Let's say 10 of us get together (coin exchanges) and start offering our customers the option to buy crypto for fiat. We receive 1 million of fiat money in exchange for different cryptocurrencies. For the sake of the question, after the first deposit, we close the possibility of further deposits for some time.
Our customers start exchanging the cryptocoins among themselves (through our exchanges, thus earning us money through fees collected in form of crypto), and the value of the coins start increasing. We (the exchanges) decide to cash-out our crypto fees, which keep getting larger because the price of coins keep increasing. We cash-out our customers' money, let's say we cash out 300k of fiat money.
Now we have 700k in fiat, but the total crypto market is worth let's say – 10 mil in fiat, so we have a huge discrepancy between the amount deposited and current worth of different coins. If a certain amount of cutomers decides to cash out, we're screwed.
Let's say we start allowing additional deposits again. As we can see right now, newcomers start buying in, further pumping the prices, thus further deepening the gap between the actual money held by us (the exchanges) and the total value of cryptocurrencies.
The more people trade, the more incentive the exchanges have to cash out the trading fees. Is this what they mean when they say a ponzi scheme?
I've been in crypto for a year and only now this dawned upon me.
How can decentralized exchanges remedy this problem if crypto is fundamentally linked to fiat? As long as crypto keeps increasing in value without increasing the underlying amount of fiat – don't we just have the same system as fiat-gold (if we presume that the amount of gold stays the same).
Carson Baker
>We (the exchanges) decide to cash-out our crypto fees, which keep getting larger because the price of coins keep increasing. We cash-out our customers' money, let's say we cash out 300k of fiat money
You can’t cash out you fucking idiot
Samuel Harris
The crypto market is worth what people have paid in fiat to make it worth that. They are selling the crypto and getting the fees. Dont over think it you are creating a problem? What are u a fucking chick bro? Go buy some more crypto
Matthew Adams
I'm buying more crypto you sack of Bitbeans. I'm just asking a legit question and trying to start a discussion.
Camden Turner
Its not a legit question its fucking moronic. If I sell you a sack of shit for 10 and a 1 dollar fee and tomorrow it goes for 20 and a 1,dollar fee I sell it for 20. If I take my fees I,still have all the shit money. Are you fucking autistic. Delete this thread
Henry Williams
Fees are calculated as percentages of a transaction you imbecile.
James Foster
Ok but that has nothing to do with the fact that they have all the money from the crypto they sold no matter how much it has gone up.,I can't believe you aren't seeing how retarded you are
Isaac Bennett
I'm saying that the money they have from selling crypto is not enough to cover the current crypto holdings of the customers if even 40% of them decides to cash out.
Also, the exchange doesn't earn fiat when receiving the fees, they earn different crypto, depending on the coin traded.
As a business, they need to have a steady cash flow to cover the expenses of doing business. They cover the expenses by selling the fees (denominated in crypto) for fiat. Fiat comes from the customers who bought in. Exchanges trade the crypto to fiat to themselves, uing "customers'" money.
Can you make an argument without trying to look cool by insulting?
Brayden Foster
I think what you're getting at is only a "problem" if the exchange is the market maker for fiat-crypto. That is generally not the case and crypto exchanges are totally order book based. so If someone wants to cash out BTC at $10k there needs to be someone willing to deposit 10k to the exchange and put up a buy order. Then there are 0 issues as far as I know.
Carson Wood
No I can't because you are inventing can't cash out fud and not thinking logically. You bought the meme. Good job. I'm done with this.
Jack Flores
That sounds correct. I understand now. I'm retard it seems.
But nevertheless, there's a problem if too many people decide to cash out, and not enough people are buying in with fiat? But I suppose that's a problem in any market - supply and demand discrepancy.
So essentially, all of the "can't cash out threads" are just a retarded meme, but there might be some truth in them if e.g. a large event occurs which would cause a lot of people to try to cash out and not enough to buy in with fiat?
Thanks for the answer.
Liam Barnes
Let's make this really simple:
Exchange gets 1 000 000 USD Customers get 1 000 000 USD in crypto Customers trade crypto and pay 10 000 USD in fees Exchange caches out 10 000 USD in fees 1 000 000 - 10 000 USD left in the exchanges bank account 1 000 000 - 10 000 USD left in crypto circulation on the echange
The value is being transferred from the crypto holdings, by becoming a fee, to the exchange's bank account. That's why nothing is lost.
