My understanding is the exchange itself wasn't really their downfall. Their downfall was was using the money deposited with them or invested into their company to gamble on risky trading with an affiliated investment firm. They kind of ran this firm, it was supposed to be separate but really wasn't. It sounds like at least $10 billion was moved from the exchange to this investment firm, who lost most of it. Didn't help that the main thing that firm was involved in was.... buying crypto of course. In an incestuous ouroboros of fraud.

But yeah I think you're right, even if they hadn't engaged in all that fraud, how does an exchange determine how much money in usd and different cryptocurrencies to keep on hand to safely cover all depositors with them when there is such dramatic volatility in all the different cryptocurrency values? Every crypto exchange is probably doomed to a massive dramatic collapse at some point or another just from a volatility standpoint alone. Not to mention the massive underlying issues with many cryptocurrencies like wasting energy, wasting resources, co2 generation. Hard to argue there's such a thing as a "legit" exchange.