Matt Levine’s Money Stuff: Crypto Banks Owe Themselves Money

Gemini vs. Genesis

Intuitively, the way an unregulated bank works is something like this. You — the shareholder and chief executive officer — start a bank and put up $10 of your own money as initial capital. The bank has $10 of shareholder equity, takes $100 of deposits and makes $110 of loans. If the loans get paid back with interest, then the bank ends up with, say, $116, it pays $103 to its depositors (with interest), and you get your $10 back with $3 of profits. If $20 worth of the loans default, then the bank has only $90 (plus some ...