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.

This is an exchange in Southeast Asia, with headquarters in Singapore and Zipmex with branches in Australia and Indonesia.
Zipmex was one of the exchanges involved in the collapse of Terra and the investment fund Three Arrow Capital, so it is not surprising that they declared bankruptcy.
Luna's death is the root cause of the recent crashes, the consequences are really too big for the market, are there any other companies or exchanges that will go bankrupt because of luna?

The trading Fee is one of the many factors, there are ways from which exchanges make money , one is listing any coin or token for which they may ask from 20,000 usd to almost anything , 2ndly the people's funds which exchanges hold they park the funds somewhere else just like banks, 3rd and most important is most exchanges have raised funds from VC's from millions to billions dollars depending on their volume, so according to my opinion is which i said earlier govts should work on bankruptcy laws just like in shares and stocks.. so it will be a nightmare for a company to actually file for it, looking at situations it seems like its a cup cake for an exchange to file for bankruptcy...which is absolutely not right for crypto community as a whole...

Funny enough, the Celcius ceo once told the media that because of people controlling their own keys end up in loss of funds, they should have learned to keep their funds in the hands of Celcius. 
I think people didn't buy his shit. So he ended up collapsed.

It means there just isn't enough money flowing around and enough people trading. Come on print more bills Feds! Lower the interest rates.

I honestly believe that the liquidity situation is more than enough for it. I am not saying that it is the only reason but it does make sense for it to be a good reason. When you are running an exchange, that means you are making money based on trades, the more volume there is, the more trading fee you are getting.

If there are not enough trading fees coming at your way, then it won't be available for you to keep it going since you won't be able to keep the lights on. On the other hand, if we are talking about something that is generally not a great, then having low security could put you at risk as well. Getting hacked and losing the funds could make you bankrupt in the first place.

I don't hear this exchange so I conclude that they are not famous one so maybe the reason why they file bankruptcy its because they didn't reach more crypto traders globally. So if they are not earning reliable profits to sustain their business then this will happen to them. Maybe those filling a bankruptcy status is to lessen up the damage they can get to their costumers and other entities who they owe money.

There are so many ponzi schemes which such exchanges are offering and people who just want to earn a bit by investing are falling victim , think of million of people who have actually invested in all these exchanges, and imagine how they would be able to recover from such losses, as most of them would have put their hard earned money ... This is certainly alarming for crypto community as a whole, probably there is no instant solution to it , but more education should be provided to people so they understand the repercussions of investing in such schemes where they promise to make you you rich without putting much effort or money... Derivative exchanges are finding new ways to make people fool without a vision and thereby its hard to digest for anyone, that without banks or law making agencies being involved this kind of things does happen,...

There could be n number of reasons for a company to go bankrupt. Derivative exchanges are even more prone to such things because they make money out of thin air without holding the actual asset. They allow their traders to bet on price differences that are going to occur in future. So it is a high risk business.

There are other kind of crypto business goong bankrupt as well. I have seen Celcius has also filed for bankruptcy. They gambled for bullish bitcoin but failed to protect the business during a bearish time. So poor fund management is another reason for such bankruptcy cases.

I was skeptical about the documentary that was talked about on the forum, but after watching it some things became clearer to me, although no one can say for sure that Cotten is dead because the only ones who allegedly saw the body are his wife and a doctor in India who pronounced him dead. Even with all the evidence about how he ran his exchange office, there is a justified suspicion that he is alive somewhere and enjoying the few million dollars that he managed to hide from the authorities and the public.


As stated in several places in the article, it seems that this company ran into problems long before the final collapse, but it was successfully hidden. I remember some discussions when things were still in their infancy and I never liked the idea of cryptocurrencies being used in such a way, especially when the whole business model was in some kind of gray zone. In an ideal world, that CEO and everyone who participated in everything would be convicted and sent to prison, and their assets would be seized and sold to settle their clients.

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It's a real rarity today to read something that isn't mere sensationalism and clickbait, but there are obviously still some journalists who know their job.


Most of them say what people want to hear, but they are actually doing something completely different in the background, and that is nothing that should surprise us. That's why I'm always careful about people who try to position themselves as some kind of crypto leaders, and at the same time use Bitcoin as a story through which they sell their product (token). Every day I wonder if people will finally understand that they shouldn't be so naive and believe that someone is pro-Bitcoin just because he invested in Bitcoin, or has a company that trades with Bitcoin.


On the link I posted above in the post, you can see the report of the Canadian authorities, which summarizes what they concluded from their investigation. However, it seems quite unreal to me that a man managed to gamble away more than $160 million through various investments, as if he was a total anti-talent for such things, and everything that was revealed in the documentary clearly shows that he was a very insidious scammer from his earliest days.

Excellent article, and it shows the situation perfectly right now, all these saviors are just using the community and its funds to get rich.

Laser eyes, fuck the banks, fuck the government, they keep shouting these as they know the userbase is susceptible to this message, and if somebody dares contradicts them there is the mass destruction weapon of the cultist, the FUD!!!!! Dare to say anything about an exchange, a token and you're going to labeled as a FUD-ist, a horde of 5$ investors who think their pennies will turn into millions by hitting like and kissing the ass of some cryptopornstar will start crying FUD, will swear everything is fine, that moon is scheduled tomorrow.

