CeFi lenders such as Celcius or Blockfi explain away their troubles by pointing out that traditional banks would be similarly unable to meet withdrawals if more than 10% of their depositors made for the exits all at once.

But that doesn’t happen very often in the banking system. Partly because deposits are now federally insured, but also because banks provide a valuable service: You don’t keep your money in a checking account because of the interest it pays you — you keep it there because it’s the easiest way to pay your bills and make daily transactions.

That makes bank deposits sticky (How often do you change your bank?) — and sticky deposits allow banks to take mismatched duration risks: Banks can borrow short and lend long knowing their deposits aren’t going anywhere anytime soon.

What we’ve learned over the last few weeks is that CeFi lenders cannot take that same duration mismatch because their depositors are much more likely to make for the exits all at the same time.

When traditional banks learned about duration mismatch in 1907, the result was a lot of failed banks, government regulation, the Federal Reserve (1914), and FDIC insurance (1933).

Crypto will only go mainstream and be widely accepted by the public once they undergo a similar process.