Changpeng Zhao (CZ), the founder of the dominant crypto exchange Binance, has recently proposed several initiatives to restore order to the digital-currency ecosystem in the wake of the collapse of rival FTX. His own success may depend on it. Ever wondered what would have happened if CZ and Binance had taken on the bid to save FTX?
Following recent revelations about SBF, the crypto community could be looking at the fall of two major crypto exchanges and the downfall of Binance. By embracing the role of de facto central banker for the turbulent and unregulated crypto market, Zhao helps Binance appear less vulnerable to the storms that have engulfed its competitor.
CZ guides crypto exchanges on how to protect their users
CZ is right to be concerned about the crypto market and to seek the optimal solution moving forward. While financial watchdogs are concerned about further regulations, CZ has stepped in to protect the crypto investors who matter most. Throughout 2022, FTX’s demise is the worst winter the crypto market has had to shoulder. In his own words, CZ explains:
In light of what happened last week, I felt compelled to expand upon these principles with the six most important requirements that Binance and every other centralized exchange should adopt in order to ensure trust with our users. We cannot let a few bad actors sully the reputation of this industry when it’s still in its infancy.CZ, CEO of Binance
CZ also stated that he is collaborating with industry partners to establish a comprehensive recovery fund. This would benefit businesses unfairly affected by FTX’s suspected and apparent fraud. In one of his tweets, he called on the crypto elite to ensure credibility.
At this point, there is no amount of softball coverage from Main Stream Media houses that can save SBF’s face from crypto investors. Legislators, regulators, and even the institutional media appear uninterested in criticizing SBF for misusing customer funds for illegal trading.
Most importantly, Coinbase CEO and co-founder Brian Armstrong has praised the work of citizen journalists and blockchain analysts in relation to the developing FTX situation. At the time of writing, the tweet put out on November 16 had been retweeted over 10,900 times.
According to Changpeng Zhao, there remains true and honest crypto exchanges. To reinstate trust in crypto investors, they should be committed to the following six principles:
First commitment: Be risk-averse with user funds
The first of the six major qualities of Binance-CZ was its risk-averse approach to user finances. Using customer funds as collateral elsewhere was FTX’s biggest mistake. Risk aversion is the inclination to avoid risk. Risk-averse refers to an investor who prioritizes capital preservation over the possibility of above-average returns.
Risk equates to price volatility in investing. A volatile investment can either generate wealth or deplete one’s funds. A conservative investment will experience gradual and consistent growth over time. CZ asserts that user funds should never be traded or invested. CZ added, “ we must provide risk warnings proactively for users, so they understand the volatility across crypto.”
Second commitment: Never use native tokens as collateral
This leads to the second principle, which states that exchanges must never use their native token as collateral. Therefore, native tokens should not be distributed outside of the exchange blockchain environment. Concerns regarding the FTT token precipitated the FTX collapse.
Native tokens play a crucial role in the operation of blockchains and ensure their solid foundations. A native token that is in good health is the lifeblood of a successful blockchain. According to CZ, users must be able to securely rely on the native token that their preferred blockchain employs.
Binance’s third commitment is publishing live proof of assets or proof of reserves. The company announced it was working on a “Merkle tree proof of funding,” which would be shared with the community in the coming weeks. On November 10, Binance disclosed its crypto reserve holdings, which were substantially skewed toward its stablecoin, BUSD, and native token, BNB.
Other industry players have been providing this transparency already, and we commend them for that effort, and now we call on the whole industry to do the same to ensure that we can demonstrate that a few bad apples do not represent this industry.CZ, CEO of Binance
Fourth commitment: Keep strong reserves
Maintaining robust reserves is also essential for protecting users. With its $1 billion SAFU fund, Binance is a frontrunner in the sector. CZ encourages others in the business to commit to doing the same.
Fifth commitment: Avoid excessive leverage
The fifth principle was avoiding excessive leverage and offering highly leveraged products on extremely volatile assets to unskilled retail traders. This has caused the demise of several crypto-lending platforms in 2022. CZ adds that it is imprudent to incur debt to fuel expansion.
Sixth commitment: Strengthen & enforce security protocols
Due to the rapid evolution of industry and project protocols, the industry must build a stronger coalition to agree on quality requirements for security measures for exchanges and projects.
CZ stated that strengthening and implementing security procedures was crucial to achieving transparency. He stated that all exchanges should implement stringent KYC and AML procedures. Let us rebuild.