Making risky trades with depositors’ funds without telling them is grossly immoral.
Is it? Lending out depositor’s funds is standard operating procedure in regular banking. Is it really “grossly immoral” to do the same thing in crypto without telling depositors?
FTX has been accused of much more than just lending out depositor’s funds, but if there was fraud, I don’t think it was in the mere fact of lending out depositor’s funds.
My understanding is that the FTX terms of use explicitly said customer funds would not be lent out? I agree that in fractional reserve banking, it’s conventional that banks do this, but FTX was an exchange not a bank.
This is a common myth. Banks don’t lend out deposited money. Their business model is not taking that money, loaning it out at a higher interest rate than they pay depositors, and living off the difference. Rather, when they lend out credit they create, on their books, a liability (the funds they are lending to the client), and an asset (the client’s future payments to them). The liability, the outflow, is a bookkeeping fiction. It is not the transfer of cash deposits. In this sense loans create deposits, not the other way round.
Is it? Lending out depositor’s funds is standard operating procedure in regular banking. Is it really “grossly immoral” to do the same thing in crypto without telling depositors?
FTX has been accused of much more than just lending out depositor’s funds, but if there was fraud, I don’t think it was in the mere fact of lending out depositor’s funds.
My understanding is that the FTX terms of use explicitly said customer funds would not be lent out? I agree that in fractional reserve banking, it’s conventional that banks do this, but FTX was an exchange not a bank.
And, as an exchange, it had none of the government-backed insurance that makes it safe for banks to loan money like that without risk to customers.
“Is it really “grossly immoral” to do the same thing in crypto without telling depositors?”
Yes
This is a common myth. Banks don’t lend out deposited money. Their business model is not taking that money, loaning it out at a higher interest rate than they pay depositors, and living off the difference. Rather, when they lend out credit they create, on their books, a liability (the funds they are lending to the client), and an asset (the client’s future payments to them). The liability, the outflow, is a bookkeeping fiction. It is not the transfer of cash deposits. In this sense loans create deposits, not the other way round.