Crypto exchanges must gain user trust by becoming more transparent and taking measures to prevent misuse of funds.

The rapid collapse of FTX, once the world’s second largest crypto exchange, followed by the collapse of Celsius, eroded trust in centralized crypto services. CEX). There are two main reasons behind this

If FTX represents the worst example of a misuse of funds, then Mt Gox – the Japan-based crypto exchange that accounted for over 70% of all crypto transactions at its peak in 2014 – is the worst example of a hacking attack failure.

While CEXs play a major role in crypto adoption, the ongoing trust crisis does not bode well for the crypto industry. The fear of becoming the next victim of the CEX fiasco has led many investors to consider decentralized exchanges (DEXs). According to Chainalysis, the DEX vs. CEX inflow ratio reached a high of over 60% shortly after the FTX bankruptcy in November 2022.

The CEX has an urgent task to rebuild trust, and the main focus should be on the misuse of funds. While the crypto industry is still prone to hacking attacks, their impact is usually limited and contained. Despite 2022 being the worst year in terms of crypto hacking, the value of crypto stolen from CEX has decreased significantly compared to 2016-2020, with over 80% of crypto funds stolen by hackers in 2022 actually being decentralized finance protocols. Are. connections (DeFi) protocols, with the cross-chain bridge being the weakest point

How can crypto users trust centralized exchanges again?
Trust as a concept has become one of the key pillars of blockchain. Its decentralized nature was meant to embed transparency in all processes. Some CEXs can, at times, be oblivious to their larger mission of maintaining user trust no matter what, and FTX is a troubling example.

If centralized cryptoservices fail to set up barriers to filter out bad actors, governments may take matters into their own hands, which could negatively impact the industry through redundancy.

The FTX collapse has been a catalyst for crypto deregulation in most developed countries. While the United States faces a battle between the Securities and Exchange Commission and the Commodity Futures Trading Commission over who should take the lead in regulating cryptocurrencies, the United States is already making concrete plans.

But even when governments step on the accelerator to bring in tighter regulation, it still takes years for all the rules to be implemented accordingly. Before that happens, trusted third parties may have more to contribute to rebuilding trust in CEX. For example, private rating agencies can operate faster and more efficiently than regulators.

CEX needs to be more transparent before regulation arrives
Governments will slowly but surely impose more controls on crypto operations, but CEXs can avoid overregulation by becoming more accountable themselves.

Some crypto exchanges are already pushing to achieve this. Recently, Coinex introduced the “Merkle Tree” audit methodology for proof of store. It was one of the first centralized exchanges to unveil proof of store, a way to review assets and check whether the platform has enough on-chain funds to back customers’ assets. The practice by which FTX and its sister company Alameda Research collapsed

Coinex uses the Merkle tree methodology in which it has a 100% reserve ratio, meaning the exchange has enough funds to meet all requests in the event of a surge in customer withdrawals. Since its inception in 2017, the exchange has maintained 100% reserve ratio. ,

CoinEx has also adopted a series of measures to protect user assets, including standard two-factor authentication, a high-speed trade matching engine, login reminders, unusual IP address change tracking, multi-level withdrawal verification, API permissions, and real-name authentication.

The platform has maintained a record of zero crashes till date due to its responsible approach against misuse of funds and hacking attacks.

To strengthen risk control and asset protection, Coinex also launched the Security Vulnerability Threat Intelligence Rewards Program, which incentivizes users to monitor and record potential security vulnerabilities on the platform. participants provide.

A collaborative effort can help rebuild trust
When the exchange itself to improve car risk control |

Source: CoinTelegraph