Israel-based cryptocurrency settlement solution provider, KeyTango, has partnered with GSR Markets, to enable over-the-counter (OTC) crypto desks to reduce counterparty risk and avoid the responsibility of cryptocurrency custody.
According to a report from THE BLOCK, KeyTango, and OTC firm GSR Markets recently piloted options trading. As of now, when trading crypto, investors have to deposit funds with OTC desks and exchanges before they can execute a trade. However, in the pilot, the OTC desk didn’t receive the seller’s collateral in advance.
As an alternative, instead of depositing the funds with the OTC desk, the seller deposited their collateral in a digital wallet, which had three key shares. These keys were held by GSR, the seller, and an agreed-upon arbitrator.
With the current crypto trading model, when traders need to deposit funds with the OTC desks or exchanges, their funds become vulnerable to hacks, which plague the digital asset industry.
KeyTango looks to traditional asset trading
The approach between KeyTango and GSR Markets models that of traditional asset trading. This is because 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.
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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.
These digital wallets are secured by multiparty computation (MPC). This allows two trading parties to co-sign transactions, which then release the funds from the wallets.
Speaking on the process to THE BLOCK, 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.”
Although KeyTango has recently piloted options trading with GSR, the company is looking to expand its partnerships. According to the company’s CEO, the firm has on-boarded multiple OTC desks and lending firms. The partnerships will be announced soon.
“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,” added GSR co-founder Cris Gil.