Why would banks and exchanges need to pause withdrawals if they’re in financial trouble?
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Banks don’t have that issue in todays world unless the country’s finances are in terrible shape.
While in the US the FDIC insures bank deposits, there is no such structure for deposits in an exchange such as cryptocurrency firms.
Crypto exchanges perform similar lending functions as commercial banks, but do so without a typical solid financial basis – the collateral for a bank loan is often real property or stable assets. Crypto loans use their own tokens or some version of the coin as collateral with no insurance for liquidity issues or regulatory recourse for loss.
Crypto exchanges that limit withdrawals are over leveraged, having loaned out more money than they could repay. A pause could help them regroup temporarily to prevent all the assets being withdrawn and postpone the collapse of the firm.
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