And these pieces of * like Mashinsky know that you just have to throw a few useless tokens at them and you have an army of online supporters ready to ridicule any attempt at showing the truth.

Just as the other moron tattooed a useless token on his arm, I wonder what story is behind that shirt, I have a feeling right now that the majority or at least a large chunk of the money he made selling his tokens is sitting right now in a bank, not in a Defi solution that would magically replace banks.


One thing has surfaced since then, that Quadridrga has financed itself on customers' money, and lost a lot of them during the time of actually operating, so the claimed 130 million have never been actually there, much of it being spent in the year before Cotten's supposed or real death. They've managed to get ahold of real estate investments of 20 million, so it's highly likely he sold or used his customer's funds well beyond that date to purchase stuff for himself and then run the business as a Ponzi.

So, basically, the exchange was already bankrupt with almost nothing left some 8 months prior to his again...death?

Maybe one of the reasons for the closure of an exchange in the cryptocurrency business is the lack of proper supervision in this type of business. Second, if an owner of an exchange only wants to accumulate a large amount of funds, it will actually cause the company to collapse. And they may not be able to get their main goal to stay in this industry, so what happens is that the event is always offset. Which causes their client traders to withdraw from using their platform.

According to my opinion , Why is it that always at time of dip we see exchanges being shutting down and running away with people's money, These exchanges have found loop holes of bankruptcy where the company looses everything and owners become more rich ,  there is a chronology, which is followed by every exchange , that every exchange has their own token and their main purpose is to roll out their tokens to people in lieu of their funds, and peoples funds are been used somewhere else to make profits .. Somehow people also fall for their bait in terms of ROI . which is beyond imagination , take an example of Voyager, which such a pomp and show they promised returns upto 9% to lure people but at the end of the day people do not realize how can such calculations be possible at the time if market goes down...

I think it's because they are tied to their own program return promise, "Staking". Perhaps what the user sees are programs that should be described in general articles about it, such as consensus contributions, network security, etc. But, who knew they were doing something else behind the scenes?  In fact lending platforms like Celsius can offer more returns for liquidity providers than normal staking rewards.

Haven't heard that name in a few years. Did we every get to the bottom of it? Last I looked in to it (which, as mentioned, was several years ago) I was thoroughly unconvinced by the story that he had died. It looked far more likely that he had scammed all his customers, fled the country, faked his death, and was living the high life somewhere under a new identity. It seemed all this was planned in advance, so by the time the exchange collapsed and people started looking for him, he was already long gone.

You can read the report here: https://www.arkhamintelligence.com/reports/celsius-report

It seemed he spread it out over time long before they declared bankruptcy, so little to none of it will be able to be examined or clawed back as part of the bankruptcy filings, although I'm sure he also took the necessary to steps to ensure his own holdings were entirely separate to those of Celsius for this exact reason. Doesn't matter to him though, it's only the average Joe who has lost any money, and we know that centralized exchanges don't care about those people at all.

The same thing that Gerald Cotten did with his clients' money in the case of his crypto exchange Quadriga, if the Canadian authorities' investigation is to be believed. It just shows how much people have misunderstood the basic concept of Bitcoin and treat it in the same way as fiat, and when situations like this happen, they blame everyone else but themselves.

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I haven't followed what's been happening with that company lately and this is new information to me, so I'm wondering if there is any criminal or misdemeanor liability here or if the CEO, as I said before, is using loopholes in the law to get out of the whole thing much richer than before. Generally speaking, events like this give a bad picture when it comes to Bitcoin, although of course it is not Bitcoin's fault that such companies exist or that people are naive to trust them.

I read an interesting article about him today, and what he promoted for years is obviously no longer valid - because the banks that he often mentioned in a negative context are now mentioned as potential saviors.

I don't think Coinbase or Binance have learned any lessons either. Coinbase have obviously been through bear markets before, but still seemed to be caught so off guard by this one (that wasn't/isn't even that bad) that they had to fire 20% of their workforce. Imagine if the price dropped to $3k again like it did in 2018. I have a suspicion that Coinbase would be breaking out some fairly drastic measures to stay afloat if that were to happen.

Case in point: As Celsius declares bankruptcy and all its users are likely to lose everything, reports say that the CEO Mashinsky sold around $45 million worth of his centralized CEL token he very kindly gave to himself. This is where customers' money has gone - straight in to his pocket.

The simple explanation is that they gambled with other people's money and lost.  It's so easy for operations to massively profit when the price is rising, but things get more complicated once that gravy train stops.  It's like musical chairs and these are the exchanges that couldn't find a seat.  That's why the test of time is so important to Bitcoin projects.  If you're thinking about depositing money somewhere or investing in something, make sure it's survived a downcycle.  Anything in crypto that's been operating for less than 4 years should be considered a test.  Without seeing how it performs in the downturns, you really can't have an idea of how healthy a crypto organization is.

