As blockchain technology and the cryptocurrency market have developed, cryptocurrency trading platforms have become central to the industry.
However, in recent years, centralized exchanges (CEX) have frequently been targeted by hackers and plagued by internal corruption, exposing significant security vulnerabilities.
In contrast, decentralized exchanges (DEX) do not rely on centralized institutions to manage user assets and execute transactions.
Instead, they utilize blockchain technology and smart contracts to achieve true “trustlessness,” emphasizing asset security and privacy protection.
This effectively addresses the security issues of traditional centralized exchanges, such as single points of failure, hacking, internal corruption, and user privacy breaches, aligning more closely with the core principles of blockchain: decentralization and self-sovereignty.
This article will explore the operational principles and mechanisms of edgeX, illustrating how the edgeX platform uses modular Lego-like components to build a decentralized, high-performance, and fully-featured derivatives trading system.
Core Principles and Security Mechanisms of edgeX
edgeX is a platform built on the Ethereum blockchain network, conducting cryptocurrency transactions through smart contracts and distributed ledger technology.
The core of this trading model is that it does not rely on centralized third parties to manage transactions and user assets; instead, blockchain technology ensures transparency and security in transactions.
1. Enhanced User Privacy Protection:
On edgeX, users do not need to provide personal identification information to register and trade; all transactions are conducted through blockchain addresses. This identity-free (KYC-free) trading model protects user privacy and prevents the risk of personal information leakage. In contrast, centralized exchanges usually require users to provide stringent identity verification, storing this information in platform databases, which could be vulnerable to breaches or misuse.
2. User-Controlled Assets:
On edgeX, users have complete control over their assets, which are stored in their own wallets rather than being held by the platform. This eliminates the risk of users’ assets being controlled by the platform and prevents large-scale asset theft due to hacking. Centralized exchanges typically store large amounts of user assets in platform hot and cold wallets, making them ideal targets for hackers. For instance, in 2014, the well-known Mt. Gox exchange was hacked, resulting in the theft of 850,000 bitcoins worth over $450 million, leading to its bankruptcy. In contrast, decentralized exchanges, without centralized funds pools, would only lose a small amount of assets even if a node was compromised, significantly enhancing overall security.
3. Smart Contracts Ensure Transaction Security and Fairness:
All transactions and settlements on edgeX are automatically executed by smart contracts, with settlements handled by the third-party StarkEx, making it impossible for the edgeX platform to interfere with the settlement process. These contracts are open-source, allowing anyone to audit and verify them. The transparency and immutability of smart contracts ensure the security and fairness of each transaction, preventing manipulation or fraud.
4. On-Chain Transaction Settlement Ensures Fairness:
Settlements on edgeX occur on the Ethereum blockchain, making the data transparent and traceable, with users and market makers trading on an equal footing. Other centralized platforms, on the other hand, settle on their own platforms, with final settlement data recorded on CEX servers, which carries the risk of data manipulation or opaque practices.
5. Third-Party Oracle Ensures Fair Trading:
edgeX uses quotes from third-party oracle providers, avoiding issues like price spikes or discrepancies with other platforms. In contrast, centralized platforms provide their own quotes, with non-transparent data sources that can result in price spikes or differences from other platforms.
6. Distributed Architecture and Single Point of Failure Prevention:
edgeX employs a distributed architecture, with no single server or control node. This design provides high redundancy and resilience, effectively preventing single points of failure. Even if one node or server is attacked, other nodes can continue to operate normally, ensuring the platform’s overall security and stability.
7. Reduced Internal Management and Operational Risks:
Asset management at centralized exchanges relies on the platform’s internal operations team, meaning that improper behavior or management errors by internal personnel could lead to user asset losses. For example, the 2023 FTX collapse resulted in billions of dollars in user asset losses. In contrast, edgeX adopts a community governance model, where platform rules and major decisions are made by token holders, reducing the likelihood of internal corruption or management errors.
How edgeX Improves Trading Performance and Enhances Functionality Through Modular Combinations
While most decentralized exchanges excel in security and privacy, they often fall short in trading performance and functionality, unable to meet the needs of high-frequency trading and derivatives trading.
Although decentralized spot trading volume briefly accounted for 20% of the total spot market volume after the FTX collapse, the derivatives market only accounted for 3%.
The main reason is that the current infrastructure cannot support large-scale user participation and high-frequency trading, being limited to simple AMM models.
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edgeX enhances the decentralized derivatives market by combining various financial modules, such as yield farming, lending, insurance, leverage, and composite trading strategies, providing developers and users with a range of plugins that form an open application store, promoting the formation of an open decentralized derivatives trading system.
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- edgeX Telegram Bot: Built on the Ton ecosystem, the edgeX bot supports multi-chain trading and interacts with edgeX. Users can trade any MEME tokens and emerging assets on the edgeX bot.
- edgeX Leverage: edgeX leverage supports various underlying assets, including U.S. stocks, forex, and commodities futures. Users can purchase 3X/5X leverage products and ETF indices.
- edgeX Epool: edgeX Epool is a B2B financial product that generates revenue by providing asset management and liquidity to multiple derivatives trading platforms, sharing profits with edgeX platform token holders and users who deposit funds.
- edgeX Lend: In partnership with AAVE, Compound, and others, edgeX allows users to efficiently combine their assets to maximize returns.
- edgeX Insurance: edgeX Insurance offers a liquidation insurance product. Once purchased, users can receive double compensation in the event of liquidation, significantly reducing liquidation losses.
Enriches the trading functionality
By combining various financial modules and applications, edgeX enriches the trading functionality of the platform.
edgeX is not only a decentralized derivatives trading platform but also a modular financial system.
edgeX
The interoperability and layered architecture of multiple applications and plugins greatly enhance combination efficiency without compromising trading performance.
The scale of the derivatives market in the cryptocurrency space is 4 to 5 times that of the spot market, with the decentralized derivatives market having the potential for tens of times more growth.
In this massive arena, edgeX is poised to become an indispensable force with its robust technical architecture and innovative model.
edgeX will not only provide users with a more efficient and secure trading experience but will also redefine the standards of decentralized finance, creating a new market landscape.
As global demand for decentralized solutions continues to grow, edgeX is set to become a pioneer leading this financial revolution.
