Fireblocks, a digital assets infrastructure provider, has launched ‘Off Exchange’, a new trading system for institutions using centralized exchanges. This system leverages Multi-party Computation (MPC) wallet technology to allow institutional traders to swap tokens without needing to deposit them on the exchange, thereby targeting the elimination of counterparty risk.
New Era of Secure Institutional Trading
This development is particularly crucial in the wake of incidents like last November's FTX collapse, which highlighted the vulnerabilities of the crypto trading market.
Off Exchange features a unique wallet system. Trading firms can deposit assets into a shared MPC wallet. This wallet's control is divided between the trading firm, the exchange, and a third-party oracle, requiring at least two out of three parties to confirm transactions. This design prevents the trader or the exchange from unilaterally withdrawing assets, enhancing security. Fireblocks CEO Michael Shaulov explained when the oracle might come into play:
"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."
This launch represents Fireblocks' continued efforts to address the inherent risks in centralized crypto exchanges. Historical issues in these exchanges have ranged from cybersecurity exploits to mismanagement, which have led to significant financial losses.
By locking funds in secure MPC-based shared wallets, Off Exchange aims to prevent such incidents, providing a more secure framework for digital asset trading.
Several institutional trading firms already use Fireblocks' Off Exchange, including QCP Capital, BlockTech, and Zerocap, primarily on the Deribit exchange. The firm announced support for HTX, Bybit, Gate.io, WhiteBIT, BIT, OneTrading, Coinhako, Bitget, and more exchanges in the coming months, although it is currently limited to institutional traders, Shaulov said.
The FTX collapse not only impacted its clients but also broadly undermined trust in third-party custodians globally. In response, particularly against the backdrop of a protracted crypto bear market, exchanges are actively seeking new ways to attract more capital from institutional traders.
Off Exchange emerges as a solution in this context, significantly reducing counterparty risk in crypto exchange trading. It represents the first blockchain-native system enhancing transparency for exchanges to manage and validate client collateral directly on-chain, thereby improving liquidity and capital efficiency. Differentiating from traditional custodial approaches, it enables exchanges to maintain asset liquidity without direct risk exposure to Fireblocks. By integrating with the Fireblocks Network, exchanges gain immediate access to a large pool of institutional traders.
The firm said that this launch is a continuation of Fireblocks' ongoing commitment to develop solutions that effectively address counterparty risk in the digital asset sector, reflecting its broader vision to reshape the future of digital financial markets.
DeFi accessibility for institutions
Fireblocks was also named in a recent partnership announced by Talos Trading, a leader in digital asset trading technology. This partnership, which also includes Uniswap Labs, plans to integrate DeFi into institutional trading.
The collaboration enables Talos clients to access and trade on Uniswap's deep liquidity pools, "the deepest liquidity venue in DeFi", using advanced algorithmic strategies like the TWAP (Time-Weighted Average Price) algorithm. This is facilitated by Uniswap Labs' Trading APIs, providing enterprise-grade liquidity access. The evolving UniswapX ecosystem is set to further improve trading with better pricing, MEV protection, and gasless swaps. Fireblocks ensures secure transactions and infrastructure for these advanced features.
"We are thrilled to be working with Uniswap Labs and Fireblocks to expand liquidity access for our institutional clients. At the cornerstone of the DeFi ecosystem, Uniswap has the breadth of assets and depth of liquidity that institutional traders need.
And to have this partnership powered by Fireblocks, a digital assets infrastructure provider trusted by some of the most renowned institutions, is very fitting. Together, we share a vision of making digital assets more accessible in a financial marketplace that's more open." Anton Katz, Talos CEO and co-founder
This partnership is another significant stride in making DeFi more accessible and functional for institutional investors, potentially reshaping the landscape of digital asset trading by combining the advantages of centralized and decentralized liquidity sources.
Fireblocks also recently introduced Non-Custodial Wallets-as-a-Service, a significant innovation for retail businesses. This service allows these businesses to integrate MPC wallets into their platforms and provides end-users complete control over their private keys.
By doing so, Fireblocks is enhancing user autonomy and security in handling digital assets. It also grants users the benefits of advanced MPC technology, typically reserved for institutional settings, within a retail context, broadening the accessibility and control of digital asset management.