What Is a ‘Honeypot’ Risk in the Context of CEX Security?

The 'honeypot' risk refers to the high concentration of valuable assets (user funds) held by a Centralized Exchange in its hot and cold wallets. This large, centralized pool of funds makes the exchange an extremely attractive and lucrative target for hackers, much like a honeypot attracts bees.

A successful breach can result in the loss of billions of dollars, creating a massive security liability for the CEX.