Fireblocks creates a trading system to mitigate the risks of centralized exchanges

The multi-party computing (MPC) wallet provider owns Fireblocks Disqualified A new trading system for institutions using centralized exchanges, as announced on November 28. The new system, called “Off Exchange,” allows institutional traders to exchange tokens without first depositing them on an exchange. Fireblocks claims that this system will help eliminate counterparty risk on centralized exchanges and prevent future FTX-like collapses.

Today, we are excited to launch Off Exchange, a new solution that enables trading firms and asset managers to virtually eliminate counterparty risk on the exchange. Read on → https://t.co/FLl3AufE0s pic.twitter.com/s4P5kyNy3O

– Fireblocks (@FireblocksHQ) November 28, 2023

Today we are pleased to introduce Off Exchange, a new solution that allows trading companies and asset managers to eliminate counterparty risk in the foreign exchange market. Read on

In a conversation with Cointelegraph, Michael Shawlov, co-founder and CEO of Fireblocks, explained how Off Exchange works. It stated that it allows companies to deposit assets into a “shared” or “linked” MPC wallet, which Secret key It consists of three fragments. The first is owned by the company, the second is owned by the exchange, and the third is “powered by Oracle.” To confirm a transaction in this wallet, two of the three parts must be used to sign the transaction. This means that neither the trader nor the exchange can withdraw assets unilaterally.

Shawlov explained that in most circumstances, transactions are confirmed when the exchange and trader sign off on the transaction. But if the trader or exchange does not respond for a period of time, the third-party oracle can provide a second signature under certain circumstances. “For example, one of the conditions is that if an exchange is hacked and does not respond for a certain period of time, the trader can essentially recover the capital without the exchange’s approval,” Shauloff said.

According to the announcement, Off Exchange is already deployed by institutional trading firms QCP Capital, BlockTech and Zerocap, which use it to trade on the centralized exchange Deribit. In the coming months, the team plans to expand support to other exchanges, such as HTX, Bybit, Gate.io, WhiteBIT, BIT, OneTrading, Coinhako, and Bitget. Currently, Off Exchange is only available to enterprises, Shawlov confirmed to Cointelegraph.

Centralized cryptocurrency exchanges have struggled with counterparty risk issues throughout their history. In 2014, users lost more than $473 million on Mt.Gox when deposits they made on the exchange were stolen through a cybersecurity exploit. In 2018, Canadian cryptocurrency exchange Quadriga closed its doors without refunding users’ funds, resulting in losses of over $169 million to users. Regulators later accused the exchange of being a Ponzi scheme. In 2021, investors lost nearly $8 billion when cryptocurrency exchange FTX stopped processing withdrawals. The stock exchange is now bankrupt, and its CEO has been convicted of fraud.

In its announcement, Fireblocks said Off Exchange would help prevent such incidents, which it said “comes from the unique structure of the cryptocurrency trading market, where exchanges play the role of custodian and trading venue.” This problem will be avoided by “securing funds in secure MPC-based shared wallets,” he said.

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