How To Evaluate The Safety Of An Exchange Amid Crypto Winter!
With the spot prices of many cryptocurrencies having crashed in recent weeks, resulting in heavy losses for many investors, it is clear that the cryptocurrency market has entered bear territory. The filing for bankruptcy by several prominent industry players has further cast a pall on the market.
In such a scenario, protecting one’s assets has become the first question for many investors. Of course, this is harder for novice investors as there are many factors to be considered in a bear market. However, choosing a safe exchange will help to avoid or greatly reduce many risks. How is this so?
The following aspects are major factors to take into consideration: Security, business compliance, financial position, and risk control.
The technology behind the security measures of an exchange serves to protect user assets. As the first step to assess this criterion, users should learn basic knowledge such as how advanced an exchange’s technology is compared with its peers, as well as the unique attributes of an exchange’s technology, and check its track record for security incidents.
For instance, the world-leading cryptocurrency exchange Huobi Global applies a set of unique security technologies in the industry, such as a professional distributed architecture and an anti-DDOS attack system. In addition, Huobi Global strictly separates users’ digital assets in cold and hot wallets, storing most digital assets in a multi-signature cold wallet.
Thanks to its advanced security technologies, Huobi Global has never had any known security incidents in the past nine years since its inception.
As cryptocurrency has been drawing more attention in recent years, many new exchanges have emerged to seize the growth momentum. However, users should check if the services offered by an exchange are regulated. For example, has it received any license to offer financial or crypto exchange services?
As one of the earliest global cryptocurrency exchanges, Huobi Global has been working towards compliant growth since 2017. To date, it has obtained licenses for various cryptocurrency-related services across different markets, including South Korea, Japan, and Gibraltar. More applications of licenses are in the pipeline.
Another key indicator of an exchange’s safety is its financial position, especially its cash flow which is closely tied to its liquidity. Put simply, it means whether an exchange has sufficient funds to meet all user obligations, such as user withdrawals regardless of timing or market conditions.
Huobi Global’s risk controls have enabled it to keep its operations steady even amidst the recent market volatility, when several exchanges had to suspend or limit withdrawals due to a liquidity crisis. The exchange has always guaranteed its users their right to deposit and withdraw funds at any point in time.
Huobi Global has a healthy cash flow, and has invested more than US$300 million in its expansion in the current bear market. At present, its global investment team is still communicating with more than 100 potential investment targets worldwide and is in talks to invest in deals worth an aggregate of US$6 billion.
For example, Huobi Ventures, the investment arm of Huobi Global, has invested in Land of Conquest, a highly anticipated upcoming blockchain game. Huobi Ventures also intends to deploy US$100 million towards early-stage blockchain companies in the next three years.
A comprehensive risk control mechanism goes hand in hand with robust security when it comes to responding effectively to incidents. This goes beyond technology, as it places the onus on the exchange to meet its responsibility to uphold the stability of the industry.
Taking Huobi Global as an example, the exchange has an established security and risk control system honed over nine years of operations to counter potential threats to user assets. When the price of Luna fell into a downward spiral, Huobi Global immediately closed the deposit channel and kept it shut to protect its users. The price of Luna on Huobi Global was the highest among all platforms during that period, which benefited Luna holders on the platform and gave them sufficient time to adjust their investment strategies.
The exchange also conducted an internal audit of potential risks to user assets in June, which confirmed that all its user assets were safe, according to Huobi Global’s CFO Lily Zhang.
Huobi Global launched its Investor Protection Fund in 2018, which holds the Huobi Tokens (HTs) it buys back on the secondary market every quarter, using 20% of its revenue. The Fund is used to protect users’ interests and compensate for their losses in cases of emergency.
In the same year, Huobi Global established its Security Reserve with 20,000 Bitcoins. This is stored in an independent address and used as an emergency fund during an unlikely security breach. It will compensate users for losses arising from security breaches, except for losses caused by users themselves.
Like the Internet, the rapid development of the cryptocurrency market has spawned a plethora of issues, including new romance scams and Ponzi schemes. While it is not always possible to avoid losses, investors can reduce their exposure to many unnecessary risks if they follow the aforementioned steps to choose a reliable exchange.