New Report Highlights Large Variance Between Crypto Exchange Standards

  • Only 32% of top exchanges have strong cold wallet storage
  • Majority of volume from small-state-registered exchanges

Standards of security, cold wallet storage, and know-your-customer (KYC) implementation are subject to a wide variance across centralized cryptoasset exchanges, a new report from data provider CryptoCompare has concluded. CryptoCompare surveyed the top 100 exchanges by trading volume, in order to glean broad trends among exchanges.

 

Cold Wallets

A key finding of the report is the low overall prevalence of cold wallet usage - cold wallets being disconnected from the Internet when their funds are not being actively traded. Only 32% of the top 100 exchanges claim to store the vast majority of users’ funds - at least 90% - in cold wallets, with a further twelve percent claiming to store a majority - at least 50% - in cold wallets, and nine percent claiming less than 50%.

 

An alarming 47% of the top exchanges do not detail their storage conventions, according to CryptoCompare. Since the usage of cold storage wallets is a major selling point for users trading on a centralized exchange, which no exchange should hesitate to advertise, it is not unreasonable to fear the worst for these 47% - half of the top 100 - not reporting any cold wallet usage.

 

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The report revealed little correlation between exchanges’ cold wallet usage, and the jurisdiction of their legal registrations.

 

For example, the six exchanges with the highest reported percentage of cold wallet storage, itBit, Coinroom, Coinfloor, Bitfinex, Huobi Pro, and Coinbase, were registered in the U.S., Poland, the U.K., the British Virgin Islands, the Seychelles islands, and again the U.S., respectively. Almost none of the exchanges listed as having high cold wallet usage, with the exception of Bitfinex, were among the highest trading volume exchanges.

 

A helpful cross-reference for this observation is the New York Office of the Attorney General’s (OAG) recent audit of cryptoasset exchanges, which found only a small variance of cold-wallet standards among eight U.S.-registered exchanges that it surveyed, namely a high standard with “most participating platforms purport[ing] to keep a high percentage of the virtual currency in their possession in so-called ‘cold storage.’” These figures could perhaps suggest a somewhat higher standard of storage for U.S.-based exchanges.

 

Underlining the importance of cold wallets, eleven percent of top 100 exchanges have been hacked in the past. CryptoCompare reported that nearly 75% of exchanges require at least some KYC information from customers, while fully a quarter require no KYC.

 

Trade volumes

With respect to trading volume, CryptoCompare found that an inordinate amount of the trading volume goes through Malta-, Hong Kong- and South Korea-registered exchanges - in the case of Hong Kong, not even a completely sovereign nation but a “Special Administrative Region” of China. By far the most trading volume comes from Binance and OKEx, both registered in the small Mediterranean island nation of Malta, a member of the European Union and within the Schengen border zone.

 

The jurisdictions hosting the highest number of exchanges, the U.S. and U.K. both registering eight, see strikingly minimal amounts of trading volume pass through their borders. CryptoCompare calculated $366 and $137 million cumulative average daily trading volume, on all the exchanges in their respective countries - a total of $503 million on sixteen exchanges - versus $1.38 billion daily on just two Malta-registered exchanges.

 

The OAG report is again helpful in this case, as the single largest exchange examined by CryptoCompare, Malta-based Binance, declined the New York law enforcement office’s request to furnish information regarding its practices and standards. Two out of four of the highest-volume jurisdictions are small island nations with liberal cryptoasset regulations, and one is the city-state Hong Kong.

 

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A clear preference for fast-moving, liberal, and “creative” regulatory regimes is evident for the high-volume exchanges. Given, as the OAG has noted, exchanges’ propensities to “[move] their operations with little or no warning,” a competitive atmosphere could be fostered to offer the most flexible and accommodating regulatory regimes, to cryptoasset exchanges searching for their next home.

KuCoin Shares Token Surges 13% as Exchange Announces 2.0 Upgrade

KuCoin Shares (KCS), an ERC-20 token issued by the KuCoin cryptocurrency exchange that gives token holders various bonuses and dividends based on the exchange’s performance, has recently seen its price rise over 13% as the company announced its 2.0 upgrade.

According to the recently published announcement, the transition to the 2.0 platform will occur on February 18, at 3 AM EST, and will last approximately 14 hours. It’ll bring in various upgrades, including new order types, more security, and better control.

On the announcement, the price of the cryptocurrency started rising. According to CryptoCompare data, KCS is currently trading at $0.41, meaning its market cap is currently at $74.15 million.

KuCoin Shares' Price Performance

KuCoin’s 2.0 upgrade is set to give its users an advanced API designed to offer an efficient way for them to develop a trading strategy, as well as limit, stop, market, post only, and iceberg orders.

Its fee program is also being changed to be “more attractive,” and to reduce trading fees and improve liquidity. KuCoin is also improving various features to optimize users’ experience on their website, while trying to pull in more through revised rewards in its referral program.

Given the 14-hour upgrade time, KuCoin is asking users to look into their trading strategies to prepare for the event, as they’ll be unable to trade and access their wallets while it’s ongoing. The company has assured, however, that their funds will remain safe.

All funds will remain safe and unaffected throughout the entirety of the upgrade and will not be at risk at any point throughout the update

To avoid large fluctuations in the market, KuCoin will also reverse a 30 minute period to cancel pending orders after the upgrade is complete. The exchange recently made headlines after adding various XRP trading pairs, although it didn’t make the token a quote currency.

Last year, KuCoin notably raised $20 million in its series A funding round, from organizations that included IDG Capital, Matrix Partners, and Neo Global Capital.