Binance CEO drafts plan for crypto exchanges
Binance CEO Changpeng Zhao has laid out guidelines for crypto exchanges to prevent a disaster like FTX in the future.
Binance CEO Changpeng Zhao has laid out guidelines for crypto exchanges - to prevent a disaster like FTX in the future.
The Collapse of FTX has highlighted the vulnerability of centralized crypto exchanges: embezzlement, shady corporate culture and human error. Binance CEO Changpeng Zhao has now laid out a six-point plan to win back investors' trust.
"Six Collaborations for Healthy Centralized Crypto Exchanges"
According to the report, protecting investors is the top priority. "We can’t let a few bad factors tarnish the reputation of this sector while it’s still in its early days." Funds must never be mismanaged. The first point, he said, is full transparency.
The first point is that exchanges are urged to "avoid risk when dealing with users". "Users’ funds must never be traded or invested." In addition, exchanges should "proactively issue risk warnings to users so they understand the volatility of cryptocurrencies".
Moreover, trading platforms must not use native tokens as collateral - one of the reasons for the FTX crash. Native tokens do play an essential role in how blockchains operate, according to Changpeng Zhao. Users, however, should be able to "rely on the native token that the blockchain they chose is built on". To that end there must be a practical utility.
"Creating Transparency"
Point three requires exchanges to publish transparent summaries of their asset holdings. Some providers have already started after the FTX scandal. Companies were disclosed, extensive audits announced. Binance has also published its hot and cold wallet addresses. In line with this, the Binance CEO calls for maintaining only "strong reserves".
In the fast-moving crypto environment, Zhao says, the capital structure must also stay debt-free. Therefore he urges rivals to "go old-school". Financing growth with debt is "unwise".
Finally, the Binance boss calls for "strengthening and maintaining security protocols". Because of the "rapid development of industry and project protocols" it’s necessary "that the industry collaborates better to achieve confidence in the quality of security measures for exchanges and projects".
This requires a "strong collaboration with law enforcement to support investigations and recover stolen assets". According to Changpeng Zhao, exchanges should invest in "industry analyses to address weaknesses in existing models". He also pushes for strict KYC and AML measures.
