Could protection funds restore investors confidence back to CEX?

Yamane_Keto

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Quote from: Jascrypt on February 13, 2024, 11:47:44 AM

Quote from: Yamane_Keto on February 12, 2024, 11:17:38 PM

let alone crypto exchanges that have an anonymous registration license. In which the team achieves maximum profit with a low legal limit and uses customer funds to secure customer funds because it is impossible for Binance to freeze 500k Bitcoins to ensure that customers can withdraw their funds whenever they want, even if the cold storage has been hacked.

These revenue could be reinvested in BTC, ETH or USDT like in the case of Bitget and as price of the affect assets increases so will the value of the protection fund.

As for the license; we have seen how some exchanges have been restricted from certain regions; this may contradict your opinion tho, I feel as we evolve centralized exchanges may be fully institutionalized.

The costs of managing services such as Bitget are thousands of dollars per day, as trading servers require very expensive resources, in addition to the need to provide liquidity, advertisements, and the integrity of the team in the absence of misuse of profits. All of these make the platform’s profits small compared to deposits, and it is impossible for these platforms to be able to guarantee depositors’ funds.

You are promoting Bitget, so I ask you: Can Bitget create a highly regulated fund that is monitored by several entities and auditing companies that guarantees only 20% of the total deposits, so that when any user deposits any amount, 20% of its value is deposited in that fund to guarantee the return of the money? I doubt that Binance SAFU cannot do this despite all the liquidity they have.

Darker45

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I'm not sure if there's a significant regulatory step regarding crypto insurance in centralized exchanges as a result of what happened to FTX. I guess there is none.

Although a certain kind of insurance, one that is individually initiated by centralized exchanges themselves, has already been a thing prior to the collapse of FTX, it might somehow help if this is institutionalized and made as a matter of regulatory requirement. Centralized exchanges shouldn't be allowed to operate without it.

But the sad reality is that with or without insurance, many crypto users still use centralized exchanges. It seems they're not really mindful about protection funds whatsoever.

Jascrypt

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Quote from: Yamane_Keto on February 12, 2024, 11:17:38 PM

Government corporation like the FDIC cannot say that your money is 100% insured for all deposits. There are certain limits or ceilings for deposits, and with a highly regulated environment (banks,) your money is supposed to be safe, but this does not happen, let alone crypto exchanges that have an anonymous registration license. In which the team achieves maximum profit with a low legal limit and uses customer funds to secure customer funds because it is impossible for Binance to freeze 500k Bitcoins to ensure that customers can withdraw their funds whenever they want, even if the cold storage has been hacked.

I beg to differ with anonymity of the license of crypto exchanges and idea of using customer funds to secure customer funds cos most of these exchanges make thousands and millions on daily basis from trading fees and charges on product they roll out to benefit their users. These revenue could be reinvested in BTC, ETH or USDT like in the case of Bitget and as price of the affect assets increases so will the value of the protection fund.

As for the license; we have seen how some exchanges have been restricted from certain regions; this may contradict your opinion tho, I feel as we evolve centralized exchanges may be fully institutionalized.

Yamane_Keto

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Government corporation like the FDIC cannot say that your money is 100% insured for all deposits. There are certain limits or ceilings for deposits, and with a highly regulated environment (banks,) your money is supposed to be safe, but this does not happen, let alone crypto exchanges that have an anonymous registration license. In which the team achieves maximum profit with a low legal limit and uses customer funds to secure customer funds because it is impossible for Binance to freeze 500k Bitcoins to ensure that customers can withdraw their funds whenever they want, even if the cold storage has been hacked.

Dr.Bitcoin_Strange

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Quote from: TheVeteranAngel on February 07, 2024, 03:46:13 PM

Do you think the introduction of user protection fund can reinstate the confidence of investors back to CEX

Well, I don't think so. What I think is that the incident that happened with FTX and some other exchange that collapsed has taught old investors the lesson of not even trusting to keep their assets on a centralized exchange, except for those investors who are traders that are constantly trading 24/7. Only newbies who are not familiar with the rule "Not your key, not your coin. " Will make the mistake of saving their crypto on the centralized exchange for any nonsense protection funds offered by the exchange.

Jascrypt

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Quote from: stompix on February 09, 2024, 04:26:57 PM

Quote from: TheVeteranAngel on February 09, 2024, 02:30:34 PM

You have a point but I think there is transparency in the protection fund to an extent because users can publicly verify it.

And what can you verify? That an address hold x amounts of coins?

