Not New and Not Immune: How Crypto Recreated Traditional Bank Run Dynamics
Asheville School, 360 Asheville School Rd, Asheville, NC 28806, United States
Abstract
The 2022 collapses of Terra-Luna and FTX showed that crypto-adjacent institutions are not immune to the bank run fragility, a problem that has long dogged traditional financial institutions. This paper explores why institutions that presented themselves as distant from conventional banking structures failed in a manner that mirrored the classic bank run dynamics of 100 years ago. Through the use of qualitative comparative case studies based on Diamond-Dybvig theory and shadow banking literature, the paper applies a five-factor run-risk framework (first-mover advantage, liquidity mismatch, confidence fragility, feedback loops, and absence of backstop) to understand both collapses. The analysis shows that algorithmic pegs, opaque financial structures, and continuous redemption access amplified panic in ways structurally identical to traditional bank runs. The paper concludes by proposing targeted regulatory reforms, including reserve audits, custody separation, stress testing, and liquidity requirements within the crypto space, to reduce the potential for run risk in bank-like crypto institutions.
Keywords
Keywords: Bank run fragility; Financial instability; Cryptocurrency; Crypto regulation; Banking regulation
Introduction
Cryptocurrency's promise from its inception was that it offered a clean break from many of the problems and constraints of traditional financial institutions. However, the 2022 collapses of FTX and Terra-Luna demonstrated that bank run fragility is not a relic of traditional finance, but a structural feature of any system built on demandable claims without stabilizing institutions.
Conclusion
The 2022 crypto collapses demonstrate that bank run fragility is not a relic of traditional finance, but a structural feature of any system built on demandable claims without stabilizing institutions. Targeted regulatory reforms—including reserve audits, custody separation, stress testing, and liquidity requirements—can reduce run risk in bank-like crypto institutions.
How to Cite
Lee, Doun. Not New and Not Immune: How Crypto Recreated Traditional Bank Run Dynamics. Journal of Youth Impact. June 2026; 1(Issue 2). DOI: https://doi.org/10.66245/jyi.v1.i2.011