Centralized exchange, or CEX, is considered as the first choice of many investors when entering the cryptocurrency market because of its features, ease, and high liquidity. However, contrary to popular assumption, running an exchange is not an easy job and CEX is much more "fragile" than people realize. This is demonstrated by the enormous number of Centralized exchanges that have failed spectacularly over the past decade due to security flaws or simply bad management.

Let’s look at the most notorious CEX scandals in the history of crypto through this article.

Thodex

Thodex is a crypto exchange based in Turkey that was established in 2017, with a scale of more than 390 thousand users as of the end time. In April 2021, Thodex suddenly went offline to the surprise of 391,000 platform users. The exchange then halted withdrawals citing a technical glitch, then blamed it on cyberattacks. However, shortly after, Turkish authorities reported that Ozer and his accomplices had fled to Albania with more than $2.6 billion of investors.

Turkish authorities have stated that they have evidence of crypto asset transfers from Thodex wallets to bank accounts controlled by the Özer family. In addition, Faruk Fatih zer was accused of exploiting banks and credit unions and information systems to fund a criminal enterprise. Ozer was detained in Albania in September 2022 and now faces 40,564 years in jail.

QuadrigaCX

One of the strangest thefts in the history of cryptocurrency was QuadrigaCX. The Canadian exchange claimed that it was unable to access any of the frozen wallets thought to be holding customer assets after the founder's unexpected death in December 2018. Six cold wallets were found to belong to QuadrigaCX when investigators started looking into the company's financial position. However, it was eventually discovered that five of them perished in or around April 2018. Recent investigations have revealed that the company's "fraud" was responsible for a significant amount of QuadrigaCX's losses. This exchange and Cotten run like a Ponzi scam. Gerald Cotten used a deposit from one client to cover a withdrawal from a different client. Recent figures from the Ontario Securities Commission show that the exchange owes more than 76,000 customers total assets of $215 million, but Ernst & Young, the bankruptcy trustee, has only so far recovered or officially approximately $46 million in assets to pay customers.

MtGox

MtGox, the Tokyo-based exchange is the most famous of the “grounded” crypto exchanges, which stands for Magic The Gathering Online eXchange. Founded by Jed McCaleb in July 2010 and sold to Mark Karpelès on March 6, 2011. Initially, MtGox was merely a card exchange before entering the cryptocurrency space. At its peak, MtGox processed about 70% of all bitcoin transactions. And its demise started in February 2014, when the company stopped trading, shut down its website, and applied for bankruptcy protection after 850,000 Bitcoins, now worth US$450 million, vanished from customer assets as a result of cyber attacks. Japanese authorities have detained CEO Mark Karpelès a few times. In March 2019, he was sentenced to 30 months in prison by a Tokyo court, but he was subsequently given a suspended sentence for four years. Most of the money has yet to be refunded to the customer.

FTX

FTX used to be one of the largest exchanges in the world before filing for bankruptcy in November 2022. The exchange is operated by Sam Bankman-Fried and is headquartered in the Bahamas. It has spent millions of dollars lobbying US lawmakers to introduce crypto-friendly sanctions.

On November 2, cryptocurrency news site CoinDesk reported on a leaked document showing that Alameda Research, a hedge fund run by Bankman-Fried, held an unusually large amount of FTT tokens - native token of FTX exchange. FTX and Alameda are literally two separate businesses, but the research claims that their finances are intertwined.

Changpeng Zhao, the founder and director of Binance and the company that has invested the most in FTX, stated that he would liquidate all of his holdings in FTX, including the FTT coins. This led to unhappiness among investors, a sharp drop in the value of FTT tokens, and a significant inflow of cash out of the FTX exchange. FTX had to halt withdrawals as the liquidity strain reached its apex. Sam Bankman-Fried, CEO of FTX, attempted to remedy the liquidity problem and restore money to users by raising financing, but he was unable. Sam Bankman-Fried left FTX when it declared bankruptcy on November 11, 2022, and the company finally failed alongside roughly 130 other linked businesses.

Is it safe to store your assets on CEX?

The truth has unmistakably shown that "exchanges are safe locations," contrary to the ignorant public notion, is not true. The phrase "Not your key, not your money" (Not your key, not your money) has long been propagated by the community of seasoned investors with the idea that every investor should give priority to storing assets in personal wallets rather than on centralized exchanges to prevent needless losses. 3S Wallet is a multichain wallet application that is currently trusted by many investors thanks to its high security, multichain support, and user-friendly and customizable interface.

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