Demystifying non-liquidating accounts

Whilst algorithmic stablecoins were a prominent factor in crypto exchange ‘FTX’s’ collapse, it is essential to consider the broader context. The failures resulted from a complex interplay of factors, including mismanagement, lack of transparency, excessive leverage of non-liquidating accounts, interconnectedness with Alameda Research and a collapse in confidence. Hence, an understanding of these contributing factors is crucial for preventing future crises and ensuring the long-term sustainability of the crypto industry.

Crypto exchanges serve as digital marketplaces for trading cryptocurrencies, facilitating buying and selling, and for asset storage. A growing concern is the rise of non-liquidating accounts - positions that cannot be liquidated even during market volatility. A non-liquidating account is a specialised brokerage account where the broker does not automatically liquidate positions, even if the account's value falls below the usual margin requirements. These accounts are ty…