Investors' trust in CEXs drops sharply

TLDR

Investor confidence in centralized exchanges has fallen sharply, but trading still relies heavily on them while users quietly change how and where they hold assets.

1. A recent survey shows about two thirds of crypto investors report reduced trust in CEXs, driven by hacks, collapses, and regulatory intervention risk.
2. Users are reacting by moving coins off exchanges and using DeFi and self-custody more, even as big CEXs continue to dominate trading volumes.
3. The next phase depends on how exchanges and regulators respond, including proof-of-reserves, stronger custody rules, and the rise of regulated custodians and high volume DEXs.

Deep Dive

1. What The Trust Drop Actually Shows

A 2025 survey of 375 investors found that 45 percent trust centralized exchanges less than they did in 2022, with another 20 percent reporting a slight decrease, meaning 65 percent feel less confident overall, while only 16 percent saw improved trust and 19 percent no change survey data.

Respondents cited security breaches and exchange collapses like FTX as top reasons, followed closely by regulatory restrictions that can force platforms to freeze accounts or halt withdrawals, raising doubts about actual asset control.

2. How Users Are Changing Behavior

The same research notes investors increasingly spread assets across multiple venues, reduce custodial balances, and make more use of DeFi protocols and non-custodial wallets instead of leaving funds parked on a single exchange behavioral shifts.

On-chain, Ethereum (ETH) illustrates this: only about 11 percent of ETH supply now sits on exchanges, down from roughly 32 percent in 2023, as holders move coins into private or long term storage, tightening liquid supply on CEXs ETH outflows.

At the same time, derivatives analytics show huge liquidation clusters on centralized venues for BTC and ETH, where a relatively small price move can trigger close to 2 billion dollars in forced liquidations, underlining ongoing reliance on CEX leverage despite lower trust liquidation map.

3. What To Watch Next For CEXs

CEXs still dominate volumes: Binance alone handled about 4.9 trillion dollars of derivatives volume in Q1 2026 and roughly a third of top ten spot trading, while perpetual DEXs like Hyperliquid are only just entering the top tier but are growing fast market structure shift.

To rebuild trust, major platforms are pushing proof-of-reserves, higher security, and clearer governance, and regulators are approving federally supervised crypto custodians, such as Coinbases conditional national trust charter from the US OCC, aimed at institutional-grade, rule-bound custody charter approval.

If these efforts lag, users may keep migrating balances off exchanges, pushing more activity into self-custody and high volume DEXs, which could both reduce custodial risk and increase on-chain complexity and smart-contract risk.

Conclusion

Confidence in centralized exchanges has been structurally damaged by hacks, collapses, and regulatory clampdowns, even though they remain central to trading and leverage.

The balance of power over the next few years will likely hinge on whether leading CEXs and regulators can deliver credible, transparent custody and risk controls before user behavior and DeFi infrastructure shift too much liquidity away from traditional exchange models.