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What If Everyone Tries to Withdraw at Once? (Bank Runs vs. DeFi, Explained Like a Story)

What If Everyone Tries to Withdraw at Once? (Bank Runs vs. DeFi, Explained Like a Story)

The Bank Run Story

Imagine a small town with one big bank.
Everyone keeps their savings there. The bank promises:

"Your money is always safe with us."

But what people don’t see is this:

  • The bank only keeps a small portion of the money in its vault
  • The rest is loaned out, invested, or used elsewhere

Now one day, a rumor spreads:

“The bank might collapse!”

Scared, people rush to the bank to withdraw everything.
But the bank doesn’t have enough liquid cash. It freezes accounts.

This is called a bank run. Even a healthy bank can collapse if too many people withdraw too fast.

Why Traditional Banks Break During Panics

Banks use a fractional reserve system. That means:

  • If 100 people deposit $1,000 each (total = $100,000)
  • The bank may only keep $10,000 in liquid cash
  • The rest is used for loans and investments

This works fine — unless everyone wants their money back at the same time.

What About Crypto & DeFi?

Now let’s enter DeFi (Decentralized Finance).

You deposit into a smart contract — not a bank.
That smart contract shows:

  • How much money it holds
  • Who can withdraw
  • Rules written in code

There’s no hidden lending or mystery reserves.

If 100 people deposit 100 ETH, the contract has exactly 100 ETH, unless they voluntarily lend or stake it.

If the funds are still in the vault, anyone can withdraw any time.

Can DeFi Collapse Too?

Yes — but for different reasons:

  • If funds are lent out or staked, they might be locked or illiquid
  • If a protocol is hacked or exploited
  • If a lending platform becomes undercollateralized during crashes
  • If smart contracts fail

But there’s no middleman saying “you can’t withdraw.”
The rules are transparent and public.

The Key Difference

Feature Banks DeFi Vaults
Who controls funds? Bank managers You (via smart contract)
Transparency Hidden from public Fully on-chain
Can freeze withdrawals? Yes Only if code allows it
Risk of bank run High (panic-based) Only if funds truly gone

Final Thoughts

In traditional finance, fear alone can crash the system.
In DeFi, code controls the withdrawals, not rumors.

But both systems have risks — just different kinds.
If everyone tries to withdraw at once, only DeFi shows the truth upfront.

For More Info related to Mitosis please follow official links below

Mitosis Website : https://mitosis.org/

Mitosis Expedition : https://expedition.mitosis.org/

Mitosis Docs : https://docs.mitosis.org/

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