If an exchange lent out more than it had on its books, you could have a run on an exchange. Insurance would guarantee your money back if the exchange, your custodian, collapsed.
You don't have to store your money in an exchange, so the risk is very low at any given point of time.
Currently people pay for the prolonged version of that risk by receiving a benefit of convenience. But this will stop as soon as somebody creates an equally convenient cryptowallet infrastructure.
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If an exchange lent out more than it had on its books, you could have a run on an exchange. Insurance would guarantee your money back if the exchange, your custodian, collapsed.
You don't have to store your money in an exchange, so the risk is very low at any given point of time.
Currently people pay for the prolonged version of that risk by receiving a benefit of convenience. But this will stop as soon as somebody creates an equally convenient cryptowallet infrastructure.