Matt Levine delivers another excellent Money Stuff piece on the house of cards known as crypto exchanges; an excerpt, where Matt is comparing this crisis to the 2008 financial crisis:

“A quick summary of 2008 is that there was a lot of demand for safe assets, for bonds with AAA ratings. The financial system obligingly manufactured those assets, taking risky assets — mostly subprime mortgages — and packaging and slicing them to achieve AAA ratings. There was so much demand for safe assets that the manufacturing process got sloppy: The subprime mortgages got ever more subprime, the slicing and repackaging got less effective, and ultimately some of the safe assets turned out not to be safe. 

Something like that seems to have happened in crypto but there is a critical difference. In crypto, there are no mortgages to speak of. You cannot really start by taking some somewhat risky cash flows and tranching them to make some of the cash flows safer. There are no cash flows. The safe assets in crypto — interest-bearing accounts at Voyager or Celsius or BlockFi or Gemini — are created by making unsecured billion-dollar loans, negotiated in a single phone call, to arbitrage trading firms that are actually just making long-term bets on the marketing abilities of blockchain entrepreneurs. Crypto shadow banks did not manufacture safe assets out of risky investments; they just relabeled the risky investments as safe assets. There were people taking wild speculative risks on brand-new, sentiment-driven crypto projects, and there were people who wanted to invest safely and earn 8%, and they were the same people.”