B.S.A. Corner
Mar 06, 2023|
I am far from an expert/guru in crypto currency. I am more of a piggy bank guy.
 Last month the federal banking regulatory agencies issued a statement highlighting the key risks for banking organizations associated with crypto-assets and crypto-asset sector. I came across a great “Crypto for Dummies” article in Bloomberg written by Matt Levine. “The names have been changed to protect the innocent.” Extra bonus points if you name the tv show I just referenced. Crypto for Dummies
1. You run a crypto exchange, the Greg Exchange.
2. You issue your own token, the Gregcoin.
3. You give some Gregcoins to customers; they trade a little bit; they have a market value, whatever.
4. But you give like 95% of the Gregcoins to your affiliated hedge fund, the Greg Fund, which does the market-making on your exchange.
5. The Greg Fund says “Hey, we have billions of dollars of Gregcoins. Can we borrow billions of dollars of real money secured by our Gregcoins?”
6. They say this to you, since you run a crypto exchange and have a lot of money to lend out.
7. You are like “Sure, these Gregcoins are good collateral! I invented them myself.”
8. You lend the Greg Fund billions of dollars, dollars that effectively belong to your other customers.
9. The Greg Fund losses the money on bad trades, or spends it on political donations, philanthropy or snacks.
10. People find out.
11. Now the Gregcoins are worthless.
12. The Greg Fund owes you money, but doesn’t have it. And you have the collateral but it is worthless.
You have invented some play money and then you have used it to lend to yourself real money. And then the game ends and you don’t have the real money.
Game over. My piggy bank is looking pretty good, don’t you think?
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Take care,
Greg
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