Centralized exchanges (CEX) must adopt transparency measures prevalent in decentralized finance (DeFi) to restore public trust, Tron founder Justin Sun said in a panel discussion at the Philippine Blockchain Week event on Tuesday.
Investor confidence in the crypto industry has been deteriorating following the high-speed crash of the Bahamas-based cryptocurrency exchange FTX.com.
The events led to CEXs scrambling to release proofs of reserves to ensure investors that their platforms have adequate funds to honor mass withdrawal requests, if necessary.
Despite industry efforts, digital asset holders have been rushing to withdraw their funds from exchanges. Bitcoin outflows from CEXs tracked by data aggregator IntoTheBlock topped US$2.48 billion on Monday, the highest single-day withdrawal tally since FTX’s solvency issues came to light.
Rising crypto withdrawal volumes often suggest investors leaning against selling their assets and opting for self-custody, or moving their funds to participate in DeFi-based services.
“People are thinking about self-custody wallets and trying them out,” Sergej Kunz, cofounder of the decentralized exchange (DEX) aggregator 1inch Network said in a panel discussion with Sun and Forkast’s Joel Flynn at the event. “We have seen a lot of huge sales of Ledgers and Trezors.”
As centralized platforms face public scrutiny in light of the FTX implosion, Kunz said an opportunity may arise for DeFi, which offers more transparency and user control.
“One of the reasons we trust DeFi is because most of the information is transparent to customers,” said Sun.
In spite of that, even a DeFi purist like Kunz admits that the decentralized economy still has security challenges.
Over US$3 billion in digital assets were stolen across 125 DeFi hacks this year, Chanalysis reported last month. The blockchain forensics firm says 2022 is on pace to set a yearly hacking record for the crypto industry.
Cross-chain bridges, a decentralized application that allows investors to use a representation of their crypto assets across different blockchains, often for DeFi-based trades, were a top security risk in 2022. Exploits in cross-chain bridges accounted for nearly 70% of stolen digital assets this year, as of August, Chainalysis estimated.
Still, Kunz firmly believes that DEXs are the “next evolution of the financial system.”
Tron’s Sun, who is on the advisory board of a CEX, Huobi, agreed with the 1inch cofounder.
