Improving Security for Users of Decentralized Exchanges Through Multiparty Computation

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.