In cryptocurrency trading, traders can use decentralized or centralized exchanges. While decentralized exchanges (DEX) are popular for enabling self-custody of funds, centralized exchanges (CEX) are dominant and preferred by many.
Despite their use, these platforms must employ measures to establish and maintain customer trust.
A cautionary tale
The crash of FTX, a cryptocurrency exchange, is a stark reminder of the importance of transparency and security in centralized cryptocurrency exchanges.
The lack of auditing, open communication and publication of key indicators can have disastrous consequences for traders who entrust their assets to these platforms.
To avoid such mishaps, traders must diligently select their ramps of choice with transparency and security in mind.
BitMEX: Transparency and Security
BitMEX, a crypto derivatives trading exchange, can provide a model of transparency and security in the industry. Since 2021, long before FTX crashed, BitMEX has demonstrated its commitment to these values through its online Proof of Reserves and Proof of Liabilities data.
It allows users to verify that BitMEX holds funds that exceed overall client balances.
By releasing this information twice a week, the trading platform ensures users have up-to-date and accurate data to monitor the platform’s solvency level.
This level of transparency instills trust in the platform and sets the standard for other centralized exchanges.
StormGain: Propose a hybrid approach
StormGain is committed to transparency and security in space. As a hybrid of decentralized and centralized exchange, StormGain offers crypto derivatives trading through its DEX while leveraging the liquidity of its CEX.
Users can connect their non-custodial wallets like MetaMask to the StormGain DEX and choose the crypto derivative they want to trade.
After confirming the blockchain transaction for the transaction amount, the crypto is sent via the blockchain to the StormGain DEX smart contract, and the transaction is opened.
When the user closes the trade, the crypto returns to the user’s wallet from the StormGain DEX smart contract.
All trades use StormGain CEX liquidity.
This approach allows StormGain to offer exceptional trading conditions for DEX traders while maintaining the security and transparency of a centralized exchange.
Key points for traders
In light of the FTX crash and the importance of transparency and security in centralized exchanges, traders should consider the following when selecting a platform:
- Audit: Make sure that the centralized exchange is regularly audited by third parties to check its creditworthiness and security measures.
- Open communication: Platforms should maintain open communication channels with users, providing updates on system maintenance, security incidents, and any other relevant information.
- Publication of key metrics: Exchanges should publish key metrics such as proof of reserves and proof of liability data to allow users to check the platform’s creditworthiness in real time.
- Security measures: Assess the exchange’s security measures, including how they use multi-factor authentication, secure storage of user funds, and regular penetration testing.
- History and reputation: Investigate the exchange’s history and reputation within the industry to gauge its commitment to transparency and security.
Decentralized exchanges offer a higher level of decentralized options than centralized ones. This has been demonstrated by the series of incidents involving centralized trading platforms.
Any mishap involving one company casts a dark shadow over others. Therefore, maintaining a healthy balance of trust requires all industry players to form a united front when it comes to transparency and accountability.
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