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Six Commitments for Healthy Centralized Exchanges

CZ wrote six most important requirements that Binance and every other centralized exchange should adopt in order to ensure trust with our users

Posted on November 16 2022 By admin

CZ wrote six most important requirements that Binance and every other centralized exchange should adopt to ensure trust with our users


1. Be risk-averse with user funds

-  User funds must never be traded or invested.

- The exchange must provide risk warnings proactively for users so they understand the volatility across crypto.

2. Never use native tokens as collateral

- Native tokens are exchange tokens that are created by the company that runs the exchange 

- Native tokens play an integral role in the running of blockchains and ensure the strong foundations for blockchain 

+ A healthy native token is the lifeblood of a successful blockchain. 

+ Users need to be able to confidently depend on the native token their chosen blockchain relies on. 

- There also needs to be widespread utility.

+ An example is the BNB chain, a community-driven, decentralized, and censorship-resistant blockchain powered by BNB. 

+ Liquidity: BNB’s auto-burn system continues to consistently reduce its total supply to 100,000,000 BNB. Done to provide greater transparency and predictability by adjusting the amount of BNB to be burned based on BNB’s price and # of blocks generated on BNB Smart Chain (BSC) 

+ Utility: develop exciting apps in a range of different verticals: games, social decentralized applications


3. Share live proof of assets

- As part of Binance’s ongoing commitment to transparency and fostering trust in the ecosystem, they have begun sharing details of key hot and cold wallet addresses.

-  This is a starting point while Binance work to create a Merkle tree proof of funds that they will share with the community in the next few weeks. 

- Their objective is to allow users of the platform to make informed decisions that are aligned with their financial goals.

4. Keep strong reserves

- Binance established the SAFU fund to cover extreme circumstances. Today, there is about $1b in the fund.

- Others across the industry should commit to doing something similar.


5. Avoid excessive leverage

- It is unwise to take on debt to fund growth.

- There is simply too much volatility in crypto - that’s why Binance’s capital structure is debt free. 

- Binance call on Blockchain industry partners to be equally fiscally conservative. 


6. Strengthen & Enforce Security Protocols 

- Due to the fast-evolving nature of industry and project protocols, there is a need for the industry to form a better coalition to agree on standards for the quality of security measures for exchanges and projects

- Strong partnership with law enforcement is required to support investigations and recovery of stolen funds. 

- They need a better incubation program to equip new projects with appropriate security measures 

- To ensure greater clarity of the complex flow of assets across the blockchain, Binance must be prepared to invest in on-chain analysis to fix weaknesses in existing models. We must address them to ensure transparency.

All exchanges should have strict KYC and AML measures in place

CZ calls on all other centralized exchanges to adopt these proposals because we all have a responsibility to the people that decide to invest their hard-earned money. The onus is on them to prove to regulators and the community that a few bad actors are not emblematic of this industry.