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Crypto Exchange risk management

Any exchange deals with financial transactions, which means that it must meet certain safety requirements, as well as KYC and AML regulations. Cryptocurrency exchanges do not bear the risk of volatility and other market risks for their owners. However, crypto exchanges have their own specific risks. In this article, we are going to talk about the risks that exist and how to counter them.

Data loss


There is always a risk that all servers will fail and information may be irretrievably lost. There are also risks of data leakage when stored in the cloud on foreign servers.


A digital currency exchange requires a secure backup protocol with data storage in such a location that would be independent of the operation of the exchange servers. Do not put all eggs in one basket, and the data on different carriers to level the risks. It is also important to make backups in advance and update them on a regular basis. This data must be securely encrypted, and access to it must be protected. Backup protocols should be checked from time to time in order to ensure that data can be quickly recovered.

Loss of exchange money or user funds


Serious risks for any cryptocurrency exchange are hacking or unauthorized access to infrastructure and money by hackers, as well as the loss of money as a result of an error. Loss of funds can be a point of no return for the business, so you need to avoid this by all means.


To prevent loss of funds, make sure that the software and infrastructure are protected from vulnerabilities. You must have a security department, and a verification code running on production servers. Programmers should be trained to recognize vulnerabilities. System administrators should monitor the system and track any unusual activity. Ideally, conduct an external security audit. Also, use two-factor authentication for additional protection of user funds.

To cope with the theft of user funds risk, it is necessary to distribute funds between Hot and Cold wallets. Hot wallets should be used for quick depositing and withdrawing. Cold needs to be used for storing the main part of the funds since it is impossible to hack it. It is also worth hiring independent consultants to audit security systems against unauthorized access.

The risks of losing funds and how to prevent them is a broad topic that should be discussed in a single article, which we are planning to publish in the future.

Infrastructure failure


The number of clients is growing, and the infrastructure is not ready for such loads. As a result, there are failures, problems with the withdrawal and trade, the appearance of vulnerabilities that create the risk of theft or loss of money. Among other issues are problems with user security, increased risks of hacking, failure of the exchange during a long time, and serious reputational losses.


To prevent this, carefully plan your scaling strategies and perform simulation tests with high server loads. Therefore, the best time to start is usually a crypto winter when the number of users does not grow very quickly and allows for all kinds of testing.

Zerohub offers a solution called microservice architecture in order to prevent failures in the infrastructure. This algorithm allows making changes to any of the services without affecting the performance of the entire platform. Such a solution increases the level of security and guarantees uninterrupted operation of the platform.

Inability to comply with regulatory requirements


Problems with local and international regulators as well as non-compliance with AML and KYC requirements can lead to site blockages in some countries and serious problems with banks for exchanges accepting Fiat currency.


Cryptocurrency exchange must comply with the laws of the country in which it operates, as well as international standards of control, safety, and investors protection.In particular, the international requirements of AML and KYC must be followed. To operate within the law, the exchange requires manual verification of suspicious transactions, identification of users and compliance with other standards. For most jurisdictions, sanctions are relevant to countries such as North Korea, Iran, Syria, Libya. There are bans on doing business with the representatives of these states. It is also necessary to comply with the tax laws of those jurisdictions in which your platform operates, it should be also licensed if it is provided for by the law of the state in which you work.

Needless to say, this is not a completed list of risks. A large number of risks is hidden when dealing with liquidity, balance management, and integration with third-party services. Nobody cancels the human factor even in such a high-tech business.

We will try to gradually highlight most of the risks and opportunities to prevent them by posting relevant articles in our blog. Write in the comments on the medium or in social networks about the risks that should be discussed more detailed in the nearest future.

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