As Coordinated Sell-Offs Strike Altcoins, How Do Exchanges Respond?

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Still, the market itself has been slow to address the root cause, instead blaming the activities of malicious actors, whales or technical mistakes for sudden swings and substantial mispricings that regularly arise between exchanges.

Following a coordinated XRP selloff on the recently launched Beaxy Exchange, crypto advocates must once again come to the defense of an industry that has inadequately addressed security, manipulative behavior, and most importantly, poor liquidity.

Addressing the imbalancesFar from Satoshi Nakamoto's vision of a decentralized environment for transferring data, centralized cryptocurrency exchanges have been controversial, to say the least.

Unlike the Wild West mentality that pervades global cryptocurrency exchanges, stocks traded on United States exchanges have built-in safeguards designed to protect investors from irregular market behavior and to limit volatility.

The "Specialists" operating in the trading pits of the New York Stock Exchange act as market makers to add liquidity while maintaining an orderly flow of prices and trade execution.

Building advanced liquidity strategies is difficult in such a fragmented marketplace, wherein each exchange likely acts as its own principal market maker for a variety of different listed assets.

While some exchanges are fighting back against these types of situations by implementing better Know Your Customer practices and technologies designed to identify aberrant behavior akin to the Smarts Trade Surveillance system, they are more the exception than the rule.

The efforts undertaken by many exchanges to inflate trading volumes to raise their CoinMarketCap ranking remains a problem of epidemic proportions.

"Crypto exchanges are not regulated like typical security exchanges and this exposes market participants to all types of manipulation. We believe there should be rule books and exchanges should work hand in hand with regulators to be fully compliant. Currently, a lot of exchanges are benefiting from regulatory arbitrage, partly because regulations are just starting to catch up with blockchain."

The conditions for sharp sell-offs in altcoins across less thorough exchanges remain omnipresent, and even their larger, most established peers face similar threats.

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