Digital illustration of a collapsing skyscraper with interconnected structures rising around it, symbolizing the shift in trust from centralized to decentralized exchanges after the FTX collapse.

Crypto's Trust Crisis: How Exchange Failures are Shaping the Future of Finance

Beau Callahan in Tech & Innovation December 2025 • 4 min read.

"A look at how the FTX collapse has impacted user trust, market behavior, and the shift towards decentralized exchanges."

The world of cryptocurrency is constantly changing, and trust is a really important factor in how people act in the market. It affects which exchanges people prefer to use, whether they are centralized exchanges (CEXs) or decentralized exchanges (DEXs). It's hard to measure trust, which makes it difficult to understand how it affects the market.

The collapse of FTX, a major centralized exchange, gave researchers a chance to study how trust and its sudden loss can impact the cryptocurrency world. This event raised questions about how reliable centralized trust systems are and sped up the move towards decentralized options. So, how did the FTX collapse affect user trust, and what does this mean for the future of crypto?

This article looks into how the FTX collapse has impacted user trust, focusing on how tokens are valued, how trading is done, and how people are feeling. It uses methods to understand cause-and-effect relationships, like Regression Discontinuity Design (RDD) and Difference-in-Differences (DID), to show that there have been significant drops in the prices of certain tokens and shifts in trading from CEXs to DEXs, which indicates a transfer of trust.

Centralized vs. Decentralized: Understanding the Shift in Cryptocurrency Exchanges

Digital illustration of a collapsing skyscraper with interconnected structures rising around it, symbolizing the shift in trust from centralized to decentralized exchanges after the FTX collapse.

Cryptocurrency exchanges can be divided into two main types: centralized exchanges (CEXs) and decentralized exchanges (DEXs). CEXs are run by a central organization, which means users have to trust the exchange with their assets in a shared wallet. Transactions on CEXs happen off the blockchain, and the exchange is responsible for managing trades. Trust in CEXs is based on things like reputation, user base, and endorsements.

DEXs, on the other hand, use smart contracts or peer-to-peer networks for trading, which means users don't have to hand over control of their assets. The rules for transactions are pre-set and automated. While this gets rid of some traditional trust issues, it also brings new challenges like technical complexity, lack of regulation, and security threats, including the possibility of market manipulation.

Token Valuation: The research found significant declines in the prices of certain tokens (WETH) after the FTX collapse. This suggests that the loss of trust in centralized exchanges had a direct impact on the perceived value of these digital assets.
Trading Flows: There was a noticeable shift in trading activity from CEXs to DEXs. This indicates that users were moving their assets to decentralized platforms they considered more trustworthy after the FTX event.
User Sentiment: Analyzing discussions in crypto communities revealed a change in user sentiment. In Binance's community, discussions shifted from functional topics to more emotional and fragmented ones. Uniswap's community, however, showed a gradual upward trend in positive sentiment.

These findings highlight the complex relationship between trust, sentiment, and market behavior in the cryptocurrency world. The FTX collapse served as a catalyst for users to re-evaluate where they place their trust, leading to measurable changes in token valuation, trading patterns, and online discussions.

The Future of Trust in Crypto

The research underscores the importance of trust as a key factor shaping the digital economy, especially in the cryptocurrency space. As the industry continues to evolve, understanding these dynamics will be crucial for fostering the growth of decentralized finance and ensuring the stability of the market. By bridging blockchain analytics, behavioral finance, and decentralized finance, this study contributes to a deeper understanding of distributed trust mechanisms and provides critical insights for future investigations into the socio-technical dimensions of trust in digital economies.

About this Article -

This article was crafted using a human-AI hybrid and collaborative approach. AI assisted our team with initial drafting, research insights, identifying key questions, and image generation. Our human editors guided topic selection, defined the angle, structured the content, ensured factual accuracy and relevance, refined the tone, and conducted thorough editing to deliver helpful, high-quality information.See our About page for more information.

