Why are so many Derivative Exchanges are filling for Bankcruptcy ?

[talkoncrypto Official]

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,...

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[arwin100]

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??

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.

[dezoel]

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.

[Nubitcoinerr]

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

[Jason Brendon]

What do you think is the real reason for so many exchanges going down.

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

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??

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.

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.

[talkoncrypto Official]

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.

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...

[Marvell1]

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??

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.

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?

[lionheart78]

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.

[2stout]

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.

[justdimin]

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...

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.

[kryptqnick]

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).

[JayJuanGee]

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?

[Fundamentals Of]

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.

[Jatiluhung]

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.

[JayJuanGee]

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.

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.

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.

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.

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.

For sure, not everyone sinks to those low levels.

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.

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.

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.

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?

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.

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

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.

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

[buwaytress]

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.

[ShowOff]

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.

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.

[Dunamisx]

"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.

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.

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??

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

[justdimin]

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.

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.

[JayJuanGee]

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.

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.

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.).