The leading cryptocurrency exchange Binance has shared a set of guidelines for maintaining a healthy centralized exchange so that incidents like the major FTX fail might be avoided in the future. On November 15, Binance CEO Changpeng Zhao (CZ) tweeted the most crucial requirements that his and any other centralized exchange should embrace to ensure user confidence.
In light of what happened last week, I felt compelled to define the six most important requirements that #Binance and every other centralized exchange should adopt in order to ensure trust with our users.https://t.co/BmZsNraNs5
— CZ 🔶 Binance (@cz_binance) November 15, 2022
One of Binance’s six commitments is a responsible approach to user’s funds. Using customer assets as collateral was a huge misstep on FTX’s part.
The second rule is that an exchange must never utilize its own token as collateral. Since native tokens are essential to the functioning of the exchange’s blockchain ecosystem, they should not be used in any other context. The FTX crash was prompted by uncertainty about the FTT token.
Binance’s third pledge is to publish real-time evidence of assets or ‘proof-of-reserves.’ According to the company’s announcement, “Merkle tree proof of funds that we will share with the community in the next few weeks” is currently in development.
Notably, Binance disclosed the cryptocurrency reserves it held on November 10, with a disproportionate number of its native stablecoin BUSD and native token BNB.
As the fourth commitment, maintaining robust reserves is also critical for user safety. By maintaining a SAFU fund of $1 billion, CZ’s exchange is at the forefront of this industry.
Never take on too much debt is Binance’s rule number five. Due to selling highly leveraged products on extremely volatile assets to inexperienced retail traders, numerous crypto loan companies have failed this year.
Finally, CZ concludes that enforcing security measures is crucial to transparency. He said that “all exchanges should have strict KYC and AML measures in place.”
Binance is bringing a recovery fund
Moreover, CZ is also creating a recovery fund with industrial partners as it would help healthy businesses that were “unfairly impacted by FTX’s apparent fraud.” It is noteworthy that Binance was also tangled up in the SBF’s FTX saga. However, within the next 48 hours of signing the deal to acquire the exchange, Binance backed off.
Before this, CZ has already noted two lessons learned from the FTX crisis on Twitter, as TheCoinRise reported.
🔥JOIN THECONRISE.COM'S MONTHLY $1000 GIVEAWAY AND FEEL VALUED AS A READER! DON'T MISS OUT! 🔥
