Over the weekend news from Coindesk of Irish cryptocurrency exchange Bitsane (website offline) apparently pulling a runner with users’ funds is just the latest in a long line of examples illustrating the need for evolution in digital assest market structure. This incident comes on the heels of earlier reporting by Coindesk of Polish crypto exchange Coinroom doing the same thing. SIPC and FDIC protections in the US, the UK FSCS, various compensation schemes in Germany and throughout the EU and elsewhere protect investor funds and assets when an institution fails in its custody duty to its customers. Unfortunately, with current market structure, similar protections do not exist for the crypto buy-side.
The Wire Room
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The market structure for digital assets is unique. In addition to matching trades, exchanges act as depository institutions for trading collateral. Professional traders and institutions incur costs, operational risk and capital inefficiencies because collateral is fragmented across many exchanges.