> If someone has lent an exchange assets against its users' assets then it's not at all clear that they have the superior claim to those assets if the exchange goes bankrupt can't repay those liabilities.
Right, but if an exchange took out a bank loan, the loan was recalled, and the exchange repaid it with customers' deposited cash and later goes bankrupt - possession is nine-tenths of the law.
Especially if the exchange intentionally has a structure that can avoid international tax laws - who's to say it won't also avoid international bankruptcy laws?
> and the exchange repaid it with customers' deposited cash
Then in this scheme depositors would be able to see that straight away, and force bankruptcy and asset recovery on the exchange while those assets still existed. This would (presumably!) stop the exchange repaying debts with customer deposits, because those customers would know straight away and could seek legal recourse against the bank and the exchange.
This is explicitly addressed in the article: use stable coins for that. I'm very much a crypto-skeptic, but I do think this particular solution will provide some level of increased safety for coin-heads.
If you trust the solvency of the likes of Tether and Luna, certainly.
Seems to me the problem of solvency at the boundary between the worlds of fiat and cryptocurrency is always present, and shuffling it around doesn't make it disappear.
But that's a choice for customers to make, at the end of the day. The exchange says "we're holding dollars in Tether and we can prove it" and if customers aren't happy with that, then they can not store fiat on the exchange.
Right, but if an exchange took out a bank loan, the loan was recalled, and the exchange repaid it with customers' deposited cash and later goes bankrupt - possession is nine-tenths of the law.
Especially if the exchange intentionally has a structure that can avoid international tax laws - who's to say it won't also avoid international bankruptcy laws?