FTX , one of the world’s leading cryptocurrency exchanges, has become the latest victim of the persistent volatility in the crypto market, exacerbated by scams and regulatory pressure.
The exchange ran into rough weather after Binance pulled out of a purchase deal with FTX.
FTX filed for bankruptcy protection in the US on Nov 11, faced with a severe liquidity crunch.
FTX’s customer base had grown to 3.1 million in 2021 from 246,000 in the previous year. The bankruptcy filing has shocked many people in the crypto space, including its customers.
Are Indian Crypto Exchanges Trustworthy?
Experts believe crypto exchanges that release company reports regularly and have a transparent fund-management mechanism are relatively safer for investors.
"All exchanges follow self-regulatory mechanisms and have redressal forums for customer complaints and queries. But due to lack of legal remedy or a single line of procedure, investors may have fewer options," says Dileep Seinberg, founder & CEO of MuffinPay, a crypto neo-bank.
Need For Strict Regulation
The industry is hopeful of a constructive debate on the issue among G20 members when they arrive in Delhi next week for talks. Its expectations stem from the fact that Finance Minister Nirmala Sitharaman had repetitively signaled about crypto rules coming soon.
"We believe regulations are necessary as they promote financial stability, transparency, investor protection, and a level-playing field for all market participants. The Indian government must consider regulations for the industry to protect customer funds and reduce the risk of fraud by excluding unauthorised players and tokens used for speculative purposes," says Sumit Gupta, co-founder and CEO of crypto exchange CoinDCX.
Gupta noted that as blockchain and cryptos gain popularity in India, “we need to harness this demand to shape the future of our economy .”
Experts stressed that the industry bats for the right regulation, but tax policies sometimes could adversely affect the industry. Traffic and trading volumes have dwindled on Indian platforms as investors flee to foreign exchanges," says Rajagopal Menon, vice president of crypto exchange WazirX.
Is Proof Of Reserves A Solution?
As most cryptocurrency exchanges see muted growth, Giottus, a lesser-known but considered one of the country’s top 10 exchanges, said it would provide consumers with “proof of reserves”.
However, others like CoinDCX said it does not employ user funds to create fractional reserves or maintain Reserve to Liability (R2L) ratio in excess of 100 per cent.
"We will periodically publish R2L ratios, proof of reserves, and audit certificates going forward," said Gupta.
Unocoin, another crypto exchange, said it keeps its crypto addresses confidential and does not use customer funds for internal purposes.
WazirX echoed similar views: "We maintain a safe custody approach and do not risk customer assets."
