Research Summary
Deribit, in collaboration with Fireblocks, has integrated an Off Exchange solution to its infrastructure, becoming the first exchange to do so. The solution, leveraging MPC technology, allows traders to allocate and mirror assets directly to Deribit from a mutually controlled wallet, eliminating counterparty risks such as cyber hacks, bankruptcy, and fraud.
Key Takeaways
Integration of Off Exchange Solution
- First of its kind: Deribit is the first exchange to fully integrate the new Off Exchange solution to its infrastructure, in collaboration with Fireblocks.
- Elimination of Counterparty Risks: The solution allows trading firms and asset managers to trade on Deribit from an on-chain MPC wallet, eliminating counterparty risks such as cyber hacks, bankruptcy, and fraud.
Benefits of the Solution
- Increased Liquidity and Capital Efficiency: The solution provides Deribit with transparency to monitor and validate collateral on-chain and enforce risk management without taking custody of client assets, resulting in increased liquidity and higher capital efficiency for both clients and the exchange.
- Quick Capitalization on Trading Opportunities: The solution enables traders to programmatically lock funds in secure MPC wallets, with the ability to move capital between venues, allowing firms to quickly capitalize on trading opportunities.
Onboarding Process
- Requirements: To use the Fireblocks Off Exchange settlement on Deribit, clients must be registered with both services and Coincover, the trusted party for disaster recovery service.
- Operational Set Up: The onboarding process includes completing the supplementary terms and operational steps such as setting up the collateral signer. Once completed, Deribit and Fireblocks will activate the client’s account under the Off Exchange model and settlement begins the next day.
Service Availability
- Service Activation: Daily settlement begins the day after the onboarding process is completed. The onboarding process includes required documentation and operational set up.
- Service Limitations: Only the main Deribit account can be linked to this service, daily settlement is on an aggregate level of all sub-accounts.
Disaster Recovery
- Recovery Material: During the set up process, Deribit receives confirmation from Fireblocks and Coincover of the activation of the feature and the safe storage of the backup material.
- Platform Unavailability: In case the Fireblocks platform becomes unavailable, using the recovery material stored with Coincover, Deribit will recover the assets from the CVA and credit the client’s Deribit account with the portion of the assets owed to them.
Actionable Insights
- Consider the Benefits: Trading firms and asset managers should consider the benefits of the Off Exchange solution, such as the elimination of counterparty risks and increased liquidity and capital efficiency.
- Understand the Onboarding Process: Potential clients should familiarize themselves with the onboarding process and requirements to use the Fireblocks Off Exchange settlement on Deribit.
- Plan for Disaster Recovery: Clients should understand the disaster recovery process in case the Fireblocks platform becomes unavailable.
