Here’s how centralized exchanges can earn customer trust

In cryptocurrency trading, traders can either use decentralized or centralized exchanges. While decentralized exchanges (DEXs) are popular for allowing self-custody of funds, centralized exchanges (CEXs) are dominant and preferred by many.

Despite their use, these platforms must employ measures to establish and retain 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 absence of auditing, open communication, and publication of key metrics can lead to disastrous consequences for traders who entrust their assets to these platforms.

To avoid such mishaps, traders must diligently select their choice ramps by prioritizing transparency and security.

BitMEX: Transparency and security

BitMEX, a crypto derivatives trading exchange, may provide a model for transparency and security in the industry. Since 2021, long before the FTX crash, BitMEX has demonstrated its commitment to these values through its on-chain proof-of-reserves and proof-of-liabilities data.

It allows users to verify that BitMEX holds funds exceeding aggregate client balances.

By publishing this information twice every 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 confidence in the platform and sets the standard for other centralized exchanges.

StormGain: Offering a hybrid approach

StormGain is committed to transparency and security in the space. As a hybrid of a 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 wish to trade.

Upon confirming the blockchain transaction for the trade amount, the crypto is sent via blockchain to the StormGain DEX smart contract, and the trade 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 takeaways 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:

1. Auditing: Ensure the centralized exchange undergoes regular third-party audits to verify its solvency and security measures.
2. Open communication: Platforms should maintain open communication channels with users, providing updates on system maintenance, security incidents, and any other relevant information.
3. Publication of key metrics: Exchanges should publish key metrics such as proof-of-reserves and proof-of-liabilities data to allow users to verify the platform’s solvency in real-time.
4. Security measures: Assess the exchange’s security measures, including how they use multi-factor authentication, secure storage of user funds, and regular penetration testing.
5. History and reputation: Investigate the exchange’s history and reputation within the industry to gauge its commitment to transparency and security.

Conclusion

Decentralized exchanges offer a higher level of decentralized than centralized options. This has been further shown by the string of incidents involving centralized trading platforms.

Any mishap involving one company casts a dark shadow others. Therefore, maintaining a healthy trust balance requires all industry participants to form a unified front regarding transparency and accountability.Disclosure: This content is provided by a third party. crypto.news does not endorse any product mentioned on this page. Users must do their own research before taking any actions related to the company.

Source