Do centralized exchange feel same way as Financial Banks?

[Alone055]

I was wondering, despite the risk of keep our money on centralized exchange, so many crypto owners and users still prefer to keep their money on centralized exchange not minding the risk of what if the exchange develops an issues overnight or get hacked overnight and they can't get access to their money again. Many coin owners don't think about it but they peacefully save so much money on centralized exchange. Anyways that is not the case here, I was wondering if centralized exchanges also feels happy seeing that their customers keeps their money on the exchange just as banks are happy to see big customers save big  amount of money in their banks savings account while the bank use the money to do business and get more profit unaware to the saver.

Things actually work differently for banks and centralized exchanges. In general, banks use our money in loans and other investments and make money that way; exchanges don't do that, or even if they do, they still have other ways of making money. And to answer the question you asked about whether exchanges will be happy if customers keep their funds with them, I would say no, they would be happier if customers use that money instead of just keeping it idle, because exchanges make money from trading and transaction fees, and they don't get anything if the money is kept idle, they don't even charge maintenance fee like banks.

Another very big difference that I can think of between banks and exchanges is that an exchange allows you to complete KYC verification to a higher level, and then allows you to deposit and withdraw funds without any disruptions or extra questions asked because you are allocated a limit based on the level of your verification. With banks, things don't work that way, even if it's your own money, you will still be asked so many questions, need to submit so many documents and what not, and then you will be able to withdraw your money if you are trying to withdraw a large portion of it.

[Pi-network314159]

I was wondering, despite the risk of keep our money on centralized exchange, so many crypto owners and users still prefer to keep their money on centralized exchange not minding the risk of what if the exchange develops an issues overnight or get hacked overnight and they can't get access to their money again. Many coin owners don't think about it but they peacefully save so much money on centralized exchange. Anyways that is not the case here, I was wondering if centralized exchanges also feels happy seeing that their customers keeps their money on the exchange just as banks are happy to see big customers save big  amount of money in their banks savings account while the bank use the money to do business and get more profit unaware to the saver.

I don't think that the centralized exchange feels like the way bank feels. The reason why I said so is that in bank the fund or fiat in their custody is used for business which is given it as loan to other customers and making profit but in centralized exchange there is nothing like loan. I don't think if people take loan from centralized exchange. Cex Only make their profit from transaction fee or withdrawal charges but can't make profit less or above that.

[Keevoid]

I was wondering, despite the risk of keep our money on centralized exchange, so many crypto owners and users still prefer to keep their money on centralized exchange not minding the risk of what if the exchange develops an issues overnight or get hacked overnight and they can't get access to their money again. Many coin owners don't think about it but they peacefully save so much money on centralized exchange. Anyways that is not the case here, I was wondering if centralized exchanges also feels happy seeing that their customers keeps their money on the exchange just as banks are happy to see big customers save big  amount of money in their banks savings account while the bank use the money to do business and get more profit unaware to the saver.

Centralized exchanges definitely benefit when users keep their assets parked there , it boosts liquidity, trading volume, and trust perception for the platform.

But the difference is, unlike banks, these exchanges don’t always offer the same level of protection or regulation, so users are basically taking that risk voluntarily. I guess most people just value convenience over control. It’s faster to trade, withdraw, or swap on an exchange than managing your own wallet,  even if it means trusting a third party with your funds, so yeah.

[Alpen]

I was wondering, despite the risk of keep our money on centralized exchange, so many crypto owners and users still prefer to keep their money on centralized exchange not minding the risk of what if the exchange develops an issues overnight or get hacked overnight and they can't get access to their money again. Many coin owners don't think about it but they peacefully save so much money on centralized exchange. Anyways that is not the case here, I was wondering if centralized exchanges also feels happy seeing that their customers keeps their money on the exchange just as banks are happy to see big customers save big  amount of money in their banks savings account while the bank use the money to do business and get more profit unaware to the saver.

The crypto market crash on October 11th exposed another major problem with centralized exchanges. It came to light that for some trading pairs, Binance isn't running a real order book but is instead using calculations and price oracles to create their price feed.

As a result, some altcoins flash-crashed to zero on their platform during the chaos. Now, the exchange is having to pay compensation to the affected users.

It really makes you wonder: if this is happening on Binance, the largest exchange, what's going on behind the scenes at all the other CEXs?

[Salahmu]

I was wondering, despite the risk of keep our money on centralized exchange, so many crypto owners and users still prefer to keep their money on centralized exchange not minding the risk of what if the exchange develops an issues overnight or get hacked overnight and they can't get access to their money again. Many coin owners don't think about it but they peacefully save so much money on centralized exchange. Anyways that is not the case here, I was wondering if centralized exchanges also feels happy seeing that their customers keeps their money on the exchange just as banks are happy to see big customers save big  amount of money in their banks savings account while the bank use the money to do business and get more profit unaware to the saver.