This article is based on research published under:

DOI-LINK: https://doi.org/10.48550/arXiv.2404.17227,

Title: Trust Dynamics And Market Behavior In Cryptocurrency: A Comparative Study Of Centralized And Decentralized Exchanges

Subject: econ.gn cs.ce cs.cr cs.cy q-fin.ec q-fin.rm

Authors: Xintong Wu, Wanlin Deng, Yutong Quan, Luyao Zhang

Published: 26-04-2024

Everything You Need To Know

What happened to the price of tokens like WETH after the FTX collapse, and what does this suggest?

Following the FTX collapse, the prices of certain tokens, specifically including WETH, experienced significant declines. This drop in token valuation indicates a direct impact of the loss of trust in centralized exchanges on the perceived value of digital assets. This suggests that the market participants reassessed the value of tokens associated with exchanges that were perceived as risky or untrustworthy after FTX's failure. The price decline reflects a broader market reaction, where investors may have sold these tokens, anticipating further losses or seeking safer investments.

How did the FTX collapse influence the trading behavior in the crypto market, and what does it tell us about user trust?

The FTX collapse triggered a noticeable shift in trading activity from Centralized Exchanges (CEXs) to Decentralized Exchanges (DEXs). This migration indicates a transfer of trust, with users moving their assets to platforms they perceived as more reliable. DEXs, which operate on smart contracts, allow users to retain control of their assets, reducing the need to trust a central authority. This shift suggests that users prioritized the security and transparency offered by DEXs, leading to decreased trading volume and potentially impacting the profitability of CEXs. The implications are far reaching, suggesting that the market favors exchanges that prioritize self-custody and reduce counterparty risk.

What are the main differences between Centralized Exchanges (CEXs) and Decentralized Exchanges (DEXs), and how does trust play a role in their usage?

Centralized Exchanges (CEXs) are operated by a central organization, requiring users to trust the exchange with their assets. Transactions occur off-blockchain, and the exchange manages trades, relying on factors like reputation, user base, and endorsements. Decentralized Exchanges (DEXs) use smart contracts or peer-to-peer networks for trading, enabling users to retain control of their assets. This eliminates the need to trust a central authority, but introduces new challenges, such as technical complexity, regulatory uncertainties, and security risks, including the possibility of market manipulation. The FTX collapse highlighted the risks associated with CEXs, accelerating the shift towards DEXs, where trust is distributed across a network rather than concentrated in a single entity.

How did user sentiment change in different crypto communities following the FTX collapse, and what can we learn from these shifts?

Analyzing discussions in crypto communities reveals a change in user sentiment post-FTX collapse. In Binance's community, discussions shifted from functional topics to more emotional and fragmented ones, reflecting a possible loss of confidence or frustration. In contrast, Uniswap's community showed a gradual upward trend in positive sentiment. These differences highlight that community sentiment can vary based on the exchange's operations and the users' experiences. The shift in sentiment reflects the community's reactions to events and the impact on trust. The differences in sentiment suggest that community behavior is heavily influenced by the perceived stability, transparency, and security of the respective platforms.

Why is trust so important in the cryptocurrency space, and how does the collapse of FTX highlight its significance?

Trust is a crucial factor shaping the cryptocurrency market, influencing user preference, trading behavior, and token valuation. The FTX collapse underscored the importance of trust by demonstrating the immediate impact of its loss on token prices, trading flows, and user sentiment. The collapse exposed vulnerabilities within centralized exchanges, such as the risk of mismanagement, lack of transparency, and potential for fraud. This event acted as a catalyst, forcing users to re-evaluate where they place their trust. The shift towards decentralized exchanges and the change in user sentiment underscore the need for transparency, security, and reliability in the cryptocurrency ecosystem. As the industry evolves, understanding these dynamics is crucial for fostering the growth of decentralized finance and ensuring market stability.