von • Binance recently released a policy paper proposing a detailed framework of guidelines for centralized exchanges (CEXs) to foster industry transparency and trust.
• The proposal outlines several measures CEXs could take to promote transparency, bolster safety and customer trust, such as proof of reserves and user protection funds.
• Regulators across various jurisdictions have been tightening the noose on crypto market participants, making these proposals all the more important.
Binance Proposes Framework For CEX Transparency
Binance has released a policy paper proposing an actionable framework of guidelines that centralized exchanges (CEXs) can follow to foster industry transparency, trust, and safety. With recent events such as the FTX collapse and other high-profile bankruptcies significantly denting the image of the cryptocurrency space, regulators across jurisdictions are tightening the noose on crypto market participants. Therefore, Binance’s proposed framework is all the more important for rebuilding user and regulator trust in this ecosystem.
Handling Customer Funds
The proposal urges CEXes to try as much as possible to prevent unauthorized use of customer assets by building secure crypto custody solutions that allow seamless depositing and withdrawal of funds. This should enable customers to easily verify their assets‘ safety under custody via robust disclosure methods such as proof of reserves. Furthermore, Binance suggests that these disclosure methods must be technically adequate, updated regularly and based on reliable technology like zk-SNARKs which cannot be falsified.
Risk Management
In terms of risk management, Binance recommends refraining from running operations with borrowed funds while creating user protection funds to cushion unforeseen circumstances like heists or thefts on customers‘ assets. Additionally, proper loan collateralization should also be taken into consideration by CEXes so that users are fully protected from any losses due to an unexpected event in the future.
Building Trust In Crypto Ecosystem
Given its pivotal role in rebuilding user and regulator trust in the crypto ecosystem, Binance’s proposed framework is an important step towards achieving greater transparency within this sector. By following these recommendations closely, CEXes will not only gain better acceptance among investors but will also reduce potential risks associated with their products or services before they hit the market.
