clear, listing fee is definitely a big deal when we are talking about smaller exchanges, big ones list stuff that would already be listed, so if you think coinbase charges you or binance charges you a lot to get listed, you are usually wrong because they do not list shitty stuff just because they got paid.

Piss poor fund management combined with under collateralization equals the shit storms we are witnessing now.  Also eggs in too few baskets, esp too much in risky ones, will increase the odds of failure to about 100%.  Again, the root goes back to piss poor fund management.

Definitely it all goes down to management and they failed on it.  Risk Management and Capital Management are two essential factors to make the company stay afloat.  This kind of exchange is venturing into very risky trades, their Risk Management must be a top shot but it looks like they aren't.  And there is also the possibility of corruption and the goal of exit scamming their client.  Even though they are perfectly running, they can find loopholes to trigger their scams and declare bankruptcy running away with clients' money.