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.

Changpeng Zhao is now considered one of the most influential figures in the entire industry, pointed out an important fact that cryptocurrency exchange users should consider as 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. The Binance CEO’s concern is more than justified. Usually, centralized exchanges that operate smoothly do not have to constantly move large amounts of funds during a period of heavy load.

A burst 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 of the platform’s ecosystem, as this creates liquidity risks.

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

To avoid the scenarios described above, users should closely monitor the operations carried out 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 store them securely in a non-custodial wallet.

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

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