Matt Levine’s Money Stuff: FTX Had a Death Spiral

FTX

So how could this happen? I don’t know, but let me speculate a little bit.

Let’s start with Coinbase. Coinbase Global Inc. runs a cryptocurrency exchange. When FTX.com, one of the largest crypto exchanges, was instantaneously vaporized yesterday, Coinbase put out a statement, the gist of which was “don’t worry, we are not going to be instantaneously vaporized.” The part that I want to focus on is this paragraph:

There can’t be a “run on the bank” at Coinbase. As you can review in our publicly filed, audited financial statements, we hold customer assets 1:1. Any institutional lending ...