Fractional Reserve Banking is the most common form of banking. It is wasteful for a bank to do nothing with all the money that is deposited, so instead they will only hold a fraction ~(10-25% iirc) of the total value of all deposits in reserve ready to be withdrawn at a moment’s notice. Banks invest the majority of the money that is deposited.
This is normally a productive and stable practice, but can cause the bank to collapse if there is a run on the bank and the bank’s customers want to withdraw more than the reserve fraction in a short time. To solve this problem, central banks hold gigantic reserves of cash to rapidly lend to the smaller banks so they can survive a run. Governments also insure people’s savings accounts to undermine any incentive to run on banks in the first place.
Coinbase is just like any other bank, they do not hold “assets equal to deposits” they hold a fractional-reserve, and use most of the money deposited with them to make investments. Coinbase, however, is not federally insured (for crypto holdings), and there is no central bank reserve for crypto currencies, so if there were a run on Coinbase it could collapse.
Fractional Reserve Banking is the most common form of banking. It is wasteful for a bank to do nothing with all the money that is deposited, so instead they will only hold a fraction ~(10-25% iirc) of the total value of all deposits in reserve ready to be withdrawn at a moment’s notice. Banks invest the majority of the money that is deposited.
This is normally a productive and stable practice, but can cause the bank to collapse if there is a run on the bank and the bank’s customers want to withdraw more than the reserve fraction in a short time. To solve this problem, central banks hold gigantic reserves of cash to rapidly lend to the smaller banks so they can survive a run. Governments also insure people’s savings accounts to undermine any incentive to run on banks in the first place.
Coinbase is just like any other bank, they do not hold “assets equal to deposits” they hold a fractional-reserve, and use most of the money deposited with them to make investments. Coinbase, however, is not federally insured (for crypto holdings), and there is no central bank reserve for crypto currencies, so if there were a run on Coinbase it could collapse.