What can CEXs do to rebuild trust after the FTX crash?

cointelegraph.com:

The rapid collapse of FTX, once the world’s second-largest crypto exchange, followed by the collapse of Celsius, has undermined trust in centralized crypto services. The industry’s short history has shown that hacking attacks and fund misappropriation are the two leading causes behind centralized crypto exchanges (CEXs) crashing or losing clients.

If FTX represents the worst example of fund misappropriation, Mt. Gox — a Japan-based crypto exchange that accounted for over 70% of all crypto transactions at its peak in 2014 — is the worst example of how a hacking attack can lead to failure.

While CEXs have played a key role in crypto adoption, the ongoing trust crisis doesn’t bode well for the crypto industry. The fear of becoming the next victim of a CEX failure has prompted many investors to consider decentralized exchanges (DEXs). The DEX vs. CEX inflow ratio reached an all-time high, at over 60%, shortly after FTX went bankrupt in November 2022, according to Chainalysis.

Source: Chainalysis

CEXs have the urgent task ahead of them to rebuild trust, and the main focus should be on fund misappropriation. While the crypto industry is still plagued by hacking attacks, their impact is usually limited and contained. Despite 2022 being the worst year when it comes to crypto hacking, the value of crypto stolen from CEXs fell significantly compared to 2016–2020. Over 80% of crypto funds stolen by hackers in 2022 were actually linked to decentralized finance (DeFi) protocols, with cross-chain bridges being the most vulnerable point. 

Trust has been one of the key pillars of blockchain as a concept. Its decentralized nature was meant to make transparency inherent to all processes. Some CEXs can, at times, become ignorant of their