Is there any other place a cryptocurrency trader can trade apart from exchange?, of course I don't think so that's why everybody cannot remove there money from centralized exchange because that is there most convenient way of trading so that they wouldn't have to be sending from another place to the exchange in other to trade, so actually I feel they are the only ones leaving there money on centralized exchange because there isn't a need for a holder to use exchange when there is risk except is an unawared person. Centralized exchange exists because of customers so definitely they're very happy seeing users and keeping money on there platform but if bank usually borrow people's money but exchange cannot do it.

[Solosanz]

Even though it looks like that, but I'm wondering how they're making money from the customers funds.

In banks:
They print more fiat, they're the one who own the currency.
They offer lending service, but they can lend higher than the collateral, in centralized exchanges the collateral must be higher than the lend.

With that two ways to make money, they can survive without any big risk.

What I know centralized exchanges who make money from the customers are related to illegal thing (for institutions) like Sam Bankman Fried who use for trading and high risk investment.

[free-bit.co.in]

I don't think that the centralized exchange feels like the way bank feels. The reason why I said so is that in bank the fund or fiat in their custody is used for business which is given it as loan to other customers and making profit but in centralized exchange there is nothing like loan. I don't think if people take loan from centralized exchange. Cex Only make their profit from transaction fee or withdrawal charges but can't make profit less or above that.

The only similarity between exchanges and banks is that both are centralized entities, managed and operated by a group of people. Other than that, they have nothing else in common. It would be a lame and somewhat dismissive comparison to banks to compare them with exchanges.

Banks are the largest and most prestigious financial institutions, they not only provide intermediary financial services such as deposits and loans. They are also one of the organizations responsible for regulating and managing the economy through monetary policies. Whether a country's economy is stable or not depends on them.

[SOKO-DEKE]

I was wondering, despite the risk of keep our money on centralized exchange, so many crypto owners and users still prefer to keep their money on centralized exchange not minding the risk of what if the exchange develops an issues overnight or get hacked overnight and they can't get access to their money again. Many coin owners don't think about it but they peacefully save so much money on centralized exchange. Anyways that is not the case here, I was wondering if centralized exchanges also feels happy seeing that their customers keeps their money on the exchange just as banks are happy to see big customers save big  amount of money in their banks savings account while the bank use the money to do business and get more profit unaware to the saver.

In terms of security, there is no difference between exchanges and commercial banks because both operate in the same ways. A commercial bank will ask for your KYC, and exchanges will do the same. Since an individual cannot gain full control of funds on either side, it is clear that both are similar from a security standpoint.In other respects they are not identical, though they share many features. My point is that people avoid exchanges because, afterwards, they can easily keep their own fund by making uses decentralized wallets  which gives them full control of their funds.

[Cgrexp]

I was wondering, despite the risk of keep our money on centralized exchange, so many crypto owners and users still prefer to keep their money on centralized exchange not minding the risk of what if the exchange develops an issues overnight or get hacked overnight and they can't get access to their money again. Many coin owners don't think about it but they peacefully save so much money on centralized exchange. Anyways that is not the case here, I was wondering if centralized exchanges also feels happy seeing that their customers keeps their money on the exchange just as banks are happy to see big customers save big  amount of money in their banks savings account while the bank use the money to do business and get more profit unaware to the saver.

You are right, when we keep money in the bank, we have no control over it. And the bank basically runs on government rules. In this case, we get special benefits by depositing money in crypto because here we can trade whenever we want or withdraw money whenever we want. In short, we will have complete control over our money. At the same time, it is safe. So we should consider the security aspect when deciding where to deposit our money.

[peter0425]

I was wondering, despite the risk of keep our money on centralized exchange, so many crypto owners and users still prefer to keep their money on centralized exchange not minding the risk of what if the exchange develops an issues overnight or get hacked overnight and they can't get access to their money again. Many coin owners don't think about it but they peacefully save so much money on centralized exchange. Anyways that is not the case here, I was wondering if centralized exchanges also feels happy seeing that their customers keeps their money on the exchange just as banks are happy to see big customers save big  amount of money in their banks savings account while the bank use the money to do business and get more profit unaware to the saver.

I don't think that the centralized exchange feels like the way bank feels. The reason why I said so is that in bank the fund or fiat in their custody is used for business which is given it as loan to other customers and making profit but in centralized exchange there is nothing like loan. I don't think if people take loan from centralized exchange. Cex Only make their profit from transaction fee or withdrawal charges but can't make profit less or above that.

Some exchanges have loan features too. They even allow margin trading where you basically borrow money to be able to trade cryptocurrencies from the exchange. Maybe not as many exchanges offer this but definitely there are a lot already that are so similar to banks.

