The Great Bear Looms: How Crypto Exchanges Protect User Interests

Experts have identified 2022 as the most destructive bear market to ever present itself in the history of digital assets.

We are today living with historically high inflation rates and an intensely tightened monetary policy implemented by the Federal Reserve, both of which have resulted in a dampened macroeconomic environment.

Such dismal market sentiment is felt more than ever in the digital assets market, where the excessive use of leverage and poor risk control practices have resulted in the collapse of well-known institutions such as Celsius and Three Arrows Capital.

Over the past 60 days, the cryptocurrency market has experienced one of its most bearish periods since its inception. The top two cryptocurrencies, Bitcoin and Ethereum have lost more than 35% and 43% in value respectively, in the year 2022 alone. As of 17:00 on July 14, the total market value of cryptocurrencies has dipped to US$0.89 trillion from its highest point of around US$3 trillion in November 2021, according to real-time data from crypto data platform CoinMarketCap.

Given such a gloomy market, what measures should exchanges take to protect and secure the well-being of its users? As an established industry leader with a nine-year operating history, Huobi Global has suffered no major security incidents and is well-positioned to set best practices for user protection.

Some industry-leading best practices that have been adopted by Huobi Global include the following ones.

Project Screening and Asset Auditing

The quality of a token project has a direct effect on users’ investment decisions. Therefore, meticulous screening and review on project background and qualifications have become a necessary process for exchanges that attach importance to user security. In addition, regular auditing of user assets is another best practice that exchanges have adopted to ensure asset safety.

Huobi Global’s token listing team has a strict token screening process and implements asset audits on a regular basis. According to Huobi Global’s Chief Financial Officer  Lily Zhang, the company completed an audit of potential risks to user assets in June, and has confirmed that all of its user assets are safe.

Deposit and Withdrawal Limits

No matter how an asset’s price changes, users should be accorded the right to deal with their assets any way they see fit. However, the large-scale collapses of firms such as Celsius and Three Arrows Capital have resulted in many platforms implementing withdrawal restrictions, often resulting in irreparable losses for users.

Following the recent market turmoil, Huobi Global immediately stepped up measures to protect users’ assets from serious security incidents, with users’ deposit and withdrawal abilities remaining as usual.  Huobi Global users need never worry about withdrawal issues that are commonplace on other trading platforms.

Huobi Global’s management of the Terra-Luna collapse stands as a stellar example of its commitment to the interests of its users. During the period when the price of Luna fell into a downward spiral, Huobi Global immediately closed the deposit channel and kept it shut to fully protect the rights and interests of users. The price of Luna on Huobi Global was the highest among all platforms during that period, which benefited Luna holders in the platform and gave them sufficient time to make adjustments to their investment decisions.

Asset Separation

Strictly separation of user assets from platform funds can effectively isolate risks and prevent user assets from unnecessary losses in the event of security threats. Complicated three-way lending triangles are part of the reason why the crypto industry is undergoing this unprecedented liquidity crisis.

Huobi Global has always prioritized the protection of user assets and implements strict separation of cold and hot wallets. Most of its users’ assets are stored in multi-signature cold wallets. Funds used to support Huobi Global’s business are completely separate from client funds, and Huobi Global remains solvent despite the current liquidity crisis.

Risk Management Fund

Sufficient risk reserves allow the platform to make up for user losses that may occur due to unforeseen circumstances. Huobi Global allocated risk management reserves worth 20,000 BTC in 2018 – any losses of user assets that occur due to security breaches to the exchange will see Huobi Global compensate users using funds from this reserve.

Sufficient Cash Flow

Cash flow is the lifeline for any company. The reason why Berkshire Hathaway has the highest share price in the world is inseparable from the fact that Warren Buffett always has a considerable proportion of cash.

Huobi Global has abundant cash flow, and has invested more than US$300 million USD towards expansion efforts despite the current bear market. Currently, the company’s investments team is in talks to invest in more than 100 projects worldwide, involving an aggregate amount of roughly US$6 billion.

The bear market signals a period where all exchanges should unite to stand by their users and investors. In addition, exchanges should always place asset security at the forefront and adhere to the promise of 100% payment to customers in order to maintain trust, achieve sustainability and spur development.

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