Binance claims it has 1 billion in it's safu funds, one of their cold wallet , just one
https://bitinfocharts.com/bitcoin/address/34xp4vRoCGJym3xR7yCVPFHoCNxv4Twseo
hold 11 billion worth of coins.
If that would get hacked from where is money going to come?

As for the transparency:
https://cointelegraph.com/news/binance-proof-of-reserves-removed-from-the-auditor-s-site
When the guys that have audited you remove the audit from their website and terminate any contract or relation with it, how can you trust their previous numbers?

Protection funds are supposed to be held by another party which should not be exposed at the same risks as the first company, that's why FDIC insurance money is not held by the banks themselves!

Quote from: TheVeteranAngel on February 09, 2024, 02:30:34 PM

Seeing significant surge in the protection funds is a win worth celebrating.

A better win would be for exchange to have nothing to insure and everyone doing his own banking, like it was supposed to be.

That an address hold certain x amount for assets protection should be comforting. Tho, the concept is evolving hence it's healthy to highlight it's flaws for potential improvement.

On the contrary, I don't subscribe to the idea of entrusting assets to a 3rd party due to trust issue. I still feel the current status quo is still fair cos we have been using some of these exchanges before the introduction of the concept with minimal worries. Binance may have it's own fair share of security breach but assets remain SaFu and on the other hand Bitget who recently launched this concept of protection fund have maintained zero incidence of security breach which I feel is another factor to consider. Okx seems to have similar arrangement too. These exchanges deserves some accolades as they may be trying to shape the narrative of CEXes.

tabas

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Quote from: TheVeteranAngel on February 09, 2024, 02:30:34 PM

Quote from: tabas on February 09, 2024, 12:00:08 PM

An insurance thing and Binance calls it SAFU. Much better if these exchanges are educating most of their users that only them has the jurisdiction for their users fund and not the users themselves. In that case, they're giving the idea that each user that deposits and keeps their funds on these exchanges doesn't have authority over their own funds as it's like that they handed it over them. Having this insurance won't also make sense because it lies behind the promises of the exchange. They can easily say that all of deposits have insurance but there's always the clause that will save them from any trouble.

You have a point but I think there is transparency in the protection fund to an extent because users can publicly verify it.

Yeah, it's the proof of reserve that Binance has said to give their users verification peace of mind. But even with that, things can go south and unexpected in so many ways.

Quote from: TheVeteranAngel on February 09, 2024, 02:30:34 PM

Before the crash of FTX, there was nothing like protection fund and I think this innovation is in the right step towards bringing more transparency to the CEX.

There's nothing like that because they've been trusted by their users and no one knows that they've been doing something against already to their users.

Quote from: TheVeteranAngel on February 09, 2024, 02:30:34 PM

I think with time, all this questions will be answered as the exchanges will also be asking themselves similar questions and how to make it even better. Seeing significant surge in the protection funds is a win worth celebrating. Half bread they say it's better than none.

I agree that they're the one to clear it and study these cases so that it won't happen again. Like you've said, better than nothing but still, this all comes in the end about having no keys and these protection can just be a word of mouth from them.

stompix

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Quote from: TheVeteranAngel on February 09, 2024, 02:30:34 PM

You have a point but I think there is transparency in the protection fund to an extent because users can publicly verify it.

And what can you verify? That an address hold x amounts of coins?

Binance claims it has 1 billion in it's safu funds, one of their cold wallet , just one
https://bitinfocharts.com/bitcoin/address/34xp4vRoCGJym3xR7yCVPFHoCNxv4Twseo
hold 11 billion worth of coins.
If that would get hacked from where is money going to come?

As for the transparency:
https://cointelegraph.com/news/binance-proof-of-reserves-removed-from-the-auditor-s-site
When the guys that have audited you remove the audit from their website and terminate any contract or relation with it, how can you trust their previous numbers?

Protection funds are supposed to be held by another party which should not be exposed at the same risks as the first company, that's why FDIC insurance money is not held by the banks themselves!

Quote from: TheVeteranAngel on February 09, 2024, 02:30:34 PM

Seeing significant surge in the protection funds is a win worth celebrating.

A better win would be for exchange to have nothing to insure and everyone doing his own banking, like it was supposed to be.

TheVeteranAngel

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Quote from: tabas on February 09, 2024, 12:00:08 PM

An insurance thing and Binance calls it SAFU. Much better if these exchanges are educating most of their users that only them has the jurisdiction for their users fund and not the users themselves. In that case, they're giving the idea that each user that deposits and keeps their funds on these exchanges doesn't have authority over their own funds as it's like that they handed it over them. Having this insurance won't also make sense because it lies behind the promises of the exchange. They can easily say that all of deposits have insurance but there's always the clause that will save them from any trouble.

