Fireblocks, a provider of multi-party computation (MPC) wallets, has unveiled a new trading system termed "Off Exchange" specifically designed for institutional users of centralized exchanges. As announced on November 28, this system enables institutional traders to conduct token exchanges without the need to initially deposit them onto an exchange platform. Fireblocks asserts that this approach will address counterparty risk on centralized exchanges and help prevent crises akin to the incidents witnessed with platforms like FTX.
According to Fireblocks' co-founder and CEO Michael Shaulov, Off Exchange operates through "shared" or "interlocked" MPC wallets. These wallets are composed of private keys divided into three shards: the trading firm holds the first shard, the exchange holds the second, and the third shard is activated by an oracle. For any transaction to be confirmed within this wallet, two-thirds of the shards must participate in signing, ensuring that neither party can independently withdraw assets.
Shaulov elaborated that typically, a transaction is confirmed when both the exchange and trader sign it. However, if there's a lack of response from either party within a specified time frame, a third-party oracle can provide a secondary signature under specific conditions. For instance, if the exchange is compromised and fails to respond within the stipulated period, traders can retrieve their principal without requiring approval from the exchange.
The initial implementation of Off Exchange has been adopted by institutional trading firms like QCP Capital, BlockTech, and Zerocap, enabling them to trade on the Deribit centralized exchange. The Fireblocks team aims to expand Off Exchange's support to various other exchanges such as HTX, Bybit, Gate.io, WhiteBIT, BIT, OneTrading, Coinhako, and Bitget in the coming months. Notably, Shaulov confirmed to Cointelegraph that Off Exchange is currently exclusive to institutional entities.
Centralized cryptocurrency exchanges have a history marred by counterparty risk issues, with incidents like Mt. Gox in 2014 and Quadriga in 2018 causing significant user losses. More recently, FTX's abrupt cessation of withdrawals in 2021 led to substantial investor losses and the exchange's CEO facing legal consequences. Fireblocks believes that Off Exchange can mitigate such incidents by leveraging the structure of the cryptocurrency trading market, where exchanges function as both custodians and trading platforms. The platform emphasizes that this new approach resolves such problems by securing funds within an MPC-based wallet shared by multiple parties.
