Centralized risk describes vulnerabilities inherent in systems where control or data processing resides with a single entity or a small group. In the digital asset space, this typically applies to exchanges, custodians, or protocols that rely on a central authority for operations, security, or governance. Such concentration creates single points of failure, making the system susceptible to operational disruptions, security breaches, or malicious actions by the controlling party. The potential for censorship, data manipulation, or service denial increases proportionally with the degree of centralization.
Context
Debates around centralized risk are prominent in cryptocurrency news, particularly concerning the trade-off between user convenience offered by centralized platforms and the security advantages of decentralized alternatives. Recent events involving platform insolvencies or regulatory actions against specific entities frequently highlight the consequences of concentrated control over user funds and data. The ongoing evolution of decentralized finance (DeFi) seeks to mitigate these risks by distributing power and operational control across a wider network of participants.
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