CoinEx: How it Protects Investors and Plays its Part in Market Stability
See How platforms Like CoinEx Can Stabilize The Cryptocurrency Market And Safeguard Investors
Are you looking for a way that can guarantee the safety or security of your digital assets, those held by your preferred cryptocurrency exchange? The necessity for dependable and accountable ways to confirm the solvency of cryptocurrency exchanges is steadily becoming more vital, especially as the sector evolves.
Proof-of-reserve, which CoinEx uses, seems to be the answer for such needs.
What is Proof of Reserves in Cryptocurrency?
FTX, a cryptocurrency exchange that was once a community giant, filed for bankruptcy in November 2022. This happened shortly after consumer funds were misused, i.e., after FTX supposedly combined its investors' deposits with its own trading business. Ever since FTX collapsed, an increasing number of investors have demanded various kinds of attestations and audits from their cryptocurrency custodians to verify whether or not the funds they hold match the investors' deposits.
Proof of Reserves (PoR) is an audit procedure that confirms whether the reserves of an exchange can cover the balances of its users. PoR is usually carried out by independent third-party audit contractors who evaluate a cryptocurrency exchange's solvency.
PoR audits can prove that an exchange possesses the assets that they claim to own. And such proof helps promote transparency and increases consumer confidence within financial institutions like CoinEx. These audits also aim to eliminate fund misappropriation, where exchanges utilize their users' funds for other means.
How does it help?
The CEO of Binance, Changpeng Zhao, led the way for PoR by calling on cryptocurrency exchanges to begin publishing their own Merkle trees. Afterwards, last year, on November 25, Binance made the announcement that it was rolling out its initial batch for PoR audits, literally becoming the first cryptocurrency exchange to do that. Then, other cryptocurrency exchanges that are widely considered to be safe, like CoinEx, Coinbase, and Gemini, soon followed suit. But why did exchanges like CoinEx do so? Let’s find out.
More Transparency
PoR enables cryptocurrency exchanges to publish whatever assets they hold in a transparent and verifiable manner. So, with this, users can verify that their exchanges actually hold their virtual assets, which helps such platforms establish a more genuine relationship with their users.
Reduced Insolvency Risks
With PoR, users can remain confident that exchanges like CoinEx have enough funds to cover withdrawal requests. Through this, PoR can reduce the risks pertaining to insolvency that occur when users attempt to withdraw their funds because of uncertainties.
Managing Risks
PoR aids cryptocurrency exchanges with identifying possible risk factors through the provision of rundowns covering every asset or holding. Such information enables exchanges to better manage risks and respond to preconceived threats.
Final Thoughts
With PoR, cryptocurrency exchanges are hindered from operating fractional reserves, which exchanges profit from by utilizing deposits as loans. Numerous popular, trusted exchanges display their PoR audits to reassure their investors that their assets are safe and stable. With exchanges like CoinEx, however, investors are even more reassured since it maintains a 100% reserve rate and has never been hacked.