Fireblocks, a multi-party computation (MPC) wallet provider, has unveiled a new trading system for institutional users of centralized exchanges, known as “Off Exchange,” as announced on November 28. The innovative system enables institutional traders to swap tokens without the need to first deposit them onto the exchange, aiming to mitigate counterparty risk on centralized platforms and prevent incidents akin to the collapses witnessed on exchanges like FTX.
Fireblocks co-founder and CEO Michael Shaulov provided insights into the functioning of Off Exchange. The system allows trading firms to deposit assets into a “shared” or “interlocked” MPC wallet with a private key composed of three shards. The trading firm holds the first shard, the exchange possesses the second, and the third is activated by an oracle. To confirm a transaction, two out of the three shards must sign it, ensuring that neither the trader nor the exchange can unilaterally withdraw assets.
Shaulov explained that transactions are typically confirmed when both the exchange and trader sign. However, if either party is unresponsive for a defined period, the third-party oracle can provide a second signature under specific conditions. For instance, if the exchange is hacked and remains unresponsive, the trader can recover the principal without the exchange’s approval.
Off Exchange has already been adopted by institutional trading firms such as QCP Capital, BlockTech, and Zerocap, using it for trading on the Deribit centralized exchange. The Fireblocks team plans to extend support to other exchanges, including HTX, Bybit, Gate.io, WhiteBIT, BIT, OneTrading, Coinhako, and Bitget in the coming months. Currently, Off Exchange is exclusively available for institutions, according to Shaulov.
Fireblocks contends that its Off Exchange system will address counterparty risk issues inherent in centralized crypto exchanges, aiming to prevent incidents like those witnessed with Mt. Gox in 2014, Quadriga in 2018, and FTX in 2021. The company suggests that securing funds in MPC-based shared wallets will help avoid such challenges arising from the dual role of exchanges as both custodians and trading venues.
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