Fireblocks Unveils 'Off Exchange' Trading System to Safeguard Against Exchange Collapses
Summary:
Fireblocks has introduced a new trading system, "Off Exchange", designed to mitigate counterparty risks on centralized exchanges and avert financial catastrophes like the FTX collapse. The system enables institutional investors to trade tokens without depositing them onto exchanges. CEO, Michael Shaulov, clarified that the platform works by securely locking funds in multi-party computation (MPC) shared wallets. QCP Capital, Blocktech, and Zerocap are already utilizing Off Exchange, and the service is planned to expand to more exchanges in the coming months.
Fireblocks, a provider of multi-party computation (MPC) wallets, has launched "Off Exchange," a novel trading system aimed at institutions using centralized exchanges. As disclosed in a Nov. 28 announcement, this new system allows institutional investors to trade tokens without first depositing them onto exchanges. According to Fireblocks, Off Exchange can mitigate counterparty risks associated with centralized exchanges and avert potential catastrophic events, such as the FTX collapse.
In an interview with Cointelegraph, Fireblocks' CEO, Michael Shaulov, elaborated on the mechanics of Off Exchange. The platform enables trading firms to transfer assets to an MPC wallet that is either shared or interlocked. This wallet's private key is split into three sections, held by the trading firm, the exchange, and an oracle. To confirm a transaction, signatures from at least two shards are needed, preventing either the trading house or the exchange from singularly withdrawing assets. Shaulov stated that while usually the trader and exchange confirm transactions, under certain circumstances, the third-party oracle can sign if either the trader or exchange is unresponsive. For instance, if an exchange is compromised and unresponsive for a given period, the trader can recover the principal without the exchange's approval.
The announcement also revealed that institutional traders QCP Capital, Blocktech, and Zerocap are already using Off Exchange, specifically on the Derebit centralized exchange. Fireblocks anticipates rolling out support for various other exchanges, including HTX, Bybit, Gate.io, WhiteBIT, BIT, OneTrading, Coinhako, and Bitget, in the forthcoming months. However, Shaulov clarified to Cointelegraph that Off Exchange is exclusively available to institutional clients.
Historically, centralized crypto exchanges have dealt with counterparty risk concerns. In 2014, a cybersecurity vulnerability led to $473 million loss of user deposits on Mt. Gox. Three years later, Quadriga, a Canadian crypto exchange, shut down and failed to return users' funds, causing losses exceeding $169 million. The exchange was ultimately accused of operating a Ponzi scheme. In 2021, crypto exchange FTX's decision to halt withdrawals resulted in an estimated loss of $8 billion for investors, and subsequent bankruptcy and fraud conviction of its CEO.
According to Fireblocks, Off Exchange could help preempt similar incidents, which it claims are products of the unique design of the crypto trading market, wherein exchanges simultaneously act as custodial and trading venues. Through Off Exchange, such challenges can be circumvented by securely locking funds in shared MPC-based wallets.
Published At
11/28/2023 6:45:55 PM
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