In today's edition of YIYL, (You Invest, You Lose) we take a look at the faltering exchange business, which has made a lot of headlines over the last year. We've seen exchanges and CEFI services like BlockFi, CoinFlex, Vauld, FTX, and many more push their customers into forced hodl mode to prevent a bank run on the assets they have because they don't have enough to meet redemptions.
Since the FTX blow up, we have seen FUD around other exchanges and everyone with funds on these services are nervous. We've seen a mass exodus into on-chain wallets and people cashing out to fiat and taking losses which put pressure on exchanges that might not be properly capitalized.
And now we have the latest victim in the fall of exchanges, with CoinList throwing up the white flag.
Your assets are only promises
Beginning in mid-November, users of the CoinList exchange and ICO platform reported that they couldn't withdraw assets from the platform and worries began to build up with complaints starting to pile up on social media.
On November 24, CoinList tweeted,
"There is a lot of FUD going around that we would like to address head on. CoinList is not insolvent, illiquid, or near bankruptcy. We are experiencing technical issues that are affecting deposits and withdrawals."
This PR move never works and is never entirely reassuring, given the number of companies in the crypto industry who have announced they were just fine before being revealed to be deeply underwater. When you only provide words, and you don't provide liquidity, people are going to smell a rat.
https://twitter.com/WuBlockchain/status/1595751967581933570
- WuBlockchain
CoinList lost $35 million in the June Three Arrows blowup. Shortly after the FTX collapse, CoinList claimed to have "no material exposure to FTX, FTT, Alameda or any credit exposure to any affiliate of FTX".
However, they stopped processing withdrawals shortly after. If you look at the status page you can see deposits on certain assets have also been paused.
https://twitter.com/CoinList/status/1595851318236794882
- CoinList
Trading volume is down bad
If we have a look at the trading volume of the exchange for the last year we can see that volume has dropped dramatically which means trading fees aren't generating as much revenue.
When you consider one of your revenue streams is impaired, and you have to honour redemptions and you also have a hole in your balance sheet from poor due diligence on lending then your treasury is surely going to come under pressure.
Again, let this be a lesson to people who use exchanges, they are not a place to leave your funds only a transitionary period where you move funds in and out. The shorter the time you are exposed to exchanges the better.
I think that exchanges are going to get choked in the future by regulation due to all this failures and P2P networks will really need to improve to accommodate people wanting to get bitcoin without the need to hand over KYC data or have 3rd party risk.
Sources:
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