Fireblocks Unveils ‘Off Exchange’ to Secure Crypto Trades

Fireblocks, a renowned multi-party computation (MPC) wallet provider, has launched an innovative trading system named “Off Exchange,” revolutionizing how institutions interact with centralized exchanges. Announced on November 28, this system promises to mitigate the risks associated with centralized exchanges and prevent disasters akin to the FTX collapse.

The core of Off Exchange lies in its unique approach to token swaps. Institutional traders can now execute transactions without depositing their assets directly onto the exchange. By leveraging this system, Fireblocks aims to eliminate counterparty risk inherent in centralized exchanges, offering a more secure and reliable trading environment.

Michael Shaulov, co-founder and CEO of Fireblocks, shed light on the workings of Off Exchange in a conversation with Cointelegraph. The system operates through a shared MPC wallet, where the private key is divided into three parts or ‘shards.’ The trading firm holds one shard, the exchange another, and the third is controlled by an oracle. For a transaction to proceed, at least two of these shards must sign off, ensuring that neither the trader nor the exchange can unilaterally move assets without consent.

The system has a safeguard for situations where either the trader or exchange becomes unresponsive. In such cases, the oracle can step in to provide a second signature, under specific conditions, to facilitate the transaction. This mechanism is particularly crucial if an exchange encounters issues such as hacks, offering traders a way to retrieve their principal investments securely.

Off Exchange has already gained traction among institutional trading firms like QCP Capital, BlockTech, and Zerocap, who have implemented it for trading on the Deribit centralized exchange. Over the coming months, Fireblocks plans to extend support to additional exchanges, including HTX, Bybit, Gate.io, WhiteBIT, BIT, OneTrading, Coinhako, and Bitget. Currently, the system is exclusively available for institutional clients.

The need for such a system is underscored by the troubled history of centralized crypto exchanges. High-profile incidents like the Mt. Gox debacle in 2014, the Quadriga meltdown in 2018, and the recent FTX crisis in 2021 have highlighted the vulnerabilities in how these platforms handle user funds. In each case, users suffered significant losses due to security exploits, mismanagement, or fraudulent activities.

Fireblocks’ Off Exchange aims to address these challenges by segregating the roles of custodian and trading venue. By locking funds in secure MPC-based shared wallets, the system provides an additional layer of security and control over assets, mitigating the risk of losses due to exchange-related issues.

The introduction of Off Exchange by Fireblocks is a significant step forward in enhancing the security and reliability of crypto trading for institutional players. As the crypto market continues to evolve, such innovations are crucial in building trust and stability, making the ecosystem more resilient against potential threats and failures.