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HomeCryptoChangpeng Zhao explains why you should avoid exchanges that do this

Changpeng Zhao explains why you should avoid exchanges that do this

Changpeng Zhao, CEO of the largest exchange in the market, explains how to avoid losing funds on cryptocurrency trading platforms.

Now considered one of the most influential figures in the entire industry, Changpeng Zhao pointed out an important fact that cryptocurrency users should consider a red flag.

This is the movement of large amounts of cryptocurrency from exchange-linked addresses before or after their wallet addresses have been demonstrated. Binance CEO’s concern is more than justified. Usually, centralized exchanges that operate smoothly do not need to constantly move large amounts of funds during a period of heavy load.

An outbreak of large transactions to an exchange is the first sign of an active liquidation of the exchange’s external holdings. Technically, cryptocurrency exchanges should not move user funds outside the platform’s ecosystem, as this creates liquidity risks.

Once an exchange’s liquidity falls below a certain point, an unexpected increase in payouts will most likely cause a situation similar to FTX. After a few failed withdrawals, panic sets in the community and the liquidity crisis spiral accelerates, causing network congestion and a complete stop in payouts.

To avoid the scenarios described above, users should closely monitor the operations performed in exchange-linked wallets. If a series of suspicious transactions appear on the network, it would be a good idea to move the funds away from the exchange and keep them safe in a non-depot pool.

If you are willing to minimize your exposure to the aforementioned risks, the safest way to do so is to move money from a centralized exchange to your own non-depot wallet. By storing funds in your own wallet with your own private keys, you avoid situations like FTX’s liquidity crisis and the inability to withdraw and use your own funds.

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