Fireblocks launches trading system to mitigate centralized exchange risk

November 28, 2023 Coin Telegraph

The "Off Exchange" trading system was launched by Fireblocks, allowing institutions to trade without fully relinquishing custody.

Multi-party computation (MPC) wallet provider Fireblocks has released a new trading system for institutions that use centralized exchanges, according to a Nov. 28 announcement. Called “Off Exchange,” the new system allows institutional traders to swap tokens without first depositing them on the exchange. Fireblocks claimed this system would help to eliminate counterparty risk on centralized exchanges and prevent future FTX-like collapses.

Today, we’re excited to launch Off Exchange, a new solution that enables trading firms and asset managers to truly eliminate exchange counterparty risk. Read on → https://t.co/FLl3AufE0s pic.twitter.com/s4P5kyNy3O
— Fireblocks (@FireblocksHQ) November 28, 2023

In a conversation with Cointelegraph, Fireblocks co-founder and CEO Michael Shaulov explained how Off Exchange works. He said it allows trading firms to deposit assets to a “shared” or “interlocked” MPC wallet, whose private key comprises three shards. The first shard is held by the trading firm, the second by the exchange, and the third is “triggered by an oracle.” For a transaction in this wallet to be confirmed, two out of three shards must be used to sign the transaction. This means that neither the trader nor the exchange can unilaterally withdraw assets.

Under most circumstances, transactions are confirmed when the exchange and trader sign the transaction, Shaulov explained. But if either the trader or exchange is unresponsive for a period of time, the third-party oracle can provide a second signature under certain conditions. “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,” Shaulov stated.

According to the announcement, Off Exchange has already been implemented by institutional trading firms QCP Capital, Blocktech and Zerocap, which are using it to trade on the Derebit centralized exchange. In the coming months, the team plans to roll out support for other exchanges, including HTX, Bybit, Gate.io, WhiteBIT, BIT, OneTrading, Coinhako, and Bitget. Off Exchange is currently only available for institutions, Shaulov confirmed to Cointelegraph.

Centralized crypto exchanges have been plagued by issues of counterparty risk throughout their history. In 2014, users lost over $473 million in Mt. Gox, when deposits they made to the exchange were stolen through a cybersecurity exploit. In 2018, Canadian crypto exchange Quadriga shut down without returning users’ funds, resulting in over $169 million in losses to users. The exchange was later accused by regulators of being a Ponzi scheme. In 2021, investors lost approximately $8 billion when crypto exchange FTX stopped processing withdrawals. The exchange is now going through bankruptcy and its CEO has been convicted of fraud.

In its announcement, Fireblocks claimed that Off Exchange will help to prevent incidents like these, which it said “stem from the unique structure of the crypto trading market, where exchanges play the role of both a custodian and trading venue.” This issue will be avoided by “locking funds in secure MPC-based shared wallets,” it stated.

Bitget releases MPC wallet, includes 2/3 private key sharding

October 23, 2023 Coin Telegraph

Bitget

Cryptocurrency exchange Bitget has released a MPC wallet to improve asset security and user experience.

Cryptocurrency exchange and derivatives platform Bitget has launched a new wallet service using multi-party computation (MPC) to improve security and key management for users.

Following the launch of its account abstraction wallet service powered by Ethereum scaling protocol Starknet in July 2023, Bitget has employed MPC to overhaul private key and asset management.

MPC technology uses a distributed key generation mechanism that distributes multiple key shares to different locations that are controlled by multiple parties. This enables a process that requires the owners of distributed private key shares to sign and authorize the transaction.

The MPC wallet features a "mnemonic-free" user experience, removing a long-time industry standard that relied on users storing or memorizing mnemonic phrases and private keys. Assets are instead managed using password-based authentication, which Bitget touts to eliminate the risk of a single-point private key exposure.

