What a bank would do — and what you do instead
A bank carries risk on your behalf: it holds capital, follows supervisors’ rules and, in the US, is backed by FDIC deposit insurance. When you act as your own bank, those layers are gone. Every risk — code, custody, counterparties and your own mistakes — lands with you, so learning to recognise it is the most valuable skill on this site.
What happened
- Terra / UST (May 2022). An algorithmic stablecoin, propped up by high advertised yields, lost its peg and collapsed along with its sister token.
- Celsius, Voyager and BlockFi (2022). Platforms that took customer crypto and paid “interest” froze withdrawals and went bankrupt after losses and a run on funds.
- FTX (November 2022). A major exchange collapsed after customer funds were misused.
- USDC (March 2023). USDC briefly depegged when Silicon Valley Bank, which held part of its reserves, failed. It recovered after deposits were backstopped.
The lessons
| Lesson | What it means for you |
|---|---|
| Ask who pays the yield | If you cannot name the borrower or source, you are probably the risk. |
| Not your keys, not your coins | Custodial balances are claims on a company that can fail. |
| Stable is a design, not a promise | Check what backs a stablecoin and how it held up under stress. |
| Transparency beats reputation | On-chain protocols let you see reserves and loans; many failed platforms did not. |
Frequently asked questions
Could this happen again?
Yes. Rules like the GENIUS Act aim to make stablecoins safer, but platforms can still fail.
Did DeFi protocols fail the same way?
Major lending protocols such as Aave came through 2022 without lender losses, but DeFi has had its own exploits and failures.
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