Source: Lawyer Liu Honglin

I found that many friends believe that Meme coins have almost occupied the "top" position in this bull market. Why? Because it has several unique qualities.

The first is the low threshold. Meme currency does not require complex technical background and practical application support like mainstream currencies, and it does not even require reading the project white paper. As long as the name is attractive, the story is interesting enough, and some Internet hot packaging is added, you can easily enter the market. For many novice investors, this “everyone can understand” logic makes them more willing to participate.

The second is high transmissibility. The core gameplay of Meme coin is "entertainment-driven", and it quickly breaks out of the circle with the help of viral spread on social media. Whether it's the "Doge" meme on Twitter or the fancy Solitaire in the Telegram group, the spread of Meme coins does not rely on traditional marketing methods, but relies more on the spontaneous promotion of the community. Low cost, but explosive effect.

Finally, there is also the emotional amplification effect. Meme coins are not just synonymous with speculation, they are more like an "amplifier" of market sentiment. When the market is bullish, Meme coins are often crazily sought after by investors; and when the market is down, it can also use "play tricks" to relieve investors' anxiety, giving people a reason to stay in the market and wait for the next one bull market.

In general, the popularity of Meme coin is a track that is based on emotion, communication and community drive besides technology. Because of this, it has become an indispensable currency in this round of bull market. Controversial "top".

Where there is demand, there will naturally be a market. In order to allow cryptocurrency players to trade Meme coins more conveniently, Memecoin full-chain trading platform applications like DEXX were born. According to relevant information, DEXX supports multi-chain asset transactions such as SOL, ETH, TRX, BASE, BSC, etc., and provides functions such as on-chain mobile stop-profit and stop-loss, hotspot push, and copy trading. Compared with mature full-chain trading platforms such as Banana Gun and Unibot, DEXX’s main differentiation is smoothness, and it even has the reputation of “Binance on the chain”.

However, I found that everyone generally There is a misconception that decentralized projects like DEXX are a "technology-driven" market and do not need to pay too much attention to legal and compliance issues. However, the ideal is full, but the reality is very skinny.

Some time ago, DEXX suffered a serious attack, resulting in a large-scale theft of user assets. According to investigations by blockchain security companies such as SlowMist, the main reason for this incident was the platform’s improper management of users’ private keys. User private keys are stored in clear text on official servers and lack adequate encryption protection during transmission. This means that an attacker may intercept the user's private key during transmission and gain access to assets. This private key management method obviously does not meet the industry’s basic requirements for decentralized security, and greatly increases the risk of user assets being stolen.

Similar cases are actually not uncommon in the Web3 field, but the scale and impact of the DEXX incident are particularly huge. Although DEXX does not directly handle legal currency transactions or user identity information, its management loopholes in user assets will inevitably arouse the suspicion and attention of regulatory agencies. In fact, many regulatory agencies are turning their attention to the DEX field, and the legal constraints on these platforms will only become more stringent in the future.

When Lawyer Hong Lin discussed the DEXX incident with friends in the industry, there was a particularly interesting technical detail that we have been discussing: why service providers like DEXX choose to hold users’ private keys instead of using Decentralized wallet contract authorization method to complete transactions?

After all, from the perspective of decentralization, wallet contract authorization is obviously more consistent with the concept and can also greatly reduce the risk of private key leakage. But if you think about it carefully, there are actually several "have to" reasons behind this.

The first is the ease of operation. For many users, especially newcomers who have just entered the circle, asking them to understand operations such as wallet authorization and transaction signatures is tantamount to asking them to understand blockchain technology. In contrast, if the private key is entrusted to the platform and all transaction logic is completed in the background, it will be much easier for users. Of course, service providers also hope that the user experience will be as simple as possible, so lowering the operating threshold will naturally become a priority.

The second is flexibility and intervention capabilities. Centralized management of user private keys allows the platform to take faster measures when transactions are abnormal, such as canceling an erroneous transaction, freezing suspicious assets, and even "rescuing" user funds in the event of a hacker attack. Although this is somewhat contrary to the concept of decentralization, from an operational perspective, this "quick response" is actually a risk-free solution for service providers.