The exchange notes that the development is aimed to mirror the user experience typically found in traditional Web2 products and services. At a more technical level, Bitget’s MPC wallet relies on a threshold signature scheme, uses secure “large prime numbers” and features a 2/3 threshold setup.

The latter feature is designed for consumer-grade users, introducing a minimum number for signature authorization requiring just two-thirds of the total key shares to complete a signature to authorize a transaction.

The last key share is securely stored on a backup cloud server, ensuring an elevated level of decentralization and security.

The MPC wallet also introduces a reshare mechanism that invalidates key shares on old devices when newer devices are connected. This is aimed at removing the risk of key shares potentially being compromised on outdated or forgotten devices.

Users can also configure standalone transaction passwords which ensure that key shares that are held by Bitget’s server can only be used to complete signatures with the users' active consent.

Cryptocurrency self-storage has become an increasingly important part of the wider ecosystem in the wake of major failures of centralized players like FTX. In March 2023, hardware wallet manufacturer Ledger raised $109 million to increase its hardware production and explore the creation of new products.

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USDC issuer Circle launches MPC wallet beta for Ethereum, Polygon, Avalanche

August 8, 2023 Coin Telegraph

Circle

The stablecoin issuer launched a service and API that allows developers to create customized wallets for their users.

USD Coin (USDC) issuer Circle has released a beta version of a multi-party computation wallet (MPC) service, according to an Aug. 8 announcement. The new service will allow developers of DeFi apps, Web3 video games, e-commerce services, and other blockchain applications to create customized wallets specifically for their users. It will be available initially on Ethereum, Avalanche, and Polygon.

Building crypto apps is still too hard. Plus, less than 0.5% of the 100 million developers worldwide are actively building crypto apps today.

This needs to change. Our new wallet-as-a-service developer platform is a huge step in that regard. Check it out https://t.co/ku9LTz8Z97
— Patrick Hansen (@paddi_hansen) August 8, 2023

MPC wallets are secured by splitting the user's private key into multiple shards and distributing them through a decentralized network. It’s a new wallet technology many Web3 developers have been using. MPC wallets can be accessed via an application programming interface (API), giving them a “Web2 feel” that some developers and users prefer.

According to an explanatory blog post from Circle, the new service will allow developers to “choose the best wallet security and control configurations.” For example, some developers may want to host their own MPC nodes to ensure they are not completely reliant on Circle, while others may want to choose the simpler method of connecting to Circle’s nodes. Developers can also choose to “share transaction signing responsibilities with the users,” allowing them to recover keys if users lose them, or they can make the product noncustodial by requiring users to sign every transaction.

According to Circle co-founder and CEO Jeremy Allaire, the new service is essential in promoting the use of USDC:

“Circle’s Programmable Wallets is part of a new, core pillar of our strategy to advance global, mainstream utility and adoption of digital assets like USDC and public blockchain-based payments[.] This new platform marks the first step for Circle’s Web3 services as we work to ease common pain points for developers[.]"

MPC wallets have faced controversy recently, as the widely used Multichain MPC bridge was hacked on July 7, causing investors to lose over $100 million. The Multichain team later admitted that all MPC shards had been stored on a cloud server under the control of their CEO.

In an emailed statement to Cointelegraph, Circle's senior director of product management Gagan Mac claimed that the new service “is built and maintained in-house, and doesn’t leverage external vendors,” implying that third-party cloud storage systems will not be used. In addition, Gagan stated that “some developers and enterprises may prefer to host an MPC node,” which they will be allowed to do if they wish. Multichain did not allow partners to host their own nodes.

Circle recently stated that the demand for Euro-based stablecoins is heating up and also argued that a Yuan stablecoin will be better than a Chinese CBDC.

MetaMask Institutional to integrate with Fireblocks MPC platform

June 8, 2023 Coin Telegraph

Coin Telegraph

Fireblocks will be added to the list of MetaMask Institutional custody technology providers, allowing its users to perform token swaps and stake ETH using the app’s dashboard.

