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Fireblocks Unveils "Off Exchange" to Tackle Exchange Counterparty Risk in Crypto Trading

Aimed at institutional traders and asset managers, the solution enables them to trade on centralized exchanges more securely.

Photo by Ewan Kennedy / Unsplash

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Blockchain security service provider Fireblocks has announced the launch of "Off Exchange," a new solution designed to address the longstanding issue of exchange counterparty risk, the firm announced in a statement today.

Utilizing Multi-Party Computation (MPC) technology, Off Exchange allows traders to allocate and mirror assets directly from a wallet they control jointly with the exchange. This approach aims to safeguard assets against various threats, including hacks and fraud. Notably, this method differs from traditional custodial solutions that often shift counterparty risk to centralized clearing parties.

Fireblocks noted Off Exchange's potential to enhance liquidity and transparency in the crypto market. By facilitating real-time settlement and movement of capital between venues, the solution allows traders to react swiftly to market opportunities. Moreover, it provides exchanges with on-chain transparency to monitor and validate client collateral without needing to take custody, a feature that could significantly benefit the industry, the firm said.

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Addressing a Persistent Industry Challenge

The introduction of Off Exchange comes in response to the inherent risks associated with crypto trading. Exchange counterparty risks, highlighted by incidents like the recent FTX debacle, have been a major concern for traders. These risks include cyberattacks, bankruptcy, and misappropriation of client funds, which are partly due to the dual role of exchanges as custodians and trading venues.

“We are excited to push the envelope of using innovative technology to solve the challenges of counterparty risk in digital assets,” said Michael Shaulov, CEO of Fireblocks, calling it a "fundamental shift in how to simultaneously reduce risk and increase liquidity.”

Deribit was announced as the first exchange to integrate with Fireblocks Off Exchange. Luuk Strijers, CCO of Deribit, noted the solution's potential in offering greater liquidity and transparency. Additionally, several leading institutional trading firms are already leveraging this new model on Deribit.

Fireblocks plans to extend support to other global exchanges, including HTX, Bybit, Gate.io, WhiteBIT, BIT, OneTrading, Coinhako, and Bitget.

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