Binance: Changpeng Zhao explains why you should avoid exchanges that do this

Changpeng Zhao is now considered one of the most influential figures in the entire industry, pointed out an important fact that crypto-currency exchange users should consider as a red flag.

This is the movement of large amounts of crypto-currencies from exchange-related addresses before or after their wallet addresses are demonstrated. The concern of Binance’s CEO is more than justified. Usually, centralized exchanges that run smoothly don’t have to constantly move large amounts of funds during a busy period.

If an exchange have to move large amounts of crypto before or after they demonstrate their wallet addresses, it is a clear sign of problems. Stay away. Stay #SAFU. 🙏

– CZ 🔶 Binance (@cz_binance) November 13, 2022

A burst of large transactions to an exchange is the first sign of an active liquidation of the exchange’s external holdings. Technically, crypto-currency exchanges should not move user funds outside of the platform’s ecosystem, as this creates liquidity risks.

Once an exchange’s liquidity falls below a certain point, an unexpected spike in withdrawals will most likely cause a situation similar to FTX. After a few failed withdrawals, panic sets in among the community and the liquidity crisis spiral accelerates, causing network congestion and a complete halt in withdrawals.

To avoid the scenarios described above, users should closely monitor transactions in wallets linked to exchanges. If a series of suspicious transactions appear on the network, it would be wise to move the funds away from the exchange platform and store them safely in a non-custodial wallet.

If you are willing to minimize exposure to the above risks, the safest way to do so is to move funds from a centralized exchange to your own non-custodial portfolio. By holding funds in your own portfolio with your own private keys, you will avoid situations like the FTX liquidity crisis and the inability to withdraw and use your own funds.