In a recent blog post, Binance, one of the major players in the cryptocurrency world, outlined its principles for how future problems with centralized exchanges can be avoided.
Changpeng “CZ” Zhao, CEO of Binance, tweeted on November 15th what he believes to be the most important requirements that every centralized exchange should adopt as a means of ensuring user trust in the exchange.
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
Preventing the Crisis
In an article published on the Binance website, CZ provides a detailed description of the guidelines. According to him, he felt compelled to expand upon these principles as a consequence of what happened last week, which led him to come up with the six most important requirements that Binance, as well as every other centralized exchange, must adopt if they want to maintain trust with their users. When an industry is still in the infancy of its development, there should not be a few bad actors who can sully the reputation of the business.
Firstly and foremost, our role must be to ensure the safety and security of our users. It is imperative that you keep all measures in place to ensure the safety of user funds and that they are never mismanaged. In order for Binance to lead by example, CZ believes the exchange should have a transparent approach to its operations.
The six principles are:
- Be risk-averse with user funds
- Never use native tokens as collateral
- Share live proof of assets
- Keep strong reserves
- Avoid excessive leverage
- Strengthen & Enforce Security Protocols
When it comes to risk, CZ believes that one should never invest or trade with the funds of users on exchanges. As a result, exchanges must provide users with proactively risk warnings about crypto volatility to help them understand the risks.
In addition to the first two principles, the third principle is equally important. Binance has begun sharing details of the hot wallet addresses and the cold wallet addresses as part of its ongoing commitment to fostering transparency and fostering trust within its ecosystem.
In the next few weeks, this exchange will work to build a Merkle tree proof of funds that will be shared with the community in a short period of time. This is just a starting point.
Binance recently announced a set of new principles to protect the market and it is clear that the leading exchange has big plans for the future. These principles may not be followed by other exchanges, but if they are taken into consideration, we can expect a more healthy environment in exchanges in the future.