I wasn't around during the Bitcoinica fiasco so don't really know the details of how they operated their liquidity. I only know that they were hacked and lost a great deal of Bitcoin.
Just curious as to why liquidity needs to come from Mt.Gox and not from the market?
Isn't it the act of buying/selling from users the source of liquidity?
Mt.Gox isn't a market maker is it?
Just curious as to why liquidity needs to come from Mt.Gox and not from the market?
Isn't it the act of buying/selling from users the source of liquidity?
Mt.Gox isn't a market maker is it?
It does come from the market, but there is often quite some time between depositing and withdrawing. It would be unsafe if Mtgox kept all that money (both fiat and BTC) within reaching distance. In case of a hack, it is important that only a fraction of their money is 'hot', while the main volume is in cold storage, preferably entirely offline.
There is a security/user experience balance in deciding how much they want to keep in hot storage to account for daily withdrawals.
