Is your assets still safe? Analyzing the security challenges of perpetual DEX behind the Paradex and Trove incidents

When Paradex announced temporary maintenance and rumors of protocol vulnerabilities emerged, some users’ perpetual contract trades were forcibly liquidated due to abnormally high funding rates. Meanwhile, after the launch of another perpetual DEX project Trove’s token, its market cap plummeted from $20 million to less than $1 million, a decline of over 95%.

Frequent Security Incidents in Perpetual DEXs

Recent frequent security incidents involving perpetual contract DEXs in the blockchain industry have sounded an alarm for the entire decentralized financial derivatives sector. The cases of Paradex and Trove not only exposed technical vulnerabilities but also revealed deeper issues related to management mechanisms and community trust.

Paradex, as a decentralized perpetual derivatives Layer2 application chain within the Starknet ecosystem, initially planned to combine liquidity from the crypto institutional liquidity platform Paradigm with the transparency and self-custody advantages of DeFi. However, the protocol suddenly announced a temporary maintenance, and even after the expected completion time, it had not resumed operation, leading to community rumors of a major protocol vulnerability. More seriously, some users reported being forcibly liquidated due to abnormally high funding rates, directly indicating a failure in the core risk control mechanism of perpetual contracts.

Technical Vulnerabilities and Protocol Design Flaws

Smart contract vulnerabilities have become one of the main technical issues affecting the security of perpetual DEXs. The technical architecture of decentralized perpetual contract trading platforms is far more complex than ordinary DeFi protocols, with each component potentially becoming an attack vector.

The $282 million hardware wallet scam exposed in 2026 revealed systemic vulnerabilities in smart contract infrastructure. This incident not only exposed fundamental security flaws for users but also highlighted systemic vulnerabilities in the smart contract infrastructure that plague cryptocurrency exchanges and cross-chain protocols.

In the context of perpetual DEXs, contract vulnerabilities can lead to more severe consequences. For example, reentrancy attacks allow external contracts to recursively call the original contract; integer overflows can cause data to exceed expected ranges; unchecked external calls may result in fund theft. More complex issues include the delegate contract mechanism introduced by Ethereum’s Pectra upgrade, which unexpectedly opened the door to wallet draining attacks. Over 97% of delegate calls target the same type of wallet drain contracts, which automatically transfer incoming funds into attacker-controlled wallets.

Systemic Risks of High-Leverage Trading

As platforms supporting high-leverage trading, perpetual DEXs’ risk management mechanisms directly determine the safety of user assets. High leverage inherently demands extremely robust liquidation mechanisms and resilient liquidity pools.

The rapid growth of decentralized perpetual contracts introduces systemic and operational risks. Safety and liquidation risks are paramount: past protocol-level vulnerabilities and economic attacks have already warned the market to emphasize audits, insurance, and emergency procedures. Under extreme market conditions, the risks of high-leverage trading are exponentially amplified. When users transfer assets via exchange APIs or receive tokens, malicious contracts can immediately transfer all assets away, causing the wallet to remain at the same address but with assets permanently stolen.

Centralized exchanges’ custody essentially exposes users to counterparty risk—when the platform controls the private keys, security breaches and operational errors can lead to irreversible asset losses.

Token Launches and Ecosystem Migration Controversies

The token economic models and issuance strategies of perpetual DEX projects often become focal points of controversy. The recent performance of Trove is a typical example, fully exposing the severity of risks associated with token launches. After raising $11.5 million through an ICO, Trove suddenly announced that the TROVE token and its perpetual contract DEX platform would move from Hyperliquid to deployment on Solana. This decision completely violated the original plan disclosed to ICO participants, sparking strong community dissatisfaction.

After the TROVE token was listed for trading, its market cap rapidly fell from $20 million to about $950,000, a decline of over 95%. This meant early participants faced significant losses, and many community members accused the team of engaging in “carpet pull” behavior.

Ecosystem Competition and Cross-Chain Risks

The ecosystem competition in the perpetual DEX sector is becoming increasingly fierce, and project teams’ migration decisions across different blockchains often trigger new risks. Trove’s shift from Hyperliquid to Solana reflects the difficult balance project teams face between liquidity, technical adaptation, and community pressure.

The Trove team explained that a liquidity partner supporting deployment on Hyperliquid chose to liquidate 500,000 HYPE holdings—this was an independent decision by the partner, but it changed the project’s constraints. However, the community did not accept this explanation, especially some ICO participants who originally expected the project to launch on Hyperliquid and maintain alignment with the HYPE ecosystem.

While cross-chain deployment can expand user reach, it may also lead to liquidity fragmentation. Fragmented liquidity makes large positions more susceptible to slippage and market gaps under extreme conditions.

Security Practices and Risk Mitigation Strategies

Facing various risks in perpetual DEX trading, adopting multi-layered defense strategies is crucial. Both users and platforms need to establish systemic security awareness and response mechanisms.

Users should prioritize platforms with transparent security audits and clear liquidation mechanisms; monitor liquidity pool depth and historical performance of liquidation engines. Additionally, avoid concentrating all leverage positions on a single protocol or chain; combine centralized and decentralized tools to enable rapid asset reallocation under different market conditions.

For trading platforms, comprehensive security audits are mandatory before deployment, including checks for reentrancy, overflow errors, and uninitialized variables. Testing should cover functional and penetration testing, with third-party experts reviewing code before launch. The industry has strengthened asset isolation requirements, custody standards, and mandatory reserve audits. Regulators have introduced comprehensive bankruptcy guidelines, capital requirements, and real-time trading monitoring to prevent similar incidents and safeguard customer funds.

Future Outlook and Platform Responsibilities

Looking ahead, the perpetual DEX sector will face more complex security challenges and regulatory environments. Technological innovation and compliance development must advance hand in hand, and user education is especially critical.

Decentralized perpetual contracts are at a pivotal stage of evolving from niche tools to mainstream derivatives infrastructure. Advances in technology and cross-chain capabilities open growth pathways, but security, liquidation, and regulatory risks are also amplified. Project teams need to establish more transparent governance mechanisms, especially when making significant decisions. The Trove case shows that unilateral chain migration decisions can completely destroy community trust, even with seemingly reasonable business justifications.

For trading platforms like Gate, beyond providing a secure trading environment, they must also strengthen project vetting, offer comprehensive risk warnings, and provide educational resources for users.

After the Trove token TROVE was listed on Gate, its market cap experienced extreme fluctuations. As of 2026-01-20, the token’s price rapidly declined from the initial valuation corresponding to $20 million FDV to less than $1 million, with a 24-hour drop exceeding 95%.

Faced with numerous risks in the perpetual DEX sector, some projects are seeking breakthroughs from the technical fundamentals. For example, the privacy-focused derivative blockchain Aster aims to replicate the depth, speed, and experience of centralized perpetual contract exchanges through full-chain and zero-knowledge proof technologies, while maintaining complete decentralization and protecting user privacy. As market enthusiasm wanes, those perpetual DEX projects that invest real resources in risk management, smart contract auditing, and community governance will ultimately demonstrate their true long-term value in the competition.