Fireblocks launches trading system to mitigate centralized exchange risk

cointelegraph.com:

Multi-party computation (MPC) wallet provider Fireblocks has released a new trading system for institutions that use centralized exchanges, according to a Nov. 28 announcement. Called “Off Exchange,” the new system allows institutional traders to swap tokens without first depositing them on the exchange. Fireblocks claimed this system would help to eliminate counterparty risk on centralized exchanges and prevent future FTX-like collapses.

Today, we’re excited to launch Off Exchange, a new solution that enables trading firms and asset managers to truly eliminate exchange counterparty risk. Read on → https://t.co/FLl3AufE0s pic.twitter.com/s4P5kyNy3O

In a conversation with Cointelegraph, Fireblocks co-founder and CEO Michael Shaulov explained how Off Exchange works. He said it allows trading firms to deposit assets to a “shared” or “interlocked” MPC wallet, whose private key comprises three shards. The first shard is held by the trading firm, the second by the exchange, and the third is “triggered by an oracle.” For a transaction in this wallet to be confirmed, two out of three shards must be used to sign the transaction. This means that neither the trader nor the exchange can unilaterally withdraw assets.

Under most circumstances, transactions are confirmed when the exchange and trader sign the transaction, Shaulov explained. But if either the trader or exchange is unresponsive for a period of time, the third-party oracle can provide a second signature under certain conditions. “For example, one of the conditions is that if the exchange is hacked and it’s unresponsive for a certain period of time, then the trader can basically get back the principal without the approval of the exchange,” Shaulov stated.

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