Custody and Transparency

Comparing Blockchains, DEXs, CEXs, and Zex

Traditionally, in blockchains and DEXs, funds are either held in user wallets or in liquidity pools, which are governed by smart contracts. These smart contracts are designed to ensure that only users can initiate and authorize transfers of their funds. This setup gives users full authority over their assets. Furthermore, because of the transparency inherent in blockchain technology, there is no need to verify whether a DEX holds the assets it claims to have—there is simply no room to falsify such statistics, as all transactions and balances are publicly visible and no need for submiting any proof of reserve.

In contrast, CEXs operate differently. Once users deposit their assets into a CEX, they relinquish control over those funds and essentially trust the CEX to safeguard their assets, execute trades on their behalf, and complete withdrawal requests. In other words, a CEX has complete control over the deposited funds. Moreover, due to the lack of transparency in most centralized exchanges, users cannot independently verify whether the CEX genuinely holds the assets and liquidity it claims to possess. Without proof of reserves, users have no assurance that the exchange isn’t falsifying its statistics or over-leveraging its holdings.

How Zex Differs: Decentralized Custody and Full Transparency

In Zex, the platform has no control over user funds because EigenLayer nodes must validate every transaction within the platform and issue signatures for every withdrawal to be executed. As mentioned in the Zex vs. DEX section, the Zex AVS operates like a smart contract deployed and executed on EigenLayer nodes, secured by its restaking mechanism. So for custody, naturally, Zex is similar to DEXs, as it ensures that funds remain under the user's authority and custody and cannot be transferred without cryptographic validation by EigenLayer nodes.

Furthermore, due to the transparency of the Zex system, there is no need to provide proof of reserves. Every token transfer, deposit, trade, and withdrawal is recorded in Zex logs, which are fully public and auditable. This eliminates any doubts about the platform's integrity and ensures trust through transparency.