FTX Collapse May Lead To The Rise Of Decentralized Exchanges

December 2, 2022 4:02 pm Comments

There was a huge loss of confidence in the crypto industry when news of the FTX collapse was revealed which was accused of losing and misspending its user deposits.

As a result, some are speculating that this may have set back the crypto industry temporarily and will likely entice lawmakers to be more strict on regulations in the future.

With that being said, there are investors that are not affected by the FTX collapse because it does not change the fundamental value of crypto.

The only thing that may need changing is how investors actually store their crypto which brings up the recent rise of decentralized exchanges and how they might change the industry from now on.

CNBC reports:

Ever since liquidating all of their assets and buying bitcoin in 2017 back when it was trading at around $900, the Taihuttus have safeguarded their crypto riches in three main places: centralized exchanges, or CEXs, such as Bybit and Kraken; decentralized exchanges, or DEXs, such as Uniswap; and hardware wallets hidden in secret vaults on four different continents.

But as digital asset brokers, lenders, and exchanges continue to fall into bankruptcy — locking up customer funds in the process — the Dutch family of five is proactively moving $1 million in crypto into DEXs, which allow users to hang on to custody of their tokens.

“For me, bitcoin is still about freedom, and decentralized currency should be able to be used by everyone in the world without needing to do KYC or any other regulatory stuff,” Didi Taihuttu told CNBC, referring to the know-your-customer, or KYC compliance, required by many centralized platforms such as Coinbase.

DEXs don’t require users to connect an ID or bank account to the platform, hence making it an ideal custody solution for the Taihuttus.

In addition to the use of decentralized exchanges, or DEXs for short, investors are also more likely to put their assets into personals storage from now on.

There is an old saying within the crypto world that says “not your keys, not your coins” which essentially means that unless you own the private keys of the wallet that is storing your crypto, the digital assets are not truly under your control.

Therefore, it is advised for investors to use cold private storage if they are storing large amounts of crypto in order to avoid being affect by events like exchange collapses.

There are already plenty of options for cold storage these days that can be stored physically anywhere.

CNBC concludes:

DEXs allow him to connect the crypto he safeguards on thumb drives in hiding spots all over the world directly to the platform, meaning that he can make trades far more easily while still protecting his tokens.

“Our capital now is really difficult to use in trading, because then I need to send my bitcoin from my ledger into an exchange,” Taihuttu said.

The financial privacy offered by DEXs is also a huge incentive.

“You’re trading from an anonymous ledger on an exchange as an anonymous entity,” he said. “You get full access to non-KYC trading in a decentralized way on a DEX.”

Taihuttu isn’t alone in shifting his focus to DEXs. Following the FTX bankruptcy, Trezor’s sales revenue reportedly jumped 300% and billions of dollars in bitcoin fled exchanges. Meanwhile, Multicoin Capital, a crypto investment firm, told limited partners that 7% of its assets are similarly stored cold, in self-custodied wallets.

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