The fallout of FTX debacle has sent out red alerts in the crypto trading world, and the stress now is on holding one’s own digital assets in wallets rather than keeping them on exchanges. Trading exchanges have gone a knee-jerk reaction, revealing their owned assets in what are called proof of reserves.
Holding one’s crypto in one’s own wallet with a private key has always been a recommended good practice for some time. There are both hot and cold wallets, including Ledger. There has been regular advice pouring in for some time to not use exchange addresses as storage, to the extent of stating that what is kept on exchanges is no longer owned by the owner.
Following Binance, some major exchanges have published stats on what they own. A major fault of FTX is considered to be having its own FTT token as a major portion of its assets. This led to a melt-down.
Huobi – the well-known China origin exchange – will publish a complete proof of reserve report in 30 days. It has already disclosed its asset structure, with $3.5 billion held in cryptocurrencies, out of which around $900 million comes from its own Huobi token, a little less than 30%.
Crypto.com has shared its proof of reserves, with around 20% of holdings in the form of SHIB token, a meme crypto created on the lines of Doge coin. The exchange grabbed headlines when it accidentally sent $400 million of Ether to a rival exchange address, which was subsequently returned.
Indian crypto exchanges
Indian crypto exchanges have shared and published their opinions on transparency after the FTX crash.
WazirX said in a pinned tweet: “We assure you that customer assets are appropriately segregated, accounted for, and held by WazirX in a custodial capacity, hereby insulating the assets from any risks.”
CoinDCX has published its reserve to liability ratios in a blog post, and sharing its opinion on proof of reserve. “In our opinion, the much advocated “Proof of reserves” provides a standalone asset value, it only showcases one side of the part. There’s no visibility of liabilities. Proof of reserve without Proof of liabilities is only half the picture…. We’re working on publishing the R2L ratio periodically, along with audit certificates. More information to follow soon.
CoinSwitch Kuber has tweeted that they “holds user assets 1:1. The funds you deposit and the crypto invest in are fully held against your name. They are not reinvested or reused by us. You can access them at any time.”
Zebpay, another Indian crypto exchange, hasn’t yet tweeted its opinion, apart from the de-listing of FTT.
Unocoin said in a blog post: “We at Unocoin are proud to reassure you that we do not invest customer funds into other projects or lend to third parties.”
The media has taken note of the big development and how Indian investors could be impacted or concerned. A report in the Times of India carries a positive headline – “No exposure to risky coins: Indian crypto platforms”. The reference is to the Luna coin crash. The report carries positive statements from Indian exchanges, like they are fully audited, well capitalized, and do not re-invest user funds or leverage them in any manner. A typical statement encountered is that user assets are held 1:1.
In the absence of an organized market like equities, crypto exchanges have blurred the boundaries between brokers, banks and exchanges. In the conventional financial market, these are always three distinct entities, with regulations for each activity. Shares too are held in demat forms by centralized agencies. There is also insurance, and the backing of the government, such as in maintaining market indices like Nifty or Sensex.
A platform like FTX functioned as both a broker and an exchange. It also traded in futures where leveraging is done.
Crypto scams protection course
The Australian government runs a course on educating investors and retail users on the dangers of investing in cryptocurrencies. The course covers crypto scams and how they happen, given that crypto works only on the internet, the hotbed of scams and hacking.
Here is the link to the course page: https://beconnected.esafety.gov.au/topic-library/identifying-and-avoiding-scams/crypto-scams
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