The Impact of 2022 on Crypto Exchanges

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The collapse of FTX and the Luna ecosystem has shaken all sectors of the crypto world, including exchanges, which have seen themselves reassessed the priorities they must show to the public and the key factors in defining themselves as worthy. trustworthy, secure and transparent.

Last year’s turmoil has given exchanges a way to prepare for this 2023. A report by CryptoCompare has analyzed various exchanges in depth, giving insight into what to expect in the coming year from these platforms. exchange.

Factors Influencing Crypto Exchange Priorities

The priorities of crypto exchanges have shifted over the year, never before have events like this affected all market sectors as much as last year.

The Luna/Terra collapse in May highlighted the need for robust and sustainable systems, especially in decentralized finance (DeFi).

The collapse of FTX has shown everyone how important and necessary transparency is in the crypto industry, especially in exchanges, illustrating the benefits that DeFi can offer.

One factor that should not be underestimated as a factor when talking about changes in trade and the trading system is the macroeconomic factor.

Rising inflation and interest rates have dramatically changed the trading system and the way people invest.

The transition from a bull market to a bear market over the past two years has changed the way people invest. In fact, trading volume on centralized exchanges decreased by 46.2% in 2022.

Binance remains the market leader with a market share by trading volume of 56.8% in 2022.

Liquidity metrics are another factor that shows whether an exchange is healthy or not.

While volume gives insight into the level of trading activity taking place on a crypto exchange, liquidity can tell us more about the efficiency of the operation and order structure.

During the catastrophic events of the FTX exchange failure, liquidity saw sharp spikes in volatility.

In November of last year, the average daily market depth fell from $38.6 million in October to $28.2 million.

Trivial, but most important is the factor that should never be missing in an exchange, that of platform security. A common theme of 2022 was the wide range of hacks in the industry.

The lack of in-depth security has affected both centralized and decentralized exchanges: Crypto.com was hacked in January 2022 for a total reported loss of $33.7 million; Deribit was also the victim of a $28 million exploit.

Most recently, FTX was drained of $477 million after the exchange filed for bankruptcy.

Transparency has become the main factor for a crypto exchange

As we have already discussed, the transparency factor has now become paramount in the world of cryptocurrency.

Above all, a cryptocurrency exchange must be transparent to its audience; its clients need to be certain where they are investing their money.

So in 2023 there will be the so-called “race for transparency” and to win over the others it will be the clearest cryptocurrency exchange, i.e. the one that displays the most information about its reserves, its debts/credits, and the money it has.

In 2022, mainly at the end, following the collapse of FTX, some exchanges have already tried to seek transparency through the publication of Proof of Reserve (PoR).

However, many of these reserve proofs lacked the basic principles that a PoR should follow. They weren’t entirely clear, lacking continuous verification, not including all assets, and not sharing all necessary information (cold wallet, hot wallet, 3rd party responsibilities).

Thus 2023 will be a year in which other Proof of Reserve (PoR) will be published, but to be considered as such, they must have all the necessary requirements to be considered as such.

It is therefore normal to explain that exchanges with a clear, precise and verified Proof of Reserve (PoR) model will be successful, and obviously the volumes of exchange reserves will be much smaller (which may scare off some users ).

conclusion

What positive things can we take from the events of 2022?

When it comes to cryptocurrency exchanges, the events of 2022 have led to an adaptive stance of exchanges. Reassess the factors important to staying alive in the market, especially a bear market.

A good stock market to succeed in 2023 must be: solid, sustainable, with a good liquidity ratio, protected from any hacker attack, must have the trading opportunity adapted to market trends, and above all must be transparent. . It is important that the Proof of Reserve is clear, precise and verified.

2022 has been a difficult year full of bad surprises, 2023 will open the door to change, towards a clearer, more transparent and more secure future, starting with cryptocurrency exchanges.

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