Crypto Asset Management Practices Are Changing for the Better

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Over the past year or so, the crypto market has been ravaged by a slew of insolvencies, resulting in a major loss of investor confidence in the space. A prime example of this has been FTX, the world’s second-largest cryptocurrency exchange at one point by daily trade volume. During its heyday, the platform was valued at approx. $32 trillion, holding massive sums of investor money, both in storage and as part of its various investment vehicles and offerings. 

However, after it came to light that the exchange had been misusing customer funds by indulging in shady deals as well as investing large sums of these assets illegally, it abruptly halted customer withdrawals, resulting in widespread market panic and turmoil. What’s more is that similar moves were also witnessed in relation to a number of other high-profile platforms, including crypto lender Celsius, Voyager, Vauld, amongst others.

As a result of these developments, more and more digital asset investors have started to realize the importance of having high-quality recovery mechanisms in place so that in case there is ever a situation where they feel they need to withdraw their assets, they are able to do so without any interruptions or third party interference.

Transparency is the need of the hour.

As the market continues to reel in from the effects of the ongoing crypto contagion, it is important for digital asset exchanges to have mechanisms in place that can allow users to utilize their funds as they see fit, regardless of the prevailing market environment. 

In this regard, Dexalot, a dual-chain, non-custodial central order book decentralized exchange (DEX) powered by Avalanche’s subnet technology, comes with a built-in asset balance snapshot (ABS) feature that helps establish an immutable snapshot proof of its users’ held balances. To elaborate, the module makes it extremely simple for users to verify their holdings by periodically recording relevant data into Dexalot’s native subnet framework (using an information structure called referred to as a ‘Merkle Tree’). 

Moreover, the ABS module is completely independent in its functionality and can work even when the Dexalot subnet is unavailable for use, thereby maximizing fund security and individual privacy. Lastly, it bears mentioning that ABS makes it possible to recover the state of one’s assets on the Avalanche mainnet C-chain should any situation unforeseen situation arise. 

In other words, Dexalot’s novel feature set not only helps provide transparency in relation to any digital currencies interacting with its interface but also affords users the ability to confirm assets independently. Lastly, it allows for the immutable time series data of asset balances for analysis, if need be.

The market is evolving rapidly.

In recent months, a growing number of cryptocurrency exchanges have continued to establish systems — such as the increasingly popular proof of reserve (PoR) audit trail— that allow users to verify a company’s held assets and overall liabilities. And while this may help investors and clients to breathe easy, albeit somewhat, they tend to give extremely limited insights into a firm’s true financial status.

To this point, recently, a growing number of digital trading platforms have hired third-party entities to conduct an inspection of their funds so as to prove that their businesses are solvent while also being in possession of enough assets to cover any liabilities. 

However, since most cryptocurrency trading platforms are privately owned/held, their owners are not obligated to submit detailed financial records with the US Securities and Exchange Commission (SEC) or even get them verified/audited by an independent agency. Therefore, more can be done to help ensure the safety of customer funds.

The road ahead

As a growing forum of crypto investors continues to demand more clarity and transparency from companies operating within this rapidly evolving realm, it stands to reason that more and more mainstream crypto entities will have to adopt accountability frameworks (such as Dexalot’s ABS feature) that can allow users to gain a better overview of their assets in the near to mid term. Therefore, it will be interesting to see how this burgeoning tech paradigm continues to evolve from here on out. 

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.