*The article is based on the sharing of Quang Vo, a longtime investor. From an industry insider’s perspective, CHK Insights remains neutral on CEX and DEX, and believes that major CEX exchanges like Binance make efforts to be transparent after FTX-style events. At this point, it’s still too early to say which option is safer. However, from the perspective of investors, in sensitive times, preserving their capital will be a top priority.
Long ETH while everyone short BNB
This year is the “term year” of crypto, especially for the CEX, when it is nearing the end of the year, but the storm has not yet let go of the market. From the second largest exchange, FTX, suffered a bank run and went bankrupt until the “big brother” Binance suffered from lack of payment by FUD.
The other day (December 13), when this FUD flooded social media, I was still quite calm. Binance is a giant in the market holding a large amount of users’ assets, and they’ve been doing pretty well so far, so I don’t think anything too bad will happen. Of course, there is still worry in my heart that Binance is “rekt” but not much.
However, by the afternoon, people started to make noise about not being able to withdraw money from Binance. I don’t know what the truth is, but seeing people panic like that, I also decided to transfer assets from Binance, leaving only 1-2% for long/short. This is a small amount on the total assets that I am holding that I think if I lose myself, I will not be so “hit my head on the pillow” crying every night.
I am also quite an opportunist, so every time the market moves, good or bad, I always find a way to make money. Looking around, I saw people who heard negative news about Binance and decided to short BNB. There are BNB sellers switching to topcoins like BTC, which is now safest to leave BTC on the Bitcoin chain itself. But if BTC dumps, it’s considered dead. Personally, I think it makes the most sense to convert assets into stablecoins and keep them on Ethereum. So while my family members took advantage of short BNB, I long ETH, and indeed ETH has had a short-term increase in volatility.
All roads lead to DeFi?
After the FTX disaster and FUD series from Binance, users can reduce trust with CEX exchanges. They shelter their assets in non-custodial wallets (wallets that give users full control over their private keys and are fully responsible for their assets) or on platforms like Ethereum, is that “all roads are good?” lead to DeFi”? From the time I joined the market at the end of 2019 until now, I have always allocated my assets at the rate of 80% kept on my personal wallet and 20% on the CEX exchange. 20% of this asset is used to catch money-making opportunities on the floor, but in uptrend periods, this ratio will have certain changes.
However, I have always been wary of decentralized exchanges because I don’t know what they do with the money I put on the floor. Before FTX collapsed, I heard a lot of information about SBF, the founder of the exchange, taking users’ money to farm.
Moreover, in the past, the famous CEX exchanges of the market such as Mt. Gox also once caused 650,000 BTC of customers to evaporate, or the crypto mogul of the Quadriga CX exchange mysteriously died, causing more than 100,000 users to struggle. A recent report found that the collapse of many crypto exchanges over the past decade permanently took 1.2 million BTC — almost 6% of all BTC — out of circulation.
So, “not your keys, not your coins, my money is still safer in my own wallet. I am not in the minority of people with that thought, besides non-custodial wallets, recently other DeFi platforms are becoming “hot goods”.
This month, trading volume on DEXs has increased by nearly 11% to $62 billion, according to CryptoCompare. Analytics firm Nansen says lending protocols like Aave and Compound are also among those with strong user and transaction growth.
I think, after the incident of FTX and the FUD of Binance, users will surely realize the importance of DeFi even more. Like Aishwary Gupta, DeFi HR director at Polygon, says: “DeFi platforms cannot fall victim to shady business practices because to them, ‘code is law’… Instead of people, decentralized platforms are operated by smart contracts. transparent and auditable, so there is no way for corruption or mismanagement to creep in.”
After the recent storms in the market, perhaps CEX exchanges will have strict control and become more transparent, just like Binance has initially attempted to introduce proof of reserve assets and increase the amount of money in the market. SAFU user insurance fund to 1 billion USD. However, once DeFi becomes “full-fledged”, I think users will have more options to store assets instead of leaving money on CEX, and any of their activities like trading or providing Liquidity will be recorded on-chain in real time.
I believe DeFi with non-custodial services will be the new trend of crypto. Elie Azzi, co-founder and DeFi infrastructure provider VALK, thinks that an increase in DEX volume could be the start of a long-term trend going forward: “Compared to CEX, DEXs are innovating at a much faster rate… DEXs are evolving to take advantage of CEX features and user interface (UI) and improve back-end logic, resulting combined with its own unique features such as non-custodial, instant wallet transactions while retaining control of private keys.”
Moreover, CZ himself – the head of the number one CEX exchange in crypto also announced a strong investment in DeFi.
Binance is investing heavily in DeFi.
(not financial advice)
— CZ Binance (@cz_binance) October 23, 2022
My only concern is it seems DeFi Ecosystem are becoming prey for hackers. According to Chainalysis, nearly 97% of all cryptos stolen in the first three months of 2022 came from DeFi protocols, this figure in 2021 is 72% and 2020 is only 30%.
However, I believe that with proper due diligence and reduced human error, DEX’s fledgling ecosystem can be a preferred alternative to CEX. At this point, it’s still too early to say which option is safer.
See also Learn about Due Diligence through Binance’s failed FTX “rescue”.
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