Basics of Trading and Finance (Part 04) : Another Problem with Centralized Exchange (CEX)
Intro
IntroAs a moderator of the Tron Fan Club community, I regularly write various tutorials on crypto blockchain and Tron related matters. The main purpose of these tutorials is to make our new users aware of these topics. In continuation of that I am writing tutorials on trading and finance. Hope you can easily learn some details of trading and finance through this tutorial series.
Centralized exchange sites are widely used and popular in today's world but centralized exchange sites have a major weakness due to which people are losing trust in centralized exchange sites.
The main decisions of the centralized exchange site are taken by the owner of that site. When an individual or a group of individuals owns or controls an organization, they can use that organization's data in a variety of ways for their own purposes. This is exactly what centralized exchange site owners often do. The most recent FTX exchange site incident highlights this vulnerability.
When a buy sell order arrives at an exchange site, a currency is sold from one group to another group. A trader has no way to see whether this process is transparent because a buyer basically does not know who is exactly going to sell the token. Similarly a seller does not understand who is going to buy this token. Here we are shown an order book and bid ask price list. That is, if the owner or management of the exchange site wants to sell or buy some tokens by placing a false buy or sell order, then it is possible. And this is the major weakness of centralized exchange due to which people lose confidence in it.
That is, for example, if the owner wants to buy some Bitcoins, then they will place some false buy orders of Bitcoins against some other currencies. In that case, those who are selling Bitcoins will not know which party is buying these Bitcoins. As a result, those who want to sell Bitcoin and get another currency cannot even be traced. Therefore, traders can use the liquid tokens stored in their wallets to deposit tokens as per their needs.
An exchange site has many accounts and all of those accounts hold a large amount of different tokens. Without their own investment, they can buy tokens as needed through such manipulation. By manipulating a liquid fund that is always accumulated through regular buys and sells, one can try to cheat in this way, which we have observed from many exchange size owners in the past and recently.
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