The last is the difficulty of technical implementation. Although the wallet contract authorization method is good, it is not simple to implement. Especially in a multi-chain environment, the complexity of contract compatibility and authorization logic will suddenly increase. The centralized hosting solution is much more straightforward, reducing the development and maintenance costs of service providers.

In the final analysis, these choices are trade-offs made by service providers between user experience, platform flexibility and technology costs. Although it may be more efficient in the short term, it also creates hidden dangers for security and compliance, and the DEXX incident undoubtedly proves that once these hidden dangers break out, the cost will be extremely heavy. This contradiction between technology and industry choice is not only a problem exposed by the DEXX incident, but also a development pain point in the entire Web3 field. How to find a balance between user experience and decentralization is the key that entrepreneurs and technical teams need to think deeply about.

Based on the DEXX incident and the current status of the industry, as a lawyer in the Web3 field, Lawyer Mankiw hopes to provide entrepreneurs with more specific and practical suggestions to help them find a balance between technology, compliance and security:

First of all, clarify legal responsibilitiesand designing compliance structures. When launching a project, entrepreneurs need to develop a clear compliance strategy for the regulatory environment of the target market. For example, if a project plans to enter the U.S. market, it will need to pay attention to whether the trading token will be classified as a security and whether it will involve the requirements of the Securities Exchange Act. At the same time, in terms of platform design, an independent technical service company can be established to separate the transaction function from user data and reduce the risk of direct contact with user assets. This not only protects entrepreneurs from regulatory accountability, but also establishes a good compliance image for the platform. In addition, the platform should clarify the legal responsibilities of each party in the user agreement, especially the resolution mechanism in the event of asset loss or abnormal transactions. Through these architectural designs, the uncertainty caused by adjustments or market fluctuations can be reduced to the greatest extent.

Secondly, give priority to decentralized solutions in terms of security design. One of the biggest lessons from the DEXX incident is the vulnerability of its centralized private key custody. If the platform can adopt decentralized technologies, such as multi-signature wallets or smart contract authorization, it will not only improve the security of user assets, but also reduce the systemic risk of single points of failure. At the same time, the platform should also focus on the security management of the system architecture, including: regularly inviting third-party authoritative organizations to conduct comprehensive audits of smart contracts and technical architecture; establishing a reporting and response mechanism for security vulnerabilities to promptly repair potential problems; and designing with redundancy Security measures, such as multi-layered transaction verification systems, to prevent large-scale attacks. In addition, with the popularity of cross-chain transactions, entrepreneurs also need to pay special attention to the design and security testing of cross-chain bridges, because cross-chain bridges have become one of the main targets of attackers in recent years.

Again, balance transaction freedom with compliance and transparency. Although the appeal of decentralized trading platforms lies in the high degree of freedom for users, complete laissez-faire management may also lead to huge legal risks for the platform. Entrepreneurs can introduce on-chain intelligent analysis tools to avoid regulatory issues by monitoring high-risk trading behaviors in real time. For example, abnormal accounts or large transfers that may be involved in money laundering or terrorist financing can be identified and flagged, and the platform's response to illegal activities can be clarified in the user agreement. In addition, introducing a moderate KYC mechanism in high-risk user usage scenarios, especially for identity verification of users with large transactions, can strike a balance between protecting user privacy and meeting regulatory requirements.

Finally, create user trust and brand protection mechanisms. Entrepreneurs should realize that compliance and security are not only the bottom line of the law, but also the cornerstone of user trust. Regular disclosure of the platform's security audit results and compliance practices to users can enhance users' trust in the platform. At the same time, by cooperating with industry associations or technology alliances and participating in the formulation of industry standards, the market position of the platform can also be further enhanced.

Through these suggestions, we hope that entrepreneurs can learn lessons from the DEXX incident. In a technology-driven market, legal compliance and security are not only the cornerstone of success, they are also essential for avoiding risks and implementingthe key to long-term development. Lawyers Mankiw is willing to protect every Web3 entrepreneur and jointly create a healthier and sustainable industry ecosystem.