Enhancing User Trust Is the Driving Force Behind Major Changes to Exchanges


Enhancing User Trust Is the Driving Force Behind Major Changes to Exchanges

(Coin Desk)-03/01/2022

Bitget is leading the shift towards enhanced user security, compliance, and liquidity management with its auditable protection funds, proof-of-reserves, and growing compliance practice.

The crypto world has been rocked in 2022, with the market witnessing the collapse of FTX within a week. To make matters worse, FTX’s wallet was hacked after the exchange filed for Chapter 11 bankruptcy protection in the U.S. The company’s remaining funds have been wiped out completely.

This landslide loss came following a CoinDesk report that revealed a June 30 balance sheet of its affiliate trading firm, Alameda Research, consisting mostly of FTX’s native token, FTT. Many investors became aware of the issue at once, which triggered a widespread withdrawal that led to FTX’s insolvency.

The collapses of FTX, Luna and 3 Arrow Capital have made it abundantly clear that the industry is now facing a crisis of user trust. We are at a significant turning point in crypto’s history: From now on, crypto exchanges must reassure users and establish clear lines of trust in order to succeed. The momentum gained over the last few years with the global adoption of digital assets is depending on it.

Introducing Bitget: A leader in global compliance and liquidity best practices

Bitget, a crypto derivative exchange whose features and innovations include social and spot trading, is a leading example of a platform that’s continuously working on establishing greater trust in the eyes of its loyal users, even amid the FTX turmoil. For example, it has set aside a $5 million Builders’ Fund to support affiliates, influencers and professional traders who suffered losses during the FTX incident. Affected users can apply for financial support from the fund to see whether they qualify for relief.

Gracy Chen, Managing Director at Bitget, says that investors can expect to see three major changes in the crypto exchange landscape following the collapse of FTX.

Exchanges will build trust with users through enhanced, brand new security and liquidity management processes

According to Chen, Luna, 3 Arrow Capital and FTX have shown us that the centralized lending business model is impractical and can lead to devastating consequences. The need for greater user security and enhanced trust post-FTX will usher in huge development opportunities in DeFi such as custody, auditing services, transparency and risk management policies.

We will start to see more crypto exchanges working with third-party auditors to show proof-of-reserves to demonstrate transparency and comprehensive asset auditing. Bitget is leading the way here: Its proof-of-reserves (PoR) is supported by a cryptographic-audited Merkle-tree data structure. The tracking page provided a self-auditing tool to improve transparency by enabling users to verify the platform’s reserve of their account balances to be at least on a 1:1 ratio. With that knowledge, users can feel confident the exchange has adequate funds to honor all withdrawal requests. According to the data on its PoR page, as of Dec. 6, the total reserve ratio is at 244%, with a BTC reserve ratio of up to 725%, USDT reserve ratio of 202% and ETH reserve ratio of 186%.

We will also begin to see exchanges implement additional risk management policies such as protection funds. Bitget is a shining example of a crypto exchange heading in this direction. The exchange recently announced an increase to its Protection Fund of $300 million. Bitget’s Protection Fund was launched in July this year with the objective of safeguarding users’ crypto assets. The exchange pledges there will be no withdrawal from the fund for at least 3 years, and the wallet addresses of the Protection Fund are publicly accessible on the company’s website, so users can keep track of the fund’s balance at all times.

Regulation will be strengthened and exchanges will be actively competing over compliance that covers operations globally

Another shift that Chen foresees is a more decisive move towards regulation and compliance. Countries will develop more comprehensive and detailed regulations in terms of regulatory acts, financial licensing and investor protection. They will also focus on strengthening the regulation of centralized exchanges and DeFi, and we can expect 2023 to be a milestone year for regulation.

The industry itself will be more active in seeking compliance licenses. Bitget already maintains virtual asset-related registration in the U.S., Canada, Australia and Lithuania. The exchange recently announced an application for registration and compliance in Seychelles. Furthermore, Bitget has doubled the size of its workforce in the past five months alone, with plans to reach 1,200 employees by the start of 2023. In tandem with this jurisdiction-registration and hiring drive, Bitget has also established regional hubs in Asia and LATAM markets and plans to further strengthen its global presence with more regional hubs for Europe and Africa.

Chen believes that the firm’s workforce growth “will enable Bitget’s vision of building a safe and reliable global platform, which will gain stronger traction among users in this fiercely competitive industry, which will eventually lead to a trustworthy and robust platform that better serves the growing community.”

Exchanges will enter a consolidation phase and the ones that prioritize risk management will win

With FTX’s collapse, centralized exchanges will be scrutinized more than ever, Chen believes. This will create an opportunity for the exchanges that have strong balance sheets and solid risk management practices to consolidate market share and work with regulators. Chen predicts that there will likely be no more than 10 centralized exchanges with strong competitiveness in the industry. As market share consolidates, the exchanges that prioritize risk management will come out on top.

The way is being led by Bitget and other industry leaders that have already been heavily investing in risk management policies such as protection funds and proof-of-reserves. Investment in this area, together with its extensive network security, KYC and AML efforts, makes Bitget an excellent choice for new and experienced investors.