Cryptocurrency will see a shift from centralised to decentralised exchanges with key ramifications for fraud prevention following mass withdrawals from its largest exchange, Express.co.uk has been told. Data from cryptocurrency analytics company Nansen revealed that behemoth exchange Binance saw massive withdrawals over the last week reaching $3 billion as investors reacted with “fear” to negative public attention about the new form of currency.
Alan Vey, chairman of blockchain Aventus Network, explained to Express.co.uk that investors were leaving in droves “Because of the market sentiment, because of the fear after FTX. All those that left their assets in the custody of FTX are, in all likelihood, going to get cents on the dollar.”
FTX, the second largest crypto exchange, declared bankruptcy in early November as company CEO Sam Bankman-Fried admitted the company lacked sufficient assets to meet customer demand.
Mr Vey added: “Now net liabilities outweigh the net assets of that business, everybody is looking around and thinking okay, well, if the second biggest [exchange] – who everybody trusted, who add all these public endorsements, and who had all these amazing investors – can fail, then so could Binance potentially.”
Binance’s international arm saw over $8.78 billion leave its exchange and $5.1 billion in incoming funds, meaning the exchange faced a net outflow of roughly $3.66 billion. According to Nansen’s portfolio tracker, Binance’s total portfolio decreased by $3.6 billion in just 24 hours.
In response to the outflow news, Binance CEO Changpeng “CZ” Zhao said that it’s just “business as usual.”
Martin Warner, CEO of Entrepreneur Seminar, which offers guidance in cryptocurrency investing, said the massive withdrawals from Binance were “a cause for concern not only for the future of cryptocurrency but for businesses in this space following the collapse of FTX and subsequent legal ramifications.”
Mr Vey argued that he “wouldn’t make that generalisation” regarding concerns that cryptocurrency itself could collapse, and instead said the withdrawal from Binance may indicate a “significant shift to what’s called decentralised finance or decentralised exchanges.”
He said: “I would say it leads to a general trend of people not trusting centralised entities in cryptocurrency, because the whole value of this technology is you can be your own self-sovereign asset holder – you can take custody of your own assets, you can manage them yourself.”
He added that problems facing cryptocurrency are “mostly with the centralised entities that are involved from the financial side of the crypto markets.”
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Founder of decentralised crypto storage platform Zus, Saswata Basu, told Express.co.uk that Binance didn’t have a “problem”, but added it may face a “liquidity problem” if, for instance, Bitcoin’s value dropped and all customers requested withdrawals – “but this death spiral scenario is unlikely to occur.”
He added “The demise of crypto is analogous to saying Uber and Airbnb will fail to exist because of regulatory issues, which didn’t happen because the entire world wants it, participates in it and is part of our daily solution.”
Explaining the shift towards decentralised exchanges, Mr Basu added: “A centralised exchange is where you give your money to an entity you trust and they use it to trade it for you, similar to how you trust brokers, banks, and businesses today. Decentralised exchanges are where you get to keep your money in your wallet, so you are your own bank.”
The experts agreed that safety and fraud prevention were crucial to cryptocurrencies’ survival and continued relevance, with Mr Basu saying decentralised exchanges meant that holders of crypto “do not need to trust anyone, and are absolutely safe.”
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Mr Vey added: “Work needs to be done to ensure that we reduce fraudulent activities – but it’s not like there’s no fraudulent activity within the traditional financial sector. There’s so much AI and fraud detection and whatnot going on to try to prevent it there.
“And I believe there will be greater transparency and ability to do so in the cryptocurrency system.”
Mr Warner said: “Calls for more regulation around cryptocurrencies will help to stabilise the industry but the challenge is how and to what extent the sector should be regulated, to enable better risk control for customers and to encourage companies to innovate. While the future of cryptocurrencies will be murky, there’s an opportunity to expand and advance faster with different alternate currencies such as NFTs.”
Consulting firm the Boston Consulting Group predicted earlier this year that crypto adoption will likely continue to accelerate, estimating that the number of users is likely to reach one billion by 2030.