> this bank has no FDIC insurance, no backstop, nothing
This was partly true in the S&L crisis [1]. And for depositors in e.g. Cyprus or Iceland in '08. The difference, however, was depositors in S&Ls and Cypriot and Icelandic banks were legally depositors. The banks' assets were insufficiently liquid to accommodate them en masse. But those assets had value. And that value went, almost first and foremost, to the depositors.
In crypto, there is no such protection. It is likely creditors, employees, tax authorities and secured lenders get paid ahead of users, who are at the end of the day simply unsecured creditors. (And bad ones at that.) Night and day. (Given Coinbase's debt trades comparably to Russia's [2], the smart money is betting users will get nothing in a failure.)
Aside: There is another way to look at it. Users' assets at these firms are CoCos [3]. After the crisis, regulators pushed these bonds which convert into equity when the borrower is distressed. Vauld is distressed. It has to make its loan payments, those lenders can shut it down if it defaults. But it doesn't have to pay users, or even let them withdraw their funds. So their funds "convert," in effect, into equity. Money Vauld can play with to buy time until their assets rally or right the ship with a lighter burn.
>(Given Coinbase's debt trades comparably to Russia's [2], the smart money is betting users will get nothing in a failure.)
The intention of your comment is to paint coinbase debt as worthless, but after doing some research I came to a different conclusion: that russian debt isn't as worthless as I thought. Right now 10 year russian bond yields are at 9.15%[1], which is only a little over 6 percentage points above the "risk free" rate of 2.96%[2] for US treasuries. For reference that's about the rate for B rated US corporate bonds[3].
> intention of your comment is to paint coinbase debt as worthless
That was not my intention. Coinbase's debt is viewed as risky. That has implications for the risk junior creditors (e.g. users) are taking.
Furthermore, the bonds' 10% yield is comparable to the 13% Vauld was offering [1]. Except the Coinbase debt is senior to its users claims. Assuming Vauld and Coinbase are comparable, which I think is generous to Vauld, that gives you a sense for how misplaced the risk/reward was for Vauld users.
> 10 year russian bond yields are at 9.15%
Russian debt is trading weirdly. There are various domestic and offshore quotes, since the reason it's trading down is because of sanctions, not Russia's creditworthiness. Still: risky.
This was partly true in the S&L crisis [1]. And for depositors in e.g. Cyprus or Iceland in '08. The difference, however, was depositors in S&Ls and Cypriot and Icelandic banks were legally depositors. The banks' assets were insufficiently liquid to accommodate them en masse. But those assets had value. And that value went, almost first and foremost, to the depositors.
In crypto, there is no such protection. It is likely creditors, employees, tax authorities and secured lenders get paid ahead of users, who are at the end of the day simply unsecured creditors. (And bad ones at that.) Night and day. (Given Coinbase's debt trades comparably to Russia's [2], the smart money is betting users will get nothing in a failure.)
Aside: There is another way to look at it. Users' assets at these firms are CoCos [3]. After the crisis, regulators pushed these bonds which convert into equity when the borrower is distressed. Vauld is distressed. It has to make its loan payments, those lenders can shut it down if it defaults. But it doesn't have to pay users, or even let them withdraw their funds. So their funds "convert," in effect, into equity. Money Vauld can play with to buy time until their assets rally or right the ship with a lighter burn.
[1] https://en.wikipedia.org/wiki/Savings_and_loan_crisis
[2] https://markets.businessinsider.com/news/bonds/coinbase-cryp...
[3] https://www.investopedia.com/terms/c/contingentconvertible.a...