How are Exchanges Preventing the Exodus from CEX to DEX |Twitter Space

On 22nd Nov, CoinGabbar hosted a Twitter space

with some of the leading players in the blockchain industry to understand the depths of crisis that FTX’s collapse has brought to the centralized exchange.

 The space was joined by Pranay Sharma, Marketing Executive, LBank India, CA Tarun Modi, Crypto Expert, and Consultant, and moderated by CMA Sudeep Saxena, Co-Founder, CoinGabbar.

All the panelists shared their views on the massive shift that we are witnessing in the nature of exchanges preferred by the crypto community while also addressing the key elements that can enable centralized exchanges to win back the trust of their users.

The Growth of Centralized Exchanges Over a Period of Time

Financial institutions all over the world are built on trust, either in the government or a centralized authority that is credible enough to be trusted by the users. Binance is one of the earliest players in the centralized crypto exchanges entering the market in 2017 after that many exchanges entered the market. 

They gained popularity by making it easier for investors to invest in cryptocurrencies by providing them with wallets, reducing gas prices, and transacting into various natures. This also enables a mass migration from decentralized exchanges to centralized exchanges as they were a lot easier to use. 

Now after the FTX collapse, we are again in a transition from centralized exchanges to decentralized exchanges and it will become the foundation of increasing transparency and regulation in centralized exchanges.

How Centralized Exchanges Are Managing the Image Damage in Post FTX Scenarios?

After FTX’s sudden demise, all centralized exchanges are seen in a bad light and they are struggling to safeguard their userbase via different methods. Sharing the point-of-view of LBank, a leading centralized exchange, Pranay said that LBank has released its proof-of-reserves for the customers to audit their holdings and reassure them that their cryptos are completely safe with LBank. 

Hacking is another major problem that even the mightiest of crypto exchanges such as Binance had to face but LBank has a clean record with not even a single security loophole exploited on our platform. We also have an open door policy according to which we are bound to answer all the questions of people who come to our headquarters with any queries. LBank representative also declared on CoinGabbar Twitter space that LBank is going to have their office in Bengaluru by 2023 with the same open door policy. 

Pranay also highlighted that centralized exchanges are the doors that are accessible to even a tech newbie and enable them to the vast world of cryptocurrencies. The value proposition of centralized players is unique and they are not going anywhere anytime soon. 

What is Proof-of-Liabilities?

While insisting on the fact the proof-of-reserve declarations from centralized exchanges must be coupled with proof-of-liabilities, Sudeep Saxena distinguished the two. “Proof-of-reserves is the actual amount that you hold in your wallet that can be traded freely but the proof-of-liabilities is the ledger that declares the customers' holdings in the total liquidity available in exchange wallets. This makes it significant for the users to know how much of the total reserves are owned by them.”, said Sudeep.

Pranay from LBank also declared that they are working with third-party regulators to release their proof-of-liabilities reports within the next few weeks. 

Is the Shift from CEX to DEX Real? 

“Yes, it is happening”, affirmed Tarun. Tarun continued to explain that the FTX collapse is not the only reason behind this shift. The last 7-8 months of bearish market sentiment has moved the total trade of crypto to another low and investors are holding on to their assets instead of exiting the market. 

When we see the situation from this angle, it makes sense that they are moving their funds out of centralized exchanges to their own custody in any form of decentralized storage. The FTX collapse was an event that pushed this sentiment to another level and the outflow is more evident today.

Steps that LBank is Taking to Gain the Trust

Pranay Sharma from LBank shared some of the key points on which LBank is working to strengthen the crypto community altogether while working towards making LBank a better and transparent place to trade. 

• Maintaining communication through different media channels to assure the customers that their funds are safe with LBank. 

• By working towards expanding the user pool and focusing on building a more stable platform for new users

• Educating the users and getting them involved in knowing exactly what their exchanges as doing. Empowering the end user to distinguish right from wrong when it comes to centralized exchanges

• Releasing our Proof-of-Reserves and Proof-of-Liabilities report for all the users to assure them that we have more than 100% liquidity to operate an exchange

• Working towards implying self-regulation rather than waiting for a global consensus on cryptocurrency

• Being a centralized exchange does not mean that we have to have centralized decision-making power. LBank is working towards strengthening decentralization in our decision-making mechanism and setting up the right filters before the execution of any significant decision. 

• Revenue reports of the organizations are going to be released through efficient media channels and make them available for audits from any external authorities 

• Working towards deploying more physical offices around our areas of operation to make sure that our users and employees can access us at any time

Final Thoughts

There are steps that needed to be taken to make sure that customers can put their trust again in centralized exchanges. A holistic attempt from all the players of the industry would be required to make this happen and the centralized exchanges should also have to work towards maintaining a self-regulatory mechanism rather than waiting for things to be made mandatory. 

Decentralizing the decision-making powers in an organization and maintaining the right communication with the users is another aspect that CEX has to work on to gain back the trust of its users. 

To listen to a recording of the event - Click here