Author: Haotian

Original Link:

https://twitter.com/tmel0211/status/1704869126949539947

Exchanges manage a large number of EOA Deposit recharge addresses. Every time a user deposits cryptocurrencies, the assets are transferred to these fragmented small addresses. Exchanges typically need to perform “aggregation” of these addresses to facilitate unified asset management.

There are typically two choices for the aggregation of exchange addresses:

1. Whenever a user deposits cryptocurrencies, the program immediately transfers the corresponding assets to a hot wallet address. However, the issue with this approach is that when a user has multiple deposit demands, they may split it into multiple transactions. For example, whales might first deposit a small amount for security reasons and then gradually transfer the rest. Obviously, this approach can result in more transactions (TXS), and if the exchange uses this aggregation method, it may have to deal with high gas fees during periods of high gas prices. However, the benefit is that the entire aggregation process is decentralized, and users do not notice it. For the exchange, it is just a normal operational expense.

2. After users deposit cryptocurrencies, the fragmented small EOA addresses remain unchanged for some time. When users withdraw, they directly withdraw from a large hot wallet, and then aggregation of addresses is performed at fixed intervals. This allows for easier accounting and unified asset management. Additionally, it allows the exchange to choose a time when gas prices are relatively low for the transaction operations. However, there is a challenge with as performing a large number of operations within a short timeframe can easily drive up gas prices and, if noticed by the media, could lead to public relations issues. It is difficult to explain to the public why the exchange needs to centralize asset aggregation, especially when it results in significant gas expenditure.

Clearly, Binance has adopted the second method of address aggregation. From the perspective of the exchange’s business logic, regardless of the chosen method, there will be a significant expense in managing business funds. Different exchanges may have varying asset management strategies.

To help understand this, I have analyzed two addresses, Binance14 and OKX3. Binance14 uses the second method, while OKX3 likely uses the first method. However, due to the vast difference in asset volume and transaction volume between the two, the data is for reference only.

In Figure 1, Binance14 manages nearly 110,000 ETH in total assets, and as a receiving address, it has historically consumed 10,000 ETH in gas. For example, on September 13th, during a significant aggregation, 388 ETH in gas was consumed in a single day. The highest daily gas consumption in history was 871 ETH. Therefore, it is normal business expenditure for address aggregation to consume several million dollors in gas.

In Figure 2, OKX3 has a smaller scale of managed assets, but as a receiving address, it has historically consumed 1,530 ETH in gas. From the data, it can be seen that OKX’s daily consumption is relatively balanced, with a peak of only 15 ETH in a single day. This illustrates that the first aggregation method incurs costs during regular operations.

As for which method is better, exchanges will undoubtedly calculate and select the most suitable and optimized choice for themselves. Cost optimization is just one key factor but not the absolute factor.

Although Binance is wealthy, it also does not neglect optimization.

Furthermore, everyone needs to understand that exchange asset consolidation management involves multiple issues such as cost optimization, security risk control, internal approval processes, fund efficiency, and more. Cost optimization is just one key factor, but not an absolute one.

Cost Optimization: If we look closely, optimization is certainly possible. I checked the data, and over 140,000 transactions were sent in just one hour between 5–6 pm Beijing time. People naturally wonder, can’t this be spread out over 1–2 days? Can’t the program be stopped during Gas congestion? From an engineering standpoint, it’s certainly possible, but spreading the time over 1–2 days or even 1–2 months won’t cause Gas congestion issues, and it can save money. However, it could potentially introduce other risks, similar to the first method.

Security Risk: The biggest consideration should be security. Exchanges manage a large number of private keys for addresses, and permissions are likely controlled by a system. Engineers performing aggregation effectively gain high-level system access (access to private key signatures). Assuming it’s a HSM cold wallet system, such systems should be as offline as possible. Compared to having the permission open for 2 days, having it open for 2 hours significantly reduces the attack surface, preventing potential hacker attacks. Therefore, rapid aggregation is a core consideration for security risk control. Spending 300 ETH to effectively prevent 300,000 ETH from being attacked seems reasonable, doesn’t it?

Internal Control Process: Exchanges operate as large organizations, involving management and execution levels. To regulate asset usage processes internally, there is an approval process. For tens of thousands of EOA addresses and private keys, the most efficient approach is for the boss to have the highest authority, followed by unified signatures for one-time processing. If it is divided into smaller portions and processed in batches, it will involve the distribution of management authority, which may inevitably lead to the risk of some employees being single points of failure. If managed centrally by the boss, the ideal solution would be to consolidate at a specific time, requiring approval only once. If multiple addresses are split and multiple batches require consolidation approval, it would tie up the boss’s energy in asset consolidation. Is that appropriate?

Issues related to fund efficiency and preventing unexpected situations are also possible.

In conclusion, the issue of exchange asset consolidation is not solely a cost issue. It involves a very complex range of factors. Looking back at Binance’s history, cases like high Gas consolidation are not isolated incidents. It is evident that this is a consistent balancing solution arrived at by Binance after considering various factors.

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