• Binance has released a policy paper proposing a framework of guidelines for centralized exchanges (CEXs) to foster industry transparency, trust, and safety.
• The framework outlines several measures CEXes could take to promote transparency, bolster safety and customer trust such as preventing the unauthorized use of customer assets and providing robust disclosure methods to verify the safety of their crypto assets.
• Binance has also urged centralized crypto businesses to imbibe proper risk management by refraining from running their operations with borrowed funds and creating user protection funds.
Binance Proposes Transparency Framework for CEXs
Binance has released a policy paper proposing a detailed, actionable framework of guidelines that centralized exchanges (CEXs) could follow to foster industry transparency, trust, and safety. In light of recent dark events in the cryptocurrency space such as the FTX collapse and other high-profile bankruptcies, regulators across various jurisdictions are tightening their grip on market participants.
Measures To Promote Transparency & Safety
The proposed framework outlines several measures that CEXes could take to promote transparency and bolster safety and customer trust such as preventing the unauthorized use of customer assets and building secure crypto custody solutions that allow for seamless depositing/withdrawal of funds. Additionally, customers should be able to verify the safety of their crypto assets under custody via robust disclosure methods such as proof of reserves which must be technically adequate, updated regularly and based on reliable technology like zk-SNARKs which cannot be falsified.
Risk Management Practices
Binance has also urged centralized crypto businesses to practice proper risk management by refraining from running their operations with borrowed funds, creating user protection funds that would cushion the effects of unforeseen circumstances such as a heist on customers and properly collateralizing loans.
Recent reports suggest that the global cryptocurrency industry is cautiously welcoming Binance’s initiative with some exchanges already committing themselves to adopt a few measures outlined in this policy paper. This move will likely increase investor confidence in the sector while simultaneously boosting its adoption rate worldwide.
Overall, Binance’s proposal is an encouraging step forward towards establishing greater trust between users and cryptocurrencies exchanges while bringing more clarity into an oftentimes opaque market space.