Web3 wallet MetaMask will integrate with Fireblocks’ multi-party computation (MPC) platform, allowing Fireblocks users to access the wallet’s portfolio dashboard, according to a June 6 announcement. The integration will be part of the MetaMask Institutional product aimed at institutional investors. It will go live on June 12.

*Map of prior MetaMask Institutional custody provider integrations. Source: MetaMask*

MetaMask Institutional is wallet software that offers institutions a variety of features, including the ability to stake and lend crypto. It does not custody funds for institutions. Instead, it allows institutions to choose between multiple custody technology providers. Fireblocks is the latest provider to join the list, which includes BitGo, Gnosis Safe, Parfin, Hex Trust and others.

Fireblocks uses multi-party computation, a process that splits the user’s private key into shards and distributes the shards across a decentralized network. This can help to prevent any one node from having access to the full key, potentially making the wallet more secure. The company claims that over 1,800 institutions use its service to secure their crypto.

The new integration will give Fireblocks users access to MetaMask Institutional’s portfolio management capabilities and all-in-one dashboard, letting them do native token swaps and Ether (ETH) staking directly from the dashboard. The dashboard also enables users to view performance and profit and loss data for particular tokens and decentralized finance protocols.

According to Johann Bornman, global product lead for MetaMask Institutional, the integration was made partially in response to growing demand from institutions to get into the Web3 market:

“With the exponentially increasing demand from organizations to enter web3, MetaMask Institutional is focused on providing the most expansive ecosystem access. […] This integration brings together two marquee products and further supports our goal to bridge every organization into web3."

Fireblocks was one of the earliest MPC wallet providers, along with ZenGo. It launched Payments Engine in October, which is used by payment providers Checkout.com and Worldpay. In August, Fireblocks implemented a token minting feature by integrating with Tokeny.

Securities token platform launches MPC wallet for institutions

May 3, 2023 Coin Telegraph

BitGo

The Web3 wallet allows institutions to control which employees are allowed to use the tokens held within it.

Securities token platform INX has launched a wallet with compliance features for institutions, according to a May 3 announcement. The new wallet was created in partnership with wallet infrastructure provider BitGo and uses multi-party computation (MPC) technology.

Exciting announcement!
INX now collaborates with @BitGo to enable institutional #investors to fully and confidently participate in the #security #tokens market and the greater digital economy: ⤵️https://t.co/AbpdS86lYk
— INX (@INX_Group) May 3, 2023

INX securities tokens exist on the Ethereum network and follow the ERC-1404 token standard. The standard was created in 2018 to allow for compliance-friendly Ethereum tokens. These tokens can only be transferred between users that have passed identity verification with a participating institution.

The new wallet allows institutions to comply with cybersecurity and custody standards in the financial industry when holding INX securities tokens. No single person is given access to the private key that controls a given account. Instead, the key is split into three or more “shards” that have to be combined to sign transactions, which is part of the MPC technology.

According to the announcement, the wallet also contains features to make employee access privileges easier to manage. Companies can task different employees with different roles, such as “viewers, spenders, approvers and administrators.” They can also segregate clients’ assets by splitting up funds into multiple wallets and giving “approver” privileges to each individual client. This allows institutions to give their clients more control over their individual accounts, the announcement said.

Lisa Jowett, head of platform sales at BitGo, said she thinks these new features will help make institutional investors more comfortable using Web3 technology:

“Our wallets can connect to and interact seamlessly with [the INX website] without compromising on security or reliability. This will unlock new possibilities for investors and serve as a gateway for institutional adoption of Web3.”

INX reached a major milestone on April 3 when it launched its first equity token from a public company, Greenbriar Capital. INX advisor Douglas Borthwick has argued that eventually “all assets will migrate to the blockchain.”

The company is registered with the Securities and Exchange Commission as a broker-dealer within the United States. Some industry experts have argued that the U.S. doesn’t have clear enough crypto regulations to allow most crypto exchanges to gain this designation.

MPC