Today, Fireblocks is launching Off Exchange, a new solution that enables trading firms and asset managers to trade on centralized exchanges from an on-chain MPC shared wallet, eliminating exchange counterparty risks.
Fireblocks Off Exchange leverages MPC technology to allow traders to allocate and duplicate assets directly to an exchange from a wallet they mutually control, protecting their principal from hacking, bankruptcies and fraud, while providing centralized exchanges with full on-chain transparency that customer accounts are fully guaranteed.
Off Exchange launches with support for it will be a jokewith Cooperative, ByBit, OK, door.io, BIT, OneTrading, Coinhako, bitgetand additional global exchanges will be added in the coming months.
Understanding foreign exchange counterparty risk
Foreign exchange counterparty risk takes many forms, including cyber attacks, bankruptcies, commingled accounts, and misappropriation of client funds, as demonstrated by the FTX incident. These risks arise from the unique structure of the cryptocurrency trading market, where exchanges play the role of custodian and trading venue. Huge counterparty risks have restricted the capital that trading firms deploy on exchanges and have completely prevented traditional firms from entering the cryptocurrency market.
To counter this risk, operations teams have traditionally implemented time-consuming processes to monitor exposure and constantly eliminate excess foreign exchange margins to protect their businesses. But these processes only manage exposure, as they cannot fully mitigate the risk of your funds getting commingled on an exchange. This business model is also adverse for exchanges as institutions reduce capital to maintain risk limits.
Offering the first true Off Exchange solution
Existing off-exchange solutions attempt to resolve exchange counterparty risk by pooling traders' assets in a custodial account, which are then reflected in an exchange account where they are available for trading. However, this custodial approach transfers the exchange's counterparty risk to a centralized clearing party.
Fireblocks Off Exchange takes a technology-first approach, allowing traders to eliminate all forms of exchange counterparty risk by programmatically locking funds in secure, MPC-based shared wallets.
Unlike custody solutions that transfer counterparty risk to centralized clearing parties, Fireblocks Off Exchange takes a technology-first approach, allowing traders to eliminate all forms of exchange counterparty risk through programmatic blocking. of funds into secure MPC-based shared wallets.
With Fireblocks Off Exchange, traders and exchanges can settle trades in real-time and move capital between venues and counterparties, allowing them to quickly capitalize on new trading opportunities.
Restore risk balance in the trading market
The FTX collapse not only directly affected exchange customers, but also had a widespread impact on exchanges globally, eroding trust in any third-party custodian. Given these events, along with a prolonged crypto bear market, exchanges are looking for new ways to increase the capital that institutional traders deploy to their venues.
Off Exchange enables exchanges to drive institutional volumes by providing a new solution, significantly reducing the counterparty risk associated with cryptocurrency exchange trading.
Fireblocks Off Exchange offers the first native blockchain solution, giving exchanges full transparency to monitor and validate customer collateral on-chain and enforce risk management without taking custody. This increases liquidity for exchanges and traders by eliminating the need for both parties to lock funds in a third-party cold storage solution. It also allows exchanges and traders to mitigate the adverse impact on funds while maximizing their capital efficiency.
Unlike custody solutions that require exchanges to pledge assets, Off Exchange does not require exchanges to lock their assets, allowing them to remain liquid without taking on the direct counterparty risk of Fireblocks.
By integrating with Fireblocks Network, exchanges can instantly reach thousands of the largest institutional traders and provide them with an Off Exchange solution directly from their existing workflow.
Our continued commitment to resolving counterparty risk
Fireblocks has a long-standing commitment to creating products that mitigate counterparty risk.
When Fireblocks launched in 2018, we developed the Direct Custody model, which allows companies to maintain full control of their private keys while uniquely providing the highest security and operational efficiency. This model fundamentally changed the risk profile that companies experienced when selecting a custody technology and set a new standard in the digital asset space.
He Fire Block Network It has also been instrumental in mitigating counterparty risk for institutional traders by eliminating risks associated with deposit addresses. Companies on the Fireblocks network can connect directly through their network profiles and do not have to worry about the possibility of asset loss due to a deposit address attack or human error.
Recently, Fireblocks also released Non-Custodial Wallets as a Serviceallowing retail businesses to integrate MPC wallets into their application and give their end users full control of their keys.
With the launch of Off Exchange, Fireblocks reinforces its commitment to creating solutions that truly eliminate counterparty risk in the digital asset ecosystem. Our Off Exchange vision extends beyond decoupling trading custody from crypto exchanges. As Fireblocks actively engages with major retail companies and traditional trading centers, the Off Exchange model represents an important step forward in building the next generation of digital financial markets.
Interested in learning more about Fireblocks Off Exchange? Request access today.
