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2022 has been a big challenge for cryptocurrency exchanges. As Warren Buffett said, it’s only when the tide goes out that you’ll know who’s been swimming naked. In a volatile market, the multi-billion dollar exchange FTX was quickly removed from the market, let alone a small or medium sized exchange. Many investors have not even been able to get their assets stored on exchanges back. Meanwhile, the cryptocurrency community has debated how to make centralized exchanges more regulated and transparent.
Regulators Release Signals of Tight Regulation
Following the collapse of FTX, more traditional financial regulators have put crypto on their radar screens. The Fed Vice Chairman, SEC Chairman, U.S. Treasury Secretary, Bank of England Vice Governor, and International Monetary Fund have all proposed to impose effective regulatory oversight on crypto. To reduce risk, the market should follow the same rules as the traditional financial industry.
Of the crypto exchanges out there, Coinbase is the biggest proponent of strong regulatory oversight.Coinbase CEO Brian Armstrong said crypto regulation being debated by legislators around the world will outpace its competitors. said it helps.In addition, the exchange is also open to the public Cryptocurrency regulation: how we move forward as an industry from here It explains how the industry can be regulated when it comes to stablecoins, trading platforms and custodians.
After the FTX demise, regulatory intervention in cryptocurrencies is clearly inevitable. That said, in 2022, the privacy protocol Tornado Cash was subject to OFAC sanctions, leading to the resistance of the cryptocurrency community to regulation. After all, sanctions are not what you want in a market that seeks decentralization. Furthermore, while FTX had also embraced regulation before its downfall, it turned out that it was nothing more than an attitude that allowed exchanges to seek publicity and crush competition.
Based on the attitudes of major exchanges, it can be said that certain countries will have stricter crypto regulations, but many are unconvinced of their effectiveness. As is often the case, strict regulation does not eliminate all risks. On the other hand, what happened to Tornado Cash is a constant reminder that regulation comes with sanctions. Many innovative decentralized applications could be strangled in the cradle as regulators begin to intervene with stringent measures, and some investors may be denied market access due to regulatory scrutiny. .
Industry seeks full transparency
After the FTX crash, the exchange released the Merkle tree and preliminary proof addresses. For example, major trading platforms such as Binance, OKX, Crypto.com, Huobi and CoinEx disclosed preliminary proofs soon after the collapse of FTX.
According to their disclosed wallet addresses and user assets, these exchanges have successfully achieved reserve coverage of 100% of user assets, with some exchanges having reserves far exceeding user assets. owns For example, both Binance and CoinEx have USDC reserve ratios above 400%.
Many argue that the 100% reserve rate is great because users can withdraw their cryptocurrencies at any time. That statement is not 100% accurate, but given the current market conditions, reserve proofs are the best way to make crypto exchanges more transparent. In addition, the exchange’s reserve assets are also indicative of the operation of the platform.
For example, we know that stablecoins need to handle large withdrawal requests at runtime. This means that the percentage of stablecoins in a platform’s reserve assets gives a rough indication of the risk-resisting capacity of different platforms in extreme scenarios. As you can see from the table below, Binance and CoinEx have more than 50% of stablecoins in their reserves, meaning that stablecoin withdrawals can always be processed. Note, however, that 52% of Binance’s stablecoin reserve is his BUSD, a coin issued by the exchange itself. BUSD has obtained approvals related to issuance, but some are concerned about whether he could withdraw BUSD if Binance crashes. Investors should therefore assess the risks themselves before choosing an exchange.
According to the crypto exchange stance, most platforms prefer to gain user trust through high transparency. While some crypto players have argued that reserve assets are not ironclad evidence of platform security, reserve proofs are clearly popular with users compared to tighter regulations. , the technology of reserve proof also advances according to market demands.
After the collapse of FTX, the crypto industry will shift its focus to security and transparency, bringing new development trends. Centralized exchanges, on the other hand, will increase transparency while facilitating trading, and decentralized management of assets on centralized platforms may even gain momentum. As such, investors should still look for long-established, technology-driven platforms. A good example is his CoinEx mentioned above. Backed by a proven 100% reserve ratio and ample reserve assets, CoinEx offers solid security in terms of both assets and technology.