When you use centralized exchanges, you are exposed to custodial risk. Custodial risk is the risk you take when you allow someone to have control of the private keys to your funds. Centralized exchanges have three main risks:

  1. The exchange gets hacked.

  2. The exchange runs away with your funds (an “exit scam”).

  3. A regulatory crackdown causes your funds to be frozen or unaccessible.

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