Bitcoin price briefly plunges to $0 on lesser-known Paradex exchange

[d5000]

If decentralized exchanges can perform rollbacks—a process in which a blockchain application resets its state to a previous point in time to correct erroneous data or transactions after a technical error—wouldn't this affect the decentralization that these platforms claim to support, or could it be misused in the future?

Paradex seems to run a "centralized sequencer" on their appchain, which is provided by the Starknet software stack (Starknet is an Ethereum layer-2). This means that they're essentially a private blockchain. One could also describe that model as a "CEX which instead of using a traditional database adds a blockchain structure, but without adding the blockchain consensus mechanism".

So it's not surprising that such a rollback is possible without major difficulties. If it was a Proof of Stake chain, the rollback would have been much more complicated. They would have to have convinced validators to adopt a rollback feature, just as Ethereum did in their TheDAO rollback in 2016.

First of all this was not real decentralized exchange, and I honestly doubt they had real Bitcoin mainnet listed.
This was probably some of their token XYZ-biTc0iN on some random blockchain, and not the real bitcoin.
Proof for that is that rollback happened on some random chain, not on bitcoin blockchain.

I'd also not describe that really as a DEX.

There's still a difference to a CEX: The users indeed hold their coins on their own addresses with their own private keys (based on the Ethereum address scheme), so in theory the "Not your keys, not your coins" doesn't apply. However, this isn't worth that much if you can "receive" coins and then the centralized entity, while they can't steal your coins directly, they can revert that transaction to your address.

And the withdrawal process also makes the rollback (or other centralized intervention) easier. Of course on the appchain the Bitcoins are not real Bitcoins but tokens on that appchain. There is a native mechanism to send the "Paradex-Bitcoins" to the Ethereum mainnet and get wrapped Bitcoins for them (which are still not "real" Bitcoins, but at least if you use e.g. Threshold tBTC they're relatively decentralized tokens). But that mechanism seems to be quite complicated and thus most users use "bridges", which are in reality CEXes, which take your Paradex "BTC" and then send you real BTC.

Of course a call from the Paradex management would have stopped all that bridge activity, and the withdrawals from those wo got Bitcoins for nearly $0 would thus be stopped.

From a legal standpoint this could however be challenging. Even if it was a "glitch", there are now probably many angry users who will claim they got legit Bitcoins for a low price ...

[MusaMohamed]

So it's not surprising that such a rollback is possible without major difficulties. If it was a Proof of Stake chain, the rollback would have been much more complicated. They would have to have convinced validators to adopt a rollback feature, just as Ethereum did in their TheDAO rollback in 2016.

Either layer 1 or layer 2, if they do a roll back, it's a big twist for their own benefit while with cryptocurrency community and users, it's a bad centralized decision. They should also not take Ethereum the DAO hack and consequent rollback in 2016 as a case study for announcing that their rollback will not affect their community.

Many will consider blockchain rollbacks as bad action and it's like SMH with many cryptocurrency users as it shows that blockchain, that project is no longer trusted. They can rollback the blockchain with any reason they see fit while they can do it like a scam tool. Rollbacks can create panic in that blockchain community and can result in very dangerous future of that blockchain.

Let's know that Binance after a big exchange hack, CZ raised the idea of rollback Bitcoin blockchain but his idea received a lot of critiques.

[Hamza2424]

If decentralized exchanges can perform rollbacks—a process in which a blockchain application resets its state to a previous point in time to correct erroneous data or transactions after a technical error—wouldn't this affect the decentralization that these platforms claim to support, or could it be misused in the future?

This is really wrong but I read this post on the other forum already and also read how it happened, but thanks for sharing it here it need to be discussed here as well. The platform was using both centralized and decentralized models, so it is kind of a hybrid model.

This is exactly how platforms are tricking people into thinking they are decentralized while half of their project's part is centralized or based on a centralized entity. Bitcoin is completely decentralized and the most secure one hence proven as well.