[beveryu778]

I was wondering, despite the risk of keep our money on centralized exchange, so many crypto owners and users still prefer to keep their money on centralized exchange not minding the risk of what if the exchange develops an issues overnight or get hacked overnight and they can't get access to their money again. Many coin owners don't think about it but they peacefully save so much money on centralized exchange. Anyways that is not the case here, I was wondering if centralized exchanges also feels happy seeing that their customers keeps their money on the exchange just as banks are happy to see big customers save big  amount of money in their banks savings account while the bank use the money to do business and get more profit unaware to the saver.

Centralized exchangers certainly work like a kind of bank and work like a currency exchange. We go here to trade, and many people go there to buy and hold crypto. Many times we buy crypto and do not withdraw it to a personal wallet, but leave it in the exchangers and keep holding it there. So in this case, we can think of centralized exchanges as financial banks. When can it not be thought of as a bank in all cases, most of the time it only works as an exchanger

[tabas]

The crypto market crash on October 11th exposed another major problem with centralized exchanges. It came to light that for some trading pairs, Binance isn't running a real order book but is instead using calculations and price oracles to create their price feed.

That is not something new to be exposed about them. Most exchanges does only shows records of how the book orders go but there could be plenty of times that those orders are actually empty.

As a result, some altcoins flash-crashed to zero on their platform during the chaos. Now, the exchange is having to pay compensation to the affected users.

It really makes you wonder: if this is happening on Binance, the largest exchange, what's going on behind the scenes at all the other CEXs?

We've seen it from them and so, this could be a basic thing for the next in their rank. But being the biggest exchange made them from doing it and that's one of the advantage that they have compared to the others.

[PX-Z]

... Anyways that is not the case here, I was wondering if centralized exchanges also feels happy seeing that their customers keeps their money on the exchange just as banks are happy to see big customers save big  amount of money in their banks savings account while the bank use the money to do business and get more profit unaware to the saver.

Yes, they are somewhat the same by CEX using those deposited funds from their users for liquidity and trading volume, as well as those like staking in CEX. The only difference is regulation and protection, banks are usually insured but still have the maximum amount they can offer in case bankruptcy, hack (maybe), etc. While CEX doesn't have this kind of insurance, only those so called "SAFU" in binance, idk about other exchange.

[Synchronice]

I was wondering, despite the risk of keep our money on centralized exchange, so many crypto owners and users still prefer to keep their money on centralized exchange not minding the risk of what if the exchange develops an issues overnight or get hacked overnight and they can't get access to their money again. Many coin owners don't think about it but they peacefully save so much money on centralized exchange. Anyways that is not the case here, I was wondering if centralized exchanges also feels happy seeing that their customers keeps their money on the exchange just as banks are happy to see big customers save big  amount of money in their banks savings account while the bank use the money to do business and get more profit unaware to the saver.

That's not the case here but that's a very important thing for discussion. Sadly, they don't care and one day they'll pay for it (I hope they won't but I think they will). By the way, exchanges are happy when you keep your money in their account because they use that money for different purposes. It feels like they don't touch it and even try to argue that it's saved separately but in reality, they use it to increase liquidation of futures. Wonder how they are able to offer you 100x liquidation? This is the answer. They make tons of money this way, 19 Billion got liquidated just recently and turned into a profit for exchanges. That's how CZ payed $4.3 billion fine to resolve federal criminal charges in the US.

[Coyster]

Centralized exchanges want you to keep your money with them. Most of their promotion/advertisement on how "safe/secure" they are and how much reserve them have, e.g. Safu, is all meant to build trust in their customers, so they can keep their assets in the exchange.

They need you to store your funds with them, because they use customers funds to make more money. Centralized exchanges do not just keep your money for you, they invest it in other stuffs that generates income for them. That said, never keep your assets in any centralized exchange, so many things can go wrong when you do that. There are so many wallets to keep your funds, so why sabotage yourself and use a custodial platform.

[BALIK]

... Anyways that is not the case here, I was wondering if centralized exchanges also feels happy seeing that their customers keeps their money on the exchange just as banks are happy to see big customers save big  amount of money in their banks savings account while the bank use the money to do business and get more profit unaware to the saver.

Yes, they are somewhat the same by CEX using those deposited funds from their users for liquidity and trading volume, as well as those like staking in CEX. The only difference is regulation and protection, banks are usually insured but still have the maximum amount they can offer in case bankruptcy, hack (maybe), etc. While CEX doesn't have this kind of insurance, only those so called "SAFU" in binance, idk about other exchange.

They are not the same. CEX uses deposits from users to create liquidity, trading volume or use them to invest in things to make a profit. Meanwhile, banks use deposits to lend to businesses for business purposes. This is a much safer business model and generates more sustainable revenue than CEX, which only uses deposits as leverage, investing in shady things that we don't know about.

