It is a bit like a bounded Ponzi deal.
The pit boss is an open Ponzi boss, and everyone know that as much as 25 basis points of non-existent reserve is not valid on the bitcoin ledger. But that imbalance is bounded, by algorithm, and published as computed via interest charges.
So, traders are betting at least a 50 basis point, twice we shall say, loss at the end of the game. But the game is long and bitcoin S/L technology adds to productivity. The losses are realized when sone external shock induces a demand for depositors to put their bitcoins on larger, take them out of S/L. Then the system sees bankruptcies, which get collectively shared after the accounts are cleared. We get a bank run.
How much is at risk in a bank run? Not all of the 3-5% variation between deposits and loans is pit boss, most of the losses due to one simple result, there was a stress moment in which traders were not risk equalized, some group better protected from the unexpected shock. The losses to bitcoin holders are dispersed via the Ponzi boss stepping down its bit error as its market collapses, and it does so according to published contract.
Ponzis are OK if they collapse frequently enough to disperse losses in small amounts. In sandbox we bet longevity, this is all fine and dandy, we do fractional reserve automatically.
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