The proliferation of DeFi trading platforms, or decentralized exchanges (DEXs), as a prime spot for digital asset trading, can be attributed to retail users’ growing interest in access to markets that aren’t reliant on a single party to manage the trades.
However, given the large-scale fraud prevalent in crypto, security has been of great importance for recent adopters. Unlike centralized exchanges that store users’ assets on their servers, decentralized trading platforms don’t, making it harder for hackers to steal assets. Yet, it’s not enough to know that if one were to try to hack the components that comprise a DEX, you’d need to attack each component separately to be able to take all the user funds.
Users need to know the safety protocols and measures on DeFi trading platforms to trade with confidence rather than faith.
A primary security feature of DEXs is the implementation of smart contracts. These are programs that automatically execute a set of instructions when predefined conditions are met. On a decentralized exchange platform, smart contracts are used to automate the trading process and ensure that trade conditions are upheld. For instance, a smart contract could be programmed to automatically transfer assets from one user to another once the trade conditions are met, reducing the likelihood of human error and deterring malicious interference with trades.
But programmable DEXs remain a small contingent of the whole. Most DEXs at the moment rely on pooling assets together, which increases the chances of a hack. One DeFi exchange that has taken security to the next level is Axo. Axo enables users to program their trades, set conditional execution conditions, keep their funds in their wallets until a trade is executed, and even create multisig subwallets that can be delegated to others.
A multisig wallet requires more than one signature to transfer funds, meaning multiple users must approve a trade before it can be executed. This minimizes the risk of a single user being hacked or making a mistake that could result in fund loss. These features give users considerable control over their assets, making it challenging for malicious actors to interfere with their trades.
Moreover, many DeFi exchange platforms conduct regular security audits of their smart contracts. This involves a team of security specialists reviewing the code and identifying potential vulnerabilities. Once discovered, these weaknesses can be remedied before hackers exploit them.
In addition to the in-built security features on DeFi exchange platforms, it’s also essential for users to take personal responsibility for protecting their assets. This entails storing their private keys securely and keeping their software updated. Users should also exercise caution when using DeFi exchange platforms and thoroughly research them before using them.
In conclusion, the security measures on DeFi trading platforms, such as smart contracts, multisig wallets, and security audits, significantly reduce the risk of asset theft or loss. By understanding these security protocols and taking personal responsibility for asset protection, users can confidently use DeFi exchange platforms and reap their rewards.