Introducing SafeCEX Club
Always use POR-tection
3 min read
TL;DR centralized exchanges (CEXes) are a necessary evil before we move to a completely decentralized financial system. Until then users can check out safecex.club for a detailed and up-to-date analysis of their CEX's solvency.
With the effects of FTX's bankruptcy still rippling through the crypto industry, centralized exchanges (CEXes) are rushing to signal to their customers that such a scandal could never occur within their platform.
This is generally speaking a good thing - retail is (again) reminded of the fact that giving up custody of their crypto doesn't come without certain risks. CEXes ultimately have to cater to their customers, and thus the logical conclusion is to provide them with some form of evidence to assure users that funds are SAFU.
However, CEXes are smart and Proof of Reserves (PORs) come in many different shapes and prices. Therefore, CEXes are always tempted to pick a cheap, non-intrusive, POR method that might look like it proves solvency but in reality, is just another empty promise.
Examples of these smoke & mirrors PORs are
Merkle Tree proofs that are not open source
Reserves statements without public wallet addresses ("trust us, bro")
Signatures that prove ownership are only disclosed to auditors
We at SafeCEX Club cut right through the BS. We gather all POR reports and rate them with a Solvency Score based on quality and recency. Empty promises or lack of transparency will get you exactly what you deserve: a low score, a place at the bottom of the list, and no SafeCEX club membership.
The following true/false statements are used to generate a score from 0-100:
✅ The Merkle tree proof is available and verifiable online for all CEX users (10 pts)
✅ The Merkle tree proof is open source and can be verified locally (40 pts)
✅ The CEX's on-chain wallet addresses have been made public (30 pts)
✅ The CEX's on-chain wallet addresses' ownership has been confirmed by a third-party auditor (10 pts)
✅ The CEX's on-chain wallet addresses' ownership has been proven publicly by signing a custom message on-chain (10 pts)
(As you can see we apply heavier weights to hard, verifiable data while also still taking into account information that requires some form of trust in third parties such as auditors)
We then add a time coefficient to correct for the "freshness" of the score
$$Solvency = points*0.998^d$$
Where 𝑑 = days since the release of the POR.
We then rank all CEXes based on this score and award them with a membership tier:
85+ 💎 Diamond Tier
70+ 🟡 Gold Tier
50+ ⚪ Silver Tier
<50 = no membership
This kills two birds with one stone: users will make better-informed decisions on where to deposit their crypto, while CEXes are incentivized to compete with one another to perform more frequent and higher-quality PORs.
Let's make crypto safer - together
At the SafeCEX Club, we are dedicated to providing you with the most comprehensive and up-to-date insights on CEXes, their solvency and anything else related to crypto custody.
While we are constantly updating our list of CEXes, we will also make an effort through our social media channels to call out exchanges and push them towards higher levels of transparency.
If you like what we do, please feel free to reach out to us and tell us how we can be even better.