Cryptocurrencies have slowly found prominence on the OTC desk markets. A cryptocurrency settlement solution provider now enables over-the-counter (OTC) desks in a bid to evade the responsibility of cryptocurrency custody and also to minimize counter-party risk.
Israeli Crypto Startup
KeyTango, an Israel-based startup that offers non-custodial clearing services, recently piloted options trading with OTC firm GSR Markets, in which the OTC desk did not receive the seller’s collateral in advance. Instead, the seller deposited his collateral in a digital wallet with three key shares, held separately by GSR, the seller, and an agreed-upon arbitrator. Funds locked in the wallet can only be transferred when two of the three key shareholders co-sign the transaction.
Currently, in cryptocurrency trading, traders and investors have to deposit funds with OTC desks and exchanges before they can execute a trade. This practice could expose traders to risk of the exchanges or OTC desks becoming vulnerable to hacks, which plague the digital asset industry.
Going Slightly Old School
The approach between KeyTango and GSR Markets models that of
traditional asset trading.
In traditional asset trading, the security of funds when trading is usually handled by clearinghouses, which act as an intermediary between a buyer and seller, with their aim to ensure that the process from trade inception to settlement is smooth.
In traditional asset trading, this problem is usually handled by clearinghouses, which act as middlemen between OTC desks and traders to guarantee the enforcement of a trade. Similar to a clearinghouse, KeyTango uses digital wallets where clients can deposit their funds, as an alternative to giving them to OTC desks and exchanges. According to the cryptocurrency news outlet, the trading desk and the client can use their key shares to co-sign a transaction.
Multi-party Computation (MPC)
KeyTango secures its wallets with multi-party computation (MPC), a cryptographic technique in which several key shares are generated, stored separately, and computed collectively to authorise transactions. Under the MPC scheme, authorizing a transaction from the wallet does not require all key shares to be used, only the majority. In the event one side of the trade fails to authorize a transaction, an arbitrator can step in and co-sign.
KeyTango CEO Dan Danay said: “Basically we use MPC to completely decouple running the logic layer in doing any kind of centralized crypto trading, and doing the actual settlement…”
“The comparison between MPC and Multi-signature is exactly like in custody. If you want to do this with multisig, you will be limited to the chains that actually support multisig contracts you can actually trust.”
“We are excited to be involved in the advancement of this new technology. It not only reduces the counterparty risk prevalent in trading digital assets but also helps decentralize the trading process, which is key for the industry’s development”
– GSR co-founder Cris Gil.
Recently, Binance, which is the largest exchange in the industry, reported the launch of its OTC trading platform which would deposit fiat currencies including Chinese Yuan, but it did not offer the same reduction of counter-party risk offered by KeyTango.