HomeBlogCommunitySome Crypto Platforms Being More Like Banks Than Exchanges

Some Crypto Platforms Being More Like Banks Than Exchanges

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It is well understood in the cryptocurrency world that the contents of a digital wallet belong to whoever holds its digital keys. This means that whoever does not have complete control of their keys puts their assets and investment at risk.

This has made some people result in keeping their keys offline, but there have been documented security breaches to make even those who do this wary. Because offline storage typically requires technological knowledge and some inconvenience, many people outsource that work to crypto exchanges.

However, recent goings-on in the crypto world have led some people to be concerned that some exchanges are functioning more like banks than exchanges.

Many brokerage firms let their clients have control of their portfolios which means they can transfer these portfolios to another brokerage firm if the one they use goes bankrupt. Banks take on more risk as they use their client’s funds to take on loans and for business development. If the bank goes bankrupt, clients’ funds are more likely to sink with it. This is why many countries mandate banks to take out deposit insurance.

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Client Funds Held In Pools

Enough crypto exchanges hold their clients’ funds in a pool owned by the platform instead of in client accounts to make this a concern. These platforms can sometimes use these funds to take out loans or for speculative trading on crypto assets.

If anyone cashes out, they are paid from the pool which can cover typical deposits and handle these demands. However, they cannot handle it if everyone suddenly decides to withdraw simultaneously. This sounds familiar to what happens when a bank goes bankrupt.

The Future is Decentralized

Even though many people agree that crypto exchanges should be regulated like brokerage firms and banks. Client assets have to be held separately from the firm’s holdings and crypto assets seen as security and thus be subjected to oversight.

However, that is not possible right now and so the obvious answer right now is decentralized exchanges. These exchanges do not mandate that clients deposit funds to trade or invest in crypto. Instead, they use multi- and cross-chaiUnderstanding Crypto Exchanges

At their core, crypto exchanges are supposed to be platforms where users deposit funds and use these funds to sell, buy, and invest in cryptocurrencies and other digital assets. However, some of them function like stockbrokers, and their business models can resemble banking.

To understand why some people think this, look at how traditional exchanges, brokerage firms, and banks function. Exchanges like the New York Stock Exchange do not offer account services. If the exchange goes bankrupt, none of its users or clients will incur any losses because it does not hold any of their money.

Easy Portfolio Transfers

n swaps to allow users to perform exchanges between themselves. Platforms like Alium Finance already allow users to exchange over ten tokens and assets on different networks.

This decentralized nature helps protect traders and ensure these exchanges do what they were initially meant to do, facilitating exchange and trades of crypto and digital assets between two people.

Conclusion

With the crash of crypto prices and many crypto exchanges going bankrupt, a lot of people realized they were not functioning as they advertised. This has led to concerns that many exchanges work more like banks than exchanges, leading to experts proposing decentralized exchanges as a potential solution to protect traders and investors.

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