Also, depositing money in banks is much safer because it is guaranteed by the government and central bank. Losing money is very unlikely because central banks would be ready to buy back or act as intermediaries if any commercial bank went bankrupt. That way, depositors of the failed bank will be fully compensated or even be able to continue using the service without any problems. Unlike CEX, the possibility of losing money is very high and FTX or Mt.gox are typical examples.

[Gozie51]

I was wondering if centralized exchanges also feels happy seeing that their customers keeps their money on the exchange just as banks are happy to see big customers save big  amount of money in their banks savings account while the bank use the money to do business and get more profit unaware to the saver.

I think they can also be feeling same way because they are in business as individuals just like those who own banks. To a large extent, they run in the same way. Crypto exchanges have program for lending, they have for staking. For example if you stake your coin, it is used to lend to other customers just like banks borrow money to another customer from the money deposited and they collect interest from it.

To them, they may think they are vividly different from commercial banks, but to us, the users who knows their various capabilities, we don't see any difference, because of KYC and other challenges of using them, because we see them as custodial storages and these are not good for our own safety, except we make use of a decentralized exchange or uses a non custodial storage that gives us control over our coins.

Apart from the obvious reasons of being custodian storage, I believe that they both operate like the same. Banks do KYC when you register with their forms, at a stage you provide guarantor depending on tier or level of account you are opening. They get details of next of kins, addreses and every necessary details before the account gets opened. That's also KYC.

[Zlantann]

They need you to store your funds with them, because they use customers funds to make more money. Centralized exchanges do not just keep your money for you, they invest it in other stuffs that generates income for them. That said, never keep your assets in any centralized exchange, so many things can go wrong when you do that. There are so many wallets to keep your funds, so why sabotage yourself and use a custodial platform.

Exchanges are beginning to offer the same services like commercial banks which are sources of revenue. Exchanges encourage customers to stake or lock up their crypto assets with them and earn some profit. I guess this is similar to fixed deposit in commercial banks. I just did a quick research now and discovered that exchanges now offer lending services just like banks. They could generate lots of income from this service. But the major source of revenue for exchanges are trading and withdrawal fees.

Traders might find it important to keep coins in exchange since they would always move them. But they should only keep a small amount because anything could go wrong. I don't think hodlers have any business with exchanges except if they want to do transactions. The privilege of being your bank shouldn't be relinquished to exchanges.    

[davis196]

I was wondering, despite the risk of keep our money on centralized exchange, so many crypto owners and users still prefer to keep their money on centralized exchange not minding the risk of what if the exchange develops an issues overnight or get hacked overnight and they can't get access to their money again. Many coin owners don't think about it but they peacefully save so much money on centralized exchange. Anyways that is not the case here, I was wondering if centralized exchanges also feels happy seeing that their customers keeps their money on the exchange just as banks are happy to see big customers save big  amount of money in their banks savings account while the bank use the money to do business and get more profit unaware to the saver.

There are two big differences between banks and centralized exchanges.
1.Banks have land based offices, where you could talk directly to a bank clerk. Centralized exchanges have customer support via chat, email and probably phone.
2.Many countries have bank deposit guarantees(or insurance), where the government would repay all bank deposits under 100K USD or 100K euro to the depositors, if the bank goes bankrupt. No government around the world would ever guarantee the value of the crypto inside a crypto exchange in case of bankruptcy. I know that some centralized exchanges have a proof-of-reserve, but I still don't trust them.
CEXs are not safe and it's pointless to keep big amounts of crypto in them, unless you are day trading.

[Sovannar Sangha]

To them, they may think they are vividly different from commercial banks, but to us, the users who knows their various capabilities, we don't see any difference, because of KYC and other challenges of using them, because we see them as custodial storages and these are not good for our own safety, except we make use of a decentralized exchange or uses a non custodial storage that gives us control over our coins.

Apart from the obvious reasons of being custodian storage, I believe that they both operate like the same. Banks do KYC when you register with their forms, at a stage you provide guarantor depending on tier or level of account you are opening. They get details of next of kins, addreses and every necessary details before the account gets opened. That's also KYC.

All activities are also very easy to track, even if we only provide one identity to the bank or stock exchange. In my country, it's called the NIK (National Family Registration Number). With that data, everything is easily connected, including bank books, passports, tax data, and so on.

I think it's crucial to provide data to those who can safeguard it, otherwise they'll sell it to irresponsible parties. For example, when applying for a bank credit card, our personal phone number is leaked, and other parties who call us and offer this and that when we ask if we're a subsidiary of that bank know about it. It's strange, isn't it? There's no specific agreement that allows us to share our number with other providers besides the bank itself.