In today's edition of YIYL (You Invest, You Lose), we head back to the stumbling CEFI market that seems to have really taken a knock through the drama at FTX. When you consider that FTX was the third biggest exchange in the world, and had investments and interactions with a wide range of companies, it's only natural that its collapse would leave a black hole that will suck the weakest companies in along with it.
Today we have an interconnected web of liquidity, exchanges and DEFI are all a mesh net of leverage building on top of one another. When there is a deleveraging those without the ability to repay collapse, and those without pristine collateral that can be liquidated to cover their arses collapse.
As this unwinding continues to play out with an 8 billion dollar loss so far, we don't know how far the ripples will extend. BlockFI being close to FTX has been the first to fall into the pit but there are many more with close ties to the company that could be next.
Even if you're not that close, the market conditions themselves could be enough to cause you trouble. This is claimed to be the case by Hong Kong exchange AAX.
AAX Axe withdrawals
The Hong Kong-based cryptocurrency exchange announced that they would suspend withdrawals, which they claimed was due to a system upgrade that went poorly. That seems like a pretty convenient excuse given how the market has been claiming businesses of its kind in the past few weeks.
AXX estimated it will take seven to ten days for normal service to resume. I mean seriously? How long does it take to spin up a bitcoin node?
Ben Caselin, AAX Vice President, tweeted in the early morning Monday, acknowledging this is
“bad timing for a scheduled maintenance at @AAXExcahnge,” adding that the exchange “aimed to address serious vulnerabilities, to be prolonged for more than 24 hours. Out of extra precaution this will take longer,”
The company is urging the public to allow AAX to open up gradually, this could be a simple tech issue or their way to buy enough time to secure credit lines to cover withdrawals.
https://twitter.com/BenCaselin/status/1591889947203891202
- BenCaselin
As you can imagine, this stinks of a cover-up, and users are not buying it. The rhetoric on Twitter is enough for anyone to see now one believes this and they are fearing the worse.
Three days prior, the company had published a blog post claiming that AAX had no exposure to FTX and its affiliated companies, that AAX had stable reserves, and that user funds were never exposed to counterparty risk.
That was also the case with BlockFi a few days ago, claiming they were liquid enough to operate without issue and now customers are sitting without access to their funds.
No keys no rights
Again, another reason to hold your own funds, if you're using an exchange, you could leave your cash balance on it. Depending on the exchange and the country you're using I highly recommend you check out their TOS and see if they offer insurance on fiat deposits.
If they do then you might have a leg to stand on, as for any bitcoin and shitcoins, you're going to be playing a game of hide musical chairs hoping you get one, but most likely you'll end up on your arse.
The best way to use an exchange is to purchase your bitcoin and immediately pull it into a wallet you have control over, today it's so cheap and easy to do, you really have no excuse.
My recommendation is to spin up a Lightning node, clear out your inbound capacity as soon as possible, and then simply pull those sats into your wallet via a Lightning-supported exchange. If you can't do that send it to a Lightning wallet that supports channels on the fly and you can always submarine swap into a base chain UTXO later.
If you can't do that, your other option is to spin up a liquid wallet in the meantime and buy some L-BTC, will cost you around 6 cents to move your bitcoin and 1 minute to confirm it in your wallet so do you really have an excuse to leave your funds on an exchange?
I don't think so, and if you do, the company that fails isn't the problem, you are the problem. Time to take some personal responsiblity for your funds.
Sources:
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