the only way failure modes I can see is if the exchange takes the money and runs, if there is a catastrophic failure of the trading engine, or if they get hacked.
The exchange can just fail in a large variety of ways and close (go bankrupt). If you're not "insured" you are exposed to the trading risk and insurance costs what, about 30%? and, of course, it doesn't help you with the exchange counterparty risk.
30% per annum? Even if this were true (and this sounds quite high, as I mentioned with Gwerns 1% per month estimate) then providing liquidity with them would still be +EV (86% increase vs 30% risk).
If it's worth saying, but not worth its own post (even in Discussion), then it goes here.