![]() We find ourselves saying this a lot, but it is an almost-universally relevant principle to keep in mind in web3: if it seems too good to be true, it probably is. No-strings-attached free money is usually a sign of a scam. Whilst many legitimate CEXs offer rewards for using their platform, it is rarely without conditions: it's more commonly a reward for completing a certain number of transactions, or for just becoming more heavily involved in the platform through deposits or similar. Other promises could include sign-up bonuses, such as free crypto. Like many scams in web3, fake exchanges operate with a model that lures users with the promises of better-than-average (or, often, spectacularly better than average) returns on investments. The collapse of FTX in late 2022, a CEX widely lauded as one of the most trustworthy, demonstrates why you should retain a healthy scepticism towards CEXs and look into self-custody solutions to minimize your exposure to the risk of centralization. Due to their almost complete reliance on code, they are extremely vulnerable to exploits - if a talented hacker can find one and leverage it to their benefit.ĬEXs also vary in their trustworthiness, but since this is a subjective label determined by individuals' experiences and opinions, most discussion is moot. None of this is to say that DEXs are fundamentally safer than CEXs. Let's take a look at how these scams are usually structured. Since their order is off chain, the user can't track its progress transparently, and instead has to trust that it is being processed and that they will receive the funds they were promised.Īnd wherever trust is necessary, it can be exploited. Whereas DEXs conduct the entirety of every trade on chain, CEXs usually store their order books - the ledger where trades are recorded - off chain. One of the places where web3 participants are at their most vulnerable is centralized exchanges (CEXs).Īs opposed to decentralized exchanges (DEXs), where one party directly exchanges their tokens with another party according to smart contracts (code), CEXs need their customers' trust due to them taking custody of their funds for at least part of the order process. Scammers will always try to get as close to you and your funds - whether in crypto or fiat - as they can.
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