Improving security for users of decentralized exchanges through multiparty computation

TL;DR

This paper presents a multiparty computation protocol that enhances security for decentralized exchanges by enabling customizable API keys and policies, reducing risks of fund loss from compromised systems.

Contribution

It introduces a novel multiparty computation protocol compatible with existing decentralized exchanges to improve security policies without sacrificing decentralization.

Findings

Protocol works with ECDSA and EdDSA signatures

Deployed on Nash exchange and Ethereum smart contracts

Secures thousands of user trading accounts

Abstract

Decentralized cryptocurrency exchanges offer compelling security benefits over centralized exchanges: users control their funds and avoid the risk of an exchange hack or malicious operator. However, because user assets are fully accessible by a secret key, decentralized exchanges pose significant internal security risks for trading firms and automated trading systems, where a compromised system can result in total loss of funds. Centralized exchanges mitigate this risk through API key based security policies that allow professional users to give individual traders or automated systems specific and customizable access rights such as trading or withdrawal limits. Such policies, however, are not compatible with decentralized exchanges, where all exchange operations require a signature generated by the owner's secret key. This paper introduces a protocol based upon multiparty computation that allows for the creation of API keys and security policies that can be applied to any existing decentralized exchange. Our protocol works with both ECDSA and EdDSA signature schemes and prioritizes efficient computation and communication. We have deployed this protocol on Nash exchange, as well as around several Ethereum-based automated market maker smart contracts, where it secures the trading accounts and wallets of thousands of users.