Interpreting the Endgame of the Trading Track through ApeX Pro: Merkle Tree or DEX, which is the optimal solution for secure trading?

Author: ApeX Pro

The Gamers in the Trading Arena, the Security Risks of Centralization

In the cryptocurrency market, trading is undoubtedly the most fundamental business need for users, and exchanges serve as the foundational application infrastructure and the most basic aggregation tool for cryptocurrency trading. This sector is filled with various trading products and protocols, with centralized exchanges seemingly being the primary choice for most users. However, the security issues continuously exposed by centralized exchanges have gradually become the biggest risk for users in choosing them.

In 2022, the total trading volume of the top 10 centralized exchanges reached $40.87 trillion, a decline of over 50% compared to 2021. The top three exchanges, FTX, went bankrupt within ten days due to the revelation of misappropriating user funds and potential financial liabilities, leading to a crisis of trust in centralized trading platforms. Moreover, in 2022, a series of explosive events involving centralized institutions occurred, including the collapse of Terra and the bankruptcy liquidation of Three Arrows Capital (3AC).

The recurring asset security issues in the crypto market have undoubtedly become the biggest warning for users. As the main players in the trading arena, the security risks of centralized platforms have become the greatest bottleneck hindering user choices. For users, the way centralized exchanges hold their assets and control trading data can no longer be trusted.

CEX Public Merkle Tree Proof, Can It Prove Its Asset Reserves?

With the occurrence of the FTX incident, major leading exchanges have begun to use public Merkle Tree (Merkle Tree Proof) reserve proofs to allow users to verify their asset reserves, thereby proving that user assets have not been misappropriated. But can this serve as a way for CEX to validate its asset security? Let's interpret the proof principle of the Merkle Tree.

The Merkle Tree, invented in 1979, is a hash binary tree consisting of three parts: root nodes, intermediate nodes, and leaf nodes, with all nodes storing hash values. In a Merkle Tree, data is stored in the leaf nodes, and the intermediate nodes are generated from the hashes of their corresponding two leaf nodes, forming the entire Merkle Tree through hierarchical grouping of data hash operations.

Any change in the data of a node will affect the changes in other intermediate nodes and the root node, thus ensuring the integrity and immutability of the data. Therefore, by verifying the hash of the Merkle Tree's root node, the complete transaction list can be proven.

The principle of verifying fund reserves typically involves a third-party auditing agency taking an anonymous snapshot of the account balances during the audit, then progressively obtaining hashes to calculate and verify the reserves reaching the root node, thus obtaining the complete transaction list. The third-party auditing agency then compares the publicly disclosed user data and account asset balances of the exchange to determine whether it has sufficient reserves.

However, can the Merkle Tree completely prove its asset reserves? The answer is actually negative for the following reasons:

1. The proof of fund reserves only pertains to the user asset snapshot at the time of the audit; the platform can ensure asset reserves during the audit and still misappropriate funds afterward without oversight.

2. The possibility of front-end fraud still exists; exchanges can forge front-end pages to prevent users from verifying.

3. The credit issues of the third-party auditing agency itself can also affect the complete security of asset verification.

4. The fund reserve proof based on the Merkle Tree cannot reflect other liabilities, internal financial status, etc., of the platform; a single proof cannot measure the financial risks of the platform itself.

From the above, it can be seen that the security issues of centralized exchanges cannot be properly resolved through Merkle Tree proofs, and centralized development is fraught with security risks, making it not a choice for users seeking secure trading.

Interpreting ApeX Pro, Can DEX Achieve Secure Asset Trading?

If centralized exchanges struggle to ensure fund security, can DEX serve as a future trading option? We can interpret ApeX Pro, a decentralized trading protocol that ensures the consistency of on-chain trading settlement data through an off-chain matching engine combined with a ZK rollup solution.

Non-Custodial User Assets, Managed by Smart Contracts

ApeX Pro, as a decentralized multi-chain derivatives trading platform, integrates StarkWare's second-layer scalability engine and creates an order book trading model that supports zero gas fees through zero-knowledge proof L2 rollup solutions.

Unlike centralized exchanges that hold user funds, ApeX Pro transparently stores and manages funds through on-chain smart contracts, requiring user signatures for every transaction. The operating party has no right to misappropriate funds. The process involves users signing transaction operations on L2 and periodically syncing the status to the L1 custody contract. No one can misappropriate user assets by constructing false transactions, completely eliminating the possibility of the platform misappropriating user assets and ensuring users can trade securely.

Mandatory Withdrawals, Free Movement of Funds

In ApeX Pro trading, even in the event of any market black swan incidents, users can withdraw their funds. Even if the exchange's functions are shut down, users can still initiate mandatory withdrawals to ensure the safety of their funds. When users choose to enforce a withdrawal, if ApeX Pro fails to process the user's mandatory withdrawal request within a specific timeframe for any reason, users can freeze ApeX Pro's StarkEx contract and use forced exit and forced trading to retrieve their funds.

From this perspective, ApeX Pro collaborates with the StarkEx scalable engine to ensure the consistency of on-chain and off-chain data through zero-knowledge proofs. If there is no zk proof that the L2 transaction state is indeed valid, then no state update will occur on L1. This means that funds can only be transferred based on the logic implemented in Cairo within StarkEx, which enforces the following operations:

• Funds cannot be transferred from users if they have not provided valid signatures on the relevant transfer requests.

• The StarkEx state submitted on L1 reflects all asset transfer records that occurred in the L2 environment, ensuring state synchronization.

• The same asset transfer request cannot be executed twice by StarkEx, ensuring data consistency.

As a result, operating nodes (such as exchanges) cannot steal user assets. Mandatory trading, emergency exits, and dedicated upgrade mechanisms ensure that ApeX Pro, built on StarkEx, operates entirely in a user self-custody model, ensuring sufficient security for user transactions. Even in extreme situations, users can forcibly withdraw their assets.

ApeX Pro, the Optimal Choice for Safe and Efficient Trading

Through analysis, the security risks of centralized exchanges are difficult to resolve, while DEX, as a trading platform for non-custodial user assets, is the first choice for users seeking secure trading. ApeX Pro not only ensures asset security and privacy guarantees but also has the following advantages:

1. No KYC required: Trade by linking your wallet.

2. Lightning trading, efficient experience: Its order book model provides high liquidity and trading depth; every transaction can be executed instantly, achieving lightning trading comparable to centralized exchanges.

3. Zero gas fees, low-cost trading: Due to enhanced L2 scalability combined with zero-knowledge proof verification, users do not have to bear GAS fees for each transaction, significantly reducing trading costs.

4. Supports multi-chain deposits and withdrawals: ApeX Pro supports multi-chain deposits and withdrawals, including Ethereum, BSC, Polygon, Arbitrum, etc., meeting users' multi-chain trading needs.

Thus, it can be seen that ApeX Pro not only ensures the security of user assets but also achieves an efficient experience comparable to centralized exchanges through its efficient matching engine, making it the optimal choice for user trading. Moreover, ApeX is currently conducting a 52-week trading mining activity, allowing users to earn mining tokens through trading and exchange them for USDC at any time, enabling users to trade at minimal cost. Additionally, ApeX Pro has recently launched a staking mechanism, allowing users to stake their APEX/esAPEX tokens to receive platform USDC dividends. As a new platform that has been live on the mainnet for three months, ApeX continuously offers benefits to users, making it a project worth early entry and strategic layout.