You have a point but I think there is transparency in the protection fund to an extent because users can publicly verify it. Before the crash of FTX, there was nothing like protection fund and I think this innovation is in the right step towards bringing more transparency to the CEX. I think with time, all this questions will be answered as the exchanges will also be asking themselves similar questions and how to make it even better. Seeing significant surge in the protection funds is a win worth celebrating. Half bread they say it's better than none.

tabas

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An insurance thing and Binance calls it SAFU. Much better if these exchanges are educating most of their users that only them has the jurisdiction for their users fund and not the users themselves. In that case, they're giving the idea that each user that deposits and keeps their funds on these exchanges doesn't have authority over their own funds as it's like that they handed it over them. Having this insurance won't also make sense because it lies behind the promises of the exchange. They can easily say that all of deposits have insurance but there's always the clause that will save them from any trouble.

stompix

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Quote from: Potato Chips on February 08, 2024, 02:05:41 PM

By "user protection fund", do you mean safu funds and/or proof of reserves?

Probably yes, what they should aim is more like FDIC schemes.
# SAFU is a trust me bro and nothing else meme.

If Binance is hacked or there is a mistake in transfers, they lose their back-ups, their keys anything, nothing is safu anymore, you can't guarantee funds with funds that are themselves at risks! And no way will they ever get FDIC or any other kind of protection!

I'm quite sure why this popped up, CEXs started this kind of campaign
https://www.prnewswire.com/in/news-releases/bitgets-protection-fund-soars-to-new-heights-reaching-424-million-in-december-2023-302032583.html

Quote

Bitget's Protection Fund stands as one of the largest self-insured funds in crypto. It builds trust amongst users with an extra layer of protection as it safeguards crypto assets against hacks, scams, and extreme market conditions.The Protection Fund is entirely self-funded, affording a high degree of operational flexibility and autonomy.

So basically they are saying your money is protected by your money! Grin

NeuroticFish

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Quote from: TheVeteranAngel on February 07, 2024, 03:46:13 PM

Though the collapse of FTX took away the confidence of many crypto investors and traders away from centralized exchanges, I think it was a blessing in disguise because the collapse actually birthed the introduction of user protection fund from some top exchanges to keep their customers and give them some level of confidence that such a scenario that befell FTX is properly guided against.

In this space, we know security is of essence and after several failure from some cex ranging from either hacks, scams from the CEO and other forms of manipulations, it has become increasingly difficult for some investors to trust exchanges despite the fact that this exchanges play a huge role in the crypto landscape.

Do you think the introduction of user protection fund can reinstate the confidence of investors back to CEX

Big words with no substance.
1. SAFU, proof of reserves and other similar funds are still under CEX control, hence they can use them for other stuff - from good old "losing private keys" to newer use of those same funds to back other loans and businesses (as many as possible), i.e. they provide absolute 0 protection to customers.
2. The vast majority of day traders will still use CEX, as long as it accepts them, has very low fees and very high liquidity. history has shown that most don't really care about being safe/backed up.
3. Nowadays people tend to be a little bit more careful with their IDs (but we are still far from where we should be), plus CEXes tend to do inside trading, delisting coins for unclear reasons, ask overly high fees at withdrawals and for that more people start to avoid them. But they (CEXes) are not in danger yet.

However, the protection talk is pretty much worthless imho. Sorry.

Potato Chips

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By "user protection fund", do you mean safu funds and/or proof of reserves?

Because if you ask me, these concepts did not change my perception of CEXs simply because there is no proof of liabilities hence we don't know if these would cover everyone in case the worst case happen. Yes, it's better than nothing but it's not something I'd rely on. The same old precautionary measures on cexs still apply.

But I'm sure exchanges could let some time pass by while doing aggressive marketing for this and tons of people will start to be comfortable again e.g. treating exchanges as their personal wallet.

PS: i would move this to exchanges board.

TheVeteranAngel

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Though the collapse of FTX took away the confidence of many crypto investors and traders away from centralized exchanges, I think it was a blessing in disguise because the collapse actually birthed the introduction of user protection fund from some top exchanges to keep their customers and give them some level of confidence that such a scenario that befell FTX is properly guided against.

In this space, we know security is of essence and after several failure from some cex ranging from either hacks, scams from the CEO and other forms of manipulations, it has become increasingly difficult for some investors to trust exchanges despite the fact that this exchanges play a huge role in the crypto landscape.

Do you think the introduction of user protection fund can reinstate the confidence of investors back to CEX

Topic: Could protection funds restore investors confidence back to CEX? (Read 136 times)