Fireblocks Introduces ‘Off Exchange’ Trading for Institutions

The multi-party computation (MPC) wallet provider Fireblocks announced a new trading mechanism for institutions using controlled exchanges on Nov. 28.

The new “Off Exchange” method lets institutional traders swap tokens without depositing them on the exchange.

Fireblocks stated that this solution would eliminate counterparty risk on centralized exchanges and prevent FTX-like failures. Fireblocks co-founder and CEO Michael Shaulov discussed Off Exchange.

He said trading businesses can deposit assets into a “shared” or “interlocked” MPC wallet with a three-shard private key.

The first shard is owned by a trading firm, the second by an exchange, and the third is “triggered by an oracle.” Two of the three shards must sign a wallet transaction for it to be confirmed.

Neither the trader nor the exchange can unilaterally withdraw assets. Shaulov said exchange and trader signatures usually confirm transactions.

In some scenarios, the third-party oracle can supply a second signature if the trader or exchange is unresponsive.

“If the exchange is hacked and unresponsive for a certain period of time, the trader can basically get back the principal without the exchange’s approval,” Shaulov said.

The release states that institutional traders QCP Capital, BlockTech, and Zerocap are using Off Exchange to trade on the Deribit centralized exchange.

The team hopes to support HTX, Bybit, Gate.io, WhiteBIT, BIT, OneTrading, Coinhako, and Bitget in the next few months. Shaulov said that Off Exchange is only for institutions. Centralized crypto exchanges have always had counterparty risk issues.

Mt. Gox consumers lost $473 million in 2014 when a cybersecurity exploit took their cash. Quadriga, a Canadian crypto exchange, closed in 2018, leaving consumers with approximately $169 million missing.

Regulators called the exchange a Ponzi scheme. The 2021 withdrawal ban by crypto exchange FTX cost investors $8 billion.

The CEO of the failed exchange was convicted of fraud. Fireblocks stated that Off Exchange will prevent occurrences like this, which “stem from the unique structure of the crypto trading market.

Where exchanges play the role of both a custodian and trading venue.” This will be avoided by “locking funds in secure MPC-based shared wallets,” it said.