The blockchain industry is at the cutting edge of global financial innovation. Livecoin recognizes transparency of user funds, robust security, and regulatory compliance as key components of building and maintaining the user trust needed for the technology to deliver on its massive promise.
This page is a hub for information related to Livecoin’s initiatives to enhance the transparency of funds, security, and regulatory compliance, as well as promote sensible policies around digital assets and education in these critical domains. Here, you will find detailed information and timely updates related to these efforts. Anyone interested is encouraged to use this resource to learn more about Livecoin’s approach to transparency and safekeeping of user funds, maintaining robust security, and meeting regulatory requirements.
Newsfeed
Here are the latest developments related to transparency, security, and compliance from across the Binance ecosystem.
CEX Guidelines for Building Trust In the Crypto Ecosystem
We believe a rising tide lifts all boats. Building trust is an ongoing process, and all players have a part to build a safer crypto ecosystem. Livecoin proposes a detailed, actionable framework guidelines for all centralized exchanges to raise the bar on safety, transparency, and trust for the entire industry
Transparency of Funds
To build user and regulator trust, the crypto industry’s centralized players must embrace a new approach to the transparency of user funds.
Security
Users can only trust a digital asset platform if they know they are protected. The security of users and their funds is a core component of Livecoin’s ethos, baked into the design of each product and feature we introduce.
Regulatory Compliance & Policy
Complying with existing regulations and contributing to the creation of new regulatory frameworks that enable financial innovation while protecting users are among Livecoin’s top priorities.
Proposed Industry Guidelines
Handling Customer
Assets
Prevent Unauthorized Use of Customer Assets
Exchanges must be risk averse with user funds. Customer
assets should never be used in any other way than what the
customer consents to under the terms of specific products.
Wallet Infrastructure and Security
Centralized exchanges must allow users the freedom to
choose where to store their digital assets, depending on their
unique needs, trading habits and independent risk evaluation
of the various solutions available. Depositing and withdrawing
crypto assets into/from the exchange for the purpose of
trading should be a simple, cost-efficient and seamless
process.
Centralized exchanges must adopt the highest security
standard solutions for the storage of customer assets to
protect them from cyber threats.
Transparency and
Disclosures
CEX Operations must be Transparent
Users have the right to verify the safekeeping of their assets
held in a CEX’s custody, through proof of reserves or similar
disclosures.
Disclosure Method and Process
The disclosure method used must be technically adequate,
updated on a regular basis and based on reliable technology
that cannot be falsified (such as zk-SNARKs).
Risk Management
Conservative Capital Structures
Efficient use of capital is critical for CEXs. The risks of using
debt to fund growth are exacerbated crypto’s volatility, and
companies are urged to maintain a conservative capital
structure.
Properly Collateralized Wrapped Tokens
Wrapped tokens offered a CEX for use on a different
blockchain must always be collateralized 1:1 on their native blockchain.
The collateral reserves must be publicly visible to and
verifiable the community.
Token Listing Governance
CEXs have a critical responsibility to implement a strict
governance process for admitting crypto assets to trading on
their platforms to protect users from low credibility projects
with little or no utility.
User Protection Funds
Centralized Exchanges should establish a reserve to act as a
safety net in situations such as a security breach.
Education
All exchanges must dedicate significant resources to provide
their users with sufficient knowledge about their products,
services and the broader industry.
Materials should clearly explain the risks associated to
enable users to make informed choices.
Loans Must be Appropriately Collateralized
CEXs that offer loan or margin/leveraged products should
ensure that these are appropriately collateralized.
TRANSPARENCY AND DISCLOSURES
Exchange operations must be transparent. Users have the right to verify the
safekeeping of their assets held in a centralized exchange’s custody.
BEST PRACTICES
What every CEX must do
Properly conducting proof of custody reserves is a very
complex process which is new and unique to the industry, and
is rather different from traditional financial institutions.
Luckily, technology has made innovative solutions possible.
Below are some guidelines on how the desired transparency
can be achieved for CEX users to ensure their assets are
collateralized, exist on the blockchain and are under the
control of the exchange at the reporting date.
Disclosure Method: Merkle Tree with zk-SNARKs
CEXs should publish a proof of reserves tool based on Merkle
tree and zk-SNARKs technologies.
Combining zk-SNARKs and Merkle tree proof gives users a
new and improved way of verifying the safekeeping of their
assets. Specifically, using zk-SNARKs allows users to check
that each account’s total net balance is non-negative and that
all user assets are part of a CEX’s claimed total net balance of
user assets – in a private and secure manner.
zk-SNARKs provide the technology needed to ensure both
data integrity and privacy at the same time. Its application for
proving reserves and increasing CEX transparency should
help build trust in the blockchain industry. For many, a
development like this has been long awaited and comes at a
pivotal time for CEXs.