One-Third of Crypto Exchanges Offer Margin Trading, only 4% Offer Insurance

CryptoCompare’s Exchange Benchmark report shows that one-third of cryptocurrency exchanges are now offering margin trading options to their users, while only 4% offer some form of insurance.

In a press release shared with CryptoGlobe, the firm revealed that in an updated version of its Exchange Benchmark it found that out of 160 active spot cryptocurrency exchanges, 33% were giving their users margin trading option.

As CryptoGlobe reported 3% of cryptocurrency exchanges were hacked last year, while only 4% offer some form of insurance. The figures are concerning as this means some of the exchange offering margin trading may not have systems in place to protect their traders in cases of extreme volatility.

Cases in which cryptocurrency exchanges had to socialize losses because of flash crashes aren’t rare. In July 2019, Poloniex had to distribute the losses of botched margin trading of the CLAM altcoin among margin holders and lenders. Poloniex claimed only 0.4% of its users were affected and started working to reimburse users.

Nevertheless, traders threatened to sue the cryptocurrency exchange. If the same were to happen on another exchange offering margin lending, the platform could end up shutting down. Instead of getting a 16% haircut like they did on Poloniex, users could lose all of their funds.

CryptoCompare’s report even found that 6% of cryptocurrency exchanges failed to score an ‘A’ on its web security test.

exchanges' web security testSource: CryptoCompare

Out of the over 160 spot exchanges analyzed, 16% stated they hold over 95% of their cryptocurrency in cold wallets. 9% reportedly use the services of a custody provider to store cryptoassets.

CryptoCompare’s Exchange Benchmark ranks the lowest risk cryptocurrency exchanges by assigning them a grade. In its updated release, U.S. and Japanese regulated exchange itBit ranked number one, followed by Gemini, Coinbase, Kraken, and Bitstamp.

Featured image via Pixabay.