Who controls your assets?

Crypto assets are rapidly gaining mainstream attention, but the core question of "whether you truly own your assets" remains largely ignored by most users. The rise of Web3 is challenging traditional custody logic and exchange power structures with its trustless technological architecture.

When you see a digital balance on an exchange app, does it really belong to you?
Despite the increasing prevalence of on-chain assets, most users still entrust their digital assets to centralized exchanges (CEXs). However, following the FTX incident, the market began to realize that account balances do not equate to asset ownership. Superficial trading convenience may conceal opaque matching logic, extremely centralized control, and even systemic distrust structures.

This article will delve into the operational mechanisms of centralized exchanges, revealing the structural risks that are easily overlooked, and explore how "user control" based on Web3 can become the underlying consensus of the next-generation financial system.

(Image caption) FTX went bankrupt in 2022, becoming one of the largest centralized exchange crashes in crypto history. User account balances did not correspond to actual on-chain assets, revealing a fundamental discrepancy between "asset ownership" and "exchange database figures." This event became a real-world example of "whoever controls the private keys, is the owner."

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The "casino effect" in contract trading: You reveal your hand, the platform controls the game.

Centralized exchanges' contract trading is not based on true market matching, but rather on an "internal system" running through the platform's own matching engine:

User orders, stop-loss orders, and leverage information are completely transparent to the platform.
High leverage combined with sudden price spikes can easily trigger a margin call.
When nearing the point of liquidation, common obstacles include "inability to cancel orders" and "system malfunction."
Even if you place a low-priced order, it may not be executed due to a lack of liquidity.

In this structure, users are as if they have entered a casino operated by the platform with their cards in hand; liquidation is no longer a risky event, but a predictable outcome.

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Fake Transactions and the "Trading Volume Dilemma": The Illusion of Data

Wash trading is still prevalent on many exchanges:

• Using one's own account to create fake transactions
• Boost trading pair data to attract new users
• Artificially inflating the project's market value and popularity ranking

Without on-chain verification and external auditing, users are almost unable to distinguish between genuine and fake transactions, thus making incorrect decisions.

(Image caption) Mt. Gox once handled over 70% of global Bitcoin transactions, but collapsed in 2014 due to funding gaps and security vulnerabilities. Many users were unable to withdraw their funds, and their assets were frozen for extended periods. This case served as an early warning of the risks associated with centralized custody.

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The blurred boundaries of the order-grabbing mechanism: you place an order, they act first.

The term "Front-running" refers to a platform executing a transaction in the same direction for itself or an associated account in advance after receiving a user's order.

Within centralized exchanges, the platform acts as both a matchmaker and a market participant.
• Order execution time and sequence cannot be publicly verified.
• Users' transaction behavior becomes a source of exploitable "intelligence".

In contrast, while DeFi also suffers from the MEV problem, its transaction process is entirely recorded on-chain, making it auditable, monitorable, and controllable.

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Project teams are being "harvested": Listing on tokens ≠ Fair market

For startup teams, the "listing process" of centralized exchanges has gradually evolved into:

• High listing fees (ranging from hundreds of thousands to millions of US dollars)
• Includes liquidity market-making requirements, lock-up clauses, and KPI assessments.
• Slightly weak liquidity poses the risk of being "dumped immediately upon listing".

This often forces early-stage projects to enter a highly commercialized arena before a market consensus is reached, obscuring their value and holding their development hostage.

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The "book illusion" of user assets: Who controls the private key is the true owner.

The FTX incident has thoroughly revealed a core fact in the industry:

The balance that users see in a transaction is not equivalent to actually holding on-chain assets; it is merely a string of numbers in the exchange's database.

Once a platform uses user assets for internal financing, lending, market making, or even as collateral or transfer, the user is completely unaware of it and has no right to claim anything.

This is precisely the structural risk of "insider theft" – there is no transparent mechanism, no independent supervision, and everything depends on trust rather than institutional and technological safeguards.

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Withdrawal obstacles and platform collapses: the starting point of a disaster cycle

Historically, crashes on multiple platforms, including Mt. Gox, QuadrigaCX, and FTX, all stemmed from the same core trigger:

Users want to withdraw their funds → The platform delays the process, citing reasons such as system maintenance or network congestion.
• In reality, the funds have been misappropriated or embezzled.
• End-user assets vanished.

You don't own assets if you don't own the private key.

This is the most important underlying principle in the blockchain world.

(Image caption) The matching engine of centralized exchanges is entirely controlled by the platform. Users' stop-loss prices, leverage ratios, and position directions are completely transparent to the platform. When the market experiences sharp fluctuations (such as price spikes), the liquidation mechanism may be triggered rapidly, leading to a chain of liquidations.

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Low barriers to entry: Those with complex structures control the wallets of ordinary users.

Centralized exchanges often involve billions of dollars, but their entry requirements are not as stringent as those in the banking system.

Many operators lack financial licenses or securities compliance experience.
• Technology-driven operations, with lagging or absent compliance.
• Lack of industry self-regulation or transparency reporting mechanisms

Compared to the stringent auditing processes and licensing requirements of traditional financial institutions, the personnel structure and risk control of some CEXs are clearly lagging behind.

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Web3 Solution: Rebuilding the Infrastructure for User Sovereignty

Web3 is not "against exchanges," but rather against the opaque, centralized, and conflict-of-interest structure of exchanges.

True DeFi and order book-based decentralized exchange systems can achieve the following:

• Users retain control of their private keys, and self-custodied wallets maintain control over their assets.
• All transactions are recorded on the blockchain, verifiable, and tamper-proof.
• The matching/clearing logic is public, auditable, and based on smart contracts.
• Project launches are not dependent on platform business negotiations, but rather driven by community consensus.

In the Web3 architecture, the platform is a service provider, not a ruler.

(Image caption) On-chain transactions can be publicly queried through blockchain explorers. Each transaction includes a timestamp, transaction hash, and block height, making it available for auditing and verification. This transparency mechanism forms the core foundation of the Web3 trustless architecture.

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The only legitimate reason for centralized exchanges: a gateway to fiat currency.

Even so, centralized exchanges still have significance in the current system, mainly as channels for fiat currency deposits and withdrawals (OTC bridges).

Users purchase crypto assets with fiat currency
• A convenient entry point for novice users to enter the market
• Drive traffic to the Web3 ecosystem within a compliance framework

However, once the assets are in hand, transferring them to a decentralized self-custodied wallet is a basic operation that every user should perform.

(Image caption) Hardware wallets provide an offline private key storage mechanism, allowing users to manage their assets independently without relying on centralized custody. This self-custodial structure represents the return of asset control to the individual and is one of the infrastructures of Web3 sovereign finance.

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In the Web3 era, trust should no longer be built on "trusting others".

In the deep waters of financial digitalization, the security of assets should not be "promised" by the platform, but "proven" by technology.

GFM calls on every digital asset participant:
Understand the meaning of private keys, and understand the value of true control.

(Image caption) Decentralized exchanges (DEXs) execute matching and clearing through smart contracts. Users interact directly with the contracts using self-custodied wallets, and all transactions are publicly verifiable on the blockchain, reducing the risks of information asymmetry and conflicts of interest.

In decentralized finance, transparency equals security, and sovereignty equals freedom.

The future is not about "platforms giving you peace of mind," but about you having full rights and responsibilities over your own assets.

Choosing the right function and positioning for centralized exchanges, and actively embracing decentralized exchanges and decentralized asset custody tools, is the best way for every digital citizen to protect themselves.