In the previous blog, we have initially introduced many highlights of the Bitly Exchange. Today, let’s conduct a detailed discussion on the first point regarding security. By comparing the insecure cases of centralized exchanges and analyzing the existing problems of AMM exchanges, we will clearly demonstrate why our CLOB-DEX (the model adopted by the Bitly Exchange) stands out in terms of security.
I. Insecure Examples of Centralized Exchanges
Centralized exchanges have repeatedly exposed serious security issues, causing huge losses to users.
For example, Mt. Gox, once one of the world’s largest Bitcoin trading platforms, was hacked in 2014, resulting in the loss of approximately 850,000 Bitcoins, worth hundreds of millions of dollars. In 2022, FTX collapsed due to poor internal management and misappropriation of funds. The improper actions of its founder led to the disappearance of billions of dollars of customer funds. Binance, a giant in the industry, was attacked by hackers using phishing and virus attacks in 2019. The hackers stole user information and took away 7,074 Bitcoins from the hot wallet, worth over $40 million. In 2020, KuCoin was robbed, with various cryptocurrencies being stolen, totaling approximately $281 million. Although part of the funds was recovered, it still caused significant losses. Bithumb in South Korea has been repeatedly hacked since 2017, suffering heavy losses. In July 2024, the WazirX exchange in India suffered a major wallet vulnerability attack, with over $230 million worth of cryptocurrency assets being transferred without authorization. The BitGrail exchange in Italy had 120 million euros stolen from its platform, and its person in charge faced multiple charges. Poloniex has even suffered two serious security vulnerability attacks, with approximately $126 million being stolen in the November 2023 attack.
These cases fully illustrate that due to the flaws in their own architectures and management models, centralized exchanges have numerous hidden security risks, and users’ assets may be at risk at any time.
II. Current Problems of AMM Exchanges
Although AMM (Automated Market Maker) exchanges also occupy a place in the field of cryptocurrency trading, they also face some problems that cannot be ignored.
Firstly, the price discovery mechanism of AMM exchanges has certain limitations. Since it relies on algorithms and liquidity pools to determine asset prices, when the market fluctuates significantly, the price may deviate significantly and fail to accurately reflect the real market supply and demand relationship. This may cause traders to make wrong decisions during trading due to inaccurate price information, resulting in losses.
Secondly, the impermanent loss problem of AMM exchanges has always been a headache for traders and developers. When liquidity providers add funds to the liquidity pool, if the asset price changes, impermanent losses will occur. This kind of loss is not caused by the profit or loss of the transaction itself but by the change in the proportion of assets in the liquidity pool. For liquidity providers, impermanent losses may offset the trading fee income they originally expected to obtain, or even lead to a loss of principal, which significantly affects the enthusiasm of users to participate in providing liquidity.
In addition, although the listing process of AMM exchanges is relatively simple, it also has some risks. Due to the lack of a strict project review mechanism, some bad projects may take the opportunity to sneak in, bringing potential risks to investors. Moreover, in terms of adding initial liquidity, liquidity providers are required to add a considerable amount of stablecoins as initial liquidity, which is undoubtedly a high threshold for some small investors or developers, restricting the listing and development of projects.
III. Why Our CLOB-DEX Is Safer
Unlike the above-mentioned centralized exchanges and AMM exchanges with numerous problems, our CLOB-DEX (Bitly Exchange) has adopted a series of innovative and rigorous measures in terms of security to ensure the safety of users’ assets and the reliability of transactions.
On the one hand, given that the gas fee is getting cheaper, we take full advantage of this and implement the deposit and withdrawal of tokens, order book matching logic, and the entire trading logic completely through smart contracts. A smart contract is a computer program that automatically executes the terms of a contract based on blockchain technology. It is characterized by being immutable, transparent, and traceable. Every transaction leaves a clear record on the blockchain, and no one can falsify it. This means that neither the internal staff of the exchange nor external hackers have the opportunity to tamper with transactions or misappropriate users’ assets. For example, when a user conducts a token deposit or withdrawal operation, the smart contract will execute automatically according to the preset rules, ensuring the accurate flow of funds, and the entire process can be checked and supervised by the user at any time.
On the other hand, we will create an independent contract for each token to handle the trading logic, ensuring that the trading of each token is independent. The advantage of this design is that even if an abnormal situation occurs in the trading of a certain token, it will not affect the normal trading of other tokens. It’s like in an apartment, each room has an independent lock and security system. Even if there is a problem in one room, it will not affect the safety of other rooms. This further enhances the stability and security of the entire trading system. Moreover, our CLOB-DEX model abandons the practice of centralized exchanges of storing users’ assets centrally. Instead, it allows users to interact with smart contracts through their own wallets to manage and trade assets. This is equivalent to returning the control of assets to the users themselves, reducing the risk of users’ assets being lost due to the exchange server being breached.
In conclusion, by comparing the insecure cases of centralized exchanges and analyzing the existing problems of AMM exchanges, we can clearly see the outstanding advantages of our CLOB-DEX (Bitly Exchange) in terms of security. We are committed to providing users with a safe, reliable, and transparent trading environment so that users can conduct cryptocurrency trading on our platform with confidence.
We hope that through this blog post, everyone can have a more in-depth understanding of the security of our Bitly Exchange and better understand why we stand out among numerous exchanges.
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