It's funny that I have been trading derivatives for a while now and this is the first time I am hearing about zipmex. Looking at the name, it's one of those exchange you feel was inspired by BitMex to an extent that they had to even borrow part of the name. 
It doesn't give any confidence to use it, does it?

I read up some information from Reuters, and it seems the recent Celsius and Babel Finance turmoil affected them too

Exchange has an operational cost that includes the salary of there worker and other fixed cost. Since there main source of income is trading fees, They are killed by it once they don't have enough profit to sustain this fixed expenses. And also they owns part of the liquidity of the exchange tokens, So they are hit hard on bear market because there assets stock on the tokens liquidity is dumping its value whic makes them bankrupt during bear market.

Look back in time to the 2013-15 altcoin boom and bust. Many exchanges did not survive that.
Then look at the 2017 BTC boom and the 2018 fall. A bunch of exchanges failed then too.
Same thing going on now.
And guess what. Sooner or later there will be a massive BTC rally and a 'new shiny thing in crypto' and a bunch of new exchanges will pop up. And then when the cycle turns (hint it will that's why it's called a cycle) they will implode too.

-Dave

I would answer in a simplified way, and the reason is that such companies are not even created to last too long, but for their owners to get rich and then use all possible loopholes in the law to get out of everything with as little personal damage as possible. The real problem is not that such companies exist, nor that they happen to go bankrupt, but the problem lies in all those who give them their trust (money) in the hope that they will profit from it.

Whoever was looking for an easy profit lost money in a fairly easy way, but it's not that there is anything that can surprise me considering that a lot of people believe (or have believed) that they can profit by investing in stablecoins - there are too many lunatics in the world

You can't get a unified answer to all your questions, but the risk management of these platforms is the main cause of this mess, as they rely on hot money and more loans to get rapid growth, which means more hot money that will convince customers that things are good.

The reversal of the bitcoin price and the cessation of continuous growth is what made this hot money decrease and thus began the domino effect, which ended with these platforms declaring their bankruptcy.

The aggrieved party is the depositor, as he deposited his money into their hands in exchange for promises of profits, ignoring all the risks that might lead to him losing all his money if these platforms declared bankruptcy.

Nah, those have already went down long before recent events.


The most likely reason (2 either implies 3, or 1 - and I already ruled out 1).


Absolutely not. Nothing serious has even happened yet as far as inflation is concerned. It's mostly due to bad capital management which the other members have highlighted.


History repeats itself, and nobody seems to learn a lesson from events like these, with rare exceptions such as Coinbase and Binance.


If they leave crypto because the wolves of wall street scammed them out of their money, that's their problem. At least the decentralized crypto communities are full of very reasonable people who'd think twice before handling a stranger's money.

These platforms make their profits by taking your coins which you deposit and lending them out to other entities, and charging interest on those loans, exactly the same as fiat banks do. What is different from fiat banks, is that there are absolutely no rules or regulations governing what loans they can make, and there is absolutely no insurance either. While the platforms all claimed that they did due diligence, only made safe loans, all the loans were covered in excess by collateral, and so on, it's now becoming clear that absolutely none of that was true, and these platforms loaned out your money to pretty much anyone who asked for it without checking their ability to repay the loan and with little to no collateral in return. When one big loanee collapsed (Three Arrows Capital), there was a massive knock on effect on a bunch of these lending platforms which left them all insolvent.

I've discussed all this at length in my thread here: Recent events should make you withdraw all your coins to your own wallet: Part 2

These ongoing collapse of multiple such platforms does not affect the fundamentals of bitcoin whatsoever. Hopefully, however, it will result in people losing faith in these centralized lending platforms and exchanges and instead choosing to keep their money in the only place it is actually safe - their own wallets.

Bad capital management is cause of all bad things.

With bad capital management, any blackswan event will cause a collapse of that company financially. It can be a hack by bad security. It can be an attack like Terra Luna. It can be massive liquidation calls like Celcius, Three Arrows Capital, Voyager etc.

But if you have bad financial, capital management, your company is always at risk of bankruptcy.

In personal view, for your personal account, if you have bad management, you will be at risk of liquidation or lose all money with one failed or scam exit project.

In summary, any company could go bankrupt, including exchanges, and the reasons are many but do not mean that others in the same line of business are not doing well. This is why traders and investors should be careful and do thorough research before trusting any company with their money.

The reason for the bankruptcy might be due to unplanned business, mismanagement, more liabilities than they can cope with, harsh business environment, lack of funds and loans, and many other reasons. Yet, I don't think this should discourage traders and investors that mean business as they can always go for the best alternatives.

Just came across a latest news that "Zipmex" is another exchange which have filed for Bankruptcy , after Voyager and others.. What do you think is the real reason for so many exchanges going down.

1) Could the reason be that they have inflated their trading volume , which is now they cannot sustain the real volume at time of dip

2) They lack liquidity

3) Exchanges have invested their liquidity somewhere else which is becoming hard to recover

4) Does it has to do anything with the global inflation that we might see in coming future

5) Do you think its good for the market where cheap players would be shutting down and people can have more robust platforms in future where they would be ready in situations like this.

6) Most Importantly its the people's money, will traders be able to cope up or have faith in trading crypto in future if they lose money like this??