Jackson Johnson
What? Someone has to buy?! I thought you could just click the "sell" button
Dominic Parker
I was trying to say this without typing to much and not understanding what op is not grasping
Blake Wood
I understand what you're saying, but I'm not talking about losing value. I'm talking about the value increasing massively, thus making it disproportionate to the initial fiat investement. If the value of the whole crypto market increases (as we have seen in May), that doesn't mean that the same amount of fiat poured in, you can raise the marketcap of a coin with wash trades.
This disproportion of value in initial fiat and current crypto is what bothers me.
But I think cleared up most of the things for me. It's pretty obvious I guess.
Justin Martin
You gotta think how cheap they were getting bitcoins back in the day. And think they know how to run a business. But yeah if everyone decided to run on the banks all at once society would break down. All that starts with people spreading fud and memes
Luis Howard
Any money you take from fees are PROFITS, not expected to be paid back. An exchange is solvent as long as it doesnt fuck around with money that belongs in user balances. Fee money, do whatever you want.
Lincoln Baker
I'm not sure I would gladly trust my to someone just cuz they "know how to run a business". A lot of top companies failed even though they've been "doing good business" for decades.
But, that aside, I was not trying to spread FUD. I just wanted to discuss my question, sorry if the answer is so obvious to you.
Hudson Richardson
Yeah, now I see there was an error in my thought process. I kept thinking that they need to "stash" all of the fiat brought into the exchange, which is obviously false - the fiat goes straight to the crypto seller, only the fees remain in the exchange as profits. It's pretty obvious I guess.
Brayden Hernandez
What's going to happen when everyone in the U.S. goes to the government to "cash out" their dollars?
Joshua Russell
This is showing how you don't fundamentally understand how prices work. Yeah if everyone sold all their crypto at once the price would fall so low only first few people would get out with the high prices. Demand is falling and supply is increasing. Most exchanges arent a closed system. If there are other exchanges with a higher price some investors may come in for the arbitrage opportunity. I cant believe you think just because the price increased means everyone in the market could dump it and still maintain the price.
Nathaniel Gonzalez
I literally never said that when the prices decreases everyone in the market could dump and still maintain the price.
Michael Smith
Who said gladly?its all part of it then people spread fud and believe memes. Jesus the more I think about your question the more retarded it seems so maybe you should think before you post or not get butt hurt if you get insulted. That's why people come to biz and its been that way for 20 years. Cunt
William Clark
I think op was misunderstanding the situation as a person buys crypto from an exchange, rather than from another person via an exchange. They thought if someone paid the exchange 10k for a bitcoin and its 12k tomorrow and want to sell if back, how could the exchange pay if they only have 10k? Whereas what actually happens is the exchange says buyer, meet seller, now you two can trade, and never have their own store of fiat that someone could want back for coin
James Reed
You gut this all wrong man.
For someone to "cash out" from an exchange, someone ELSE on that exchange has to buy said crypto from this person, using fiat that they deposited in the exchange beforehand. They aren't selling crypto to the exchange, the exchange has no obligation to have the money to cover all the BTCs in it's custody at market price.
This structure itself will never, ever become insolvent.
If an exchange ever becomes insolvent, it is because they either: a. Didn't safeguard the money in their custody (think about it, tens of millions of $ just sitting on unfilled orders, put this in a saving account and you're already making money as an exchange even without fees, get greedy and put on something with more risk and lose it) b. Credited users without having the money in custody to back it up (what bitfinex is accused of doing with its Tethers)
Alexander Hernandez
top kek
quality meme mastery
Owen Richardson
Not really butt hurt, insult as much as you want. i just wanted to clear the noise and get to the point of your answer.
You are right, as I stated before. I've come to understand the error in my thought process.
You guys can bash me all you want, it's the nature of /biz, but I believe thoughtful posts like this (even if retarded) bring much more value to this board than 24/7 pajeet memeing
Joseph Wilson
> What's going to happen when everyone in the U.S. goes to the government to "cash out" their dollars?
Collapse of fractional reserve banking or hyperinflation or both.
