Exactly. Exchanges are important to exist. The problem is that some crypto exchanges became ordinary but unregulated banks and they sell "printed" crypto asset giving illusion the user owns crypto on blockchain.

Unless those assets devalue or are not easily liquidated.

Exchanges are in the business of "liquifying". But, indeed, it can go wrong, with severe consequences.

Anything they hold a position in creates risk, the typical exchange business model is that they are fast enough and good enough that they can operate out of the excess through various arbitrage options but with extremely volatile assets the bottom can drop out pretty quickly and once you start borrowing and leveraging it can happen a lot faster still.

Essentially they are operating as banks sans regulatory oversight. It's a recipe for disaster.