There are plenty of horror stories of Paypal holding funds. They've been doing it for far longer than most these other companies, since they've been around longer than most of them.
I have been using Paypal for 5 years for my startup and I don't have any major problems with Paypal. Sometimes, customers filed a case agaist us and Paypal decided that the case was closed in customer's favor although we did nothing wrong. However, it's very rare.
All it takes is a few quick searches from the search bar at the bottom of the page to see what I'm referring to. You can search just "paypal" or "paypal stole" or "paypal froze" for some of the more egregious examples submitted to HN, or "paypal banned" for some of the more common ones of paypal reclassifying businesses after years of working just fine.
Much of them are older, because honestly Paypal had quite a few years of being the vendor of choice before a lot of alternatives came around. I'm not sure if that means Paypal had enough competition that they had to deal with their behavior or they're just used less so you hear about the problems less, but for anyone that's been around for a while, hearing about Paypal screwing someone over is not going to sound like something extraordinary.
But why would they need all these swaps if they held customer USDC 1:1 ? They clearly have done bad accounting and used customer funds for their own schemes. We'll soon find out if it's FTX-level-bad.
> keeping unreasonable sums of money on hand has been the primary downfall of the majority of crypto exchanges
That is unconvincing. If they had the USDC in cold storage they could easily see the uptick in withdrawals and prepare the necessary funds. The only moment you become dependent on outside parties, such as, as they claim, the opening hours a random bank in New York, is when you don't have those assets at all and need to repurchase them on the market. If they can't manage a cold wallet, they have no business being the largest crypto exchange, there's nobody more qualified for that task and most certainly you wouldn't outsource it to some smaller provider.
In fact what Binance does is they convert any incoming stablecoin to their own native stablecoin, BUSD. This simplifies operations (as they don't have to maintain multiple crypto-stable pairs) and injects liquidity and reserves into their token, but also exposes depositors to any issue with BUSD (and Binance) itself, because any run will likely extract all liquid assets first.
This is exactly what happened during the FTX crash, they frenzy sold bitcoin, USDC, USDT and anything liquid they could get their hands on until all they had left where "billions" in worthless crap like FTT and related garbage tokens.
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