Fantasy fans may remember Arwen, the character from the "Lord of the Rings" who guides the main characters through a series of dangerous situations. The Arwen protocol intends to do the same, only for cryptocurrency trading. Essentially, Arwen uses native capabilities of existing blockchains to…
Fantasy fans may remember Arwen, the character from the “Lord of the Rings” who guides the main characters through a series of dangerous situations. The Arwen protocol intends to do the same, only for cryptocurrency trading.
Essentially, Arwen uses native capabilities of existing blockchains to create escrow funds so that users and crypto exchanges are protected from attacks. Today, they’re announcing a demonstration called Mt. Fox.
Mt. Fox is a fictional crypto exchange that will attempt to steal your funds. Named doubly because it rhymes with Mt. Gox and because foxes are malevolent characters in the fantasy genre, Mt. Fox definitely wants to steal your money. Fortunately, you don’t have to risk any real crypto funds to see it in action. The demonstration, available now via Arwen.io, uses testnet coins only.
Here’s a video of Mt. Fox in action:
As shown in the Mt. Fox demo above, Arwen helps you avoid exchange disasters by creating an escrow between yourself and the cryptocurrency exchange where you want to trade. Escrows have an expiry. As you make trades, Arwen deducts from the escrow. The proceeds credit to a new escrow.
Arwen CEO Sharon Goldberg told CCN that, when designing the Arwen Trading Protocol, the team wanted to accommodate as many cryptocurrencies as possible. That meant that they had to design for the lowest common denominator in blockchains, which turned out to be Bitcoin Cash. One of the first issues they had to solve when developing the protocol was a solution to the so-called transaction malleability problem. Bitcoin Cash, unlike Bitcoin, which solved the issue during the SegWit upgrade, has a minor attack vector related to the signing of transactions. Arwen withstands transaction malleability attacks.
The philosophy of Arwen is simple: the solution to centralized exchange wallets going missing or other malfeasance is to not store the coins on the exchange at all. All major cryptocurrencies support some kind of smart contract support, which enables the creation of the escrows Arwen will use. They’ve already partnered with KuCoin, and following the release of Mt. Fox, they’re hoping to attract new exchange partners.
Goldberg says that exchanges have as much incentive to offer non-custodial trading as traders have to use it.
“Any exchange that prioritizes user protection is going to attract new users and higher volumes. Arwen is a highly marketable feature for centralized crypto exchanges, because it satisfies the growing demand from traders and funds for self-custody. With Arwen, a centralized exchange can offer its users a DEX-like self-custody experience, while still allowing them to enjoy the speed and liquidity of the exchange’s orderbooks.”
After all, most of the major exchange problems, barring exit scams, have been the result of external attacks. The risk of hacking is nearly eliminated when user funds are held in escrow.
Arwen’s business model is to partner with exchanges – for a fee. For many, it is what the industry has called for.
To date, decentralized exchanges have failed to truly compete with centralized exchanges. This is to say that people seem to prefer the convenience of centralized exchanges. Arwen integrates directly into the orderbooks of a centralized exchange.
Whether or not major crypto exchanges adopt Arwen, every exchange failure or hack will make it more attractive to users, who might switch to exchanges that allow them to use Arwen. Like the listings on exchanges themselves, the adoption of the Arwen protocol will likely come as a result of user demand.
Arwen’s press release about Mt. Fox explains:
“Arwen allows you to self-custody your coins while still enjoying the speed and liquidity at a centralized cryptocurrency exchange. With Arwen, trades are backed by on-blockchain escrows, where each coin’s native blockchain acts as the agent of escrow. Trades are fast atomic swaps and their security is backed by the on-blockchain escrows. The Arwen Trading Protocols ensure that even a hacked, malicious or unresponsive exchange cannot steal a trader’s coins. […] Mt. Fox will attempt to steal your testnet coins.”
Hundreds of millions of dollars in crypto have been lost under the current model. Exchanges build trust and buy insurance and do any number of things to set themselves apart, but Arwen cuts through the noise and creates a solution to the problem as a whole. While still in its infancy, the importance of developments like this cannot be understated.
Disclaimer: The views expressed in the article are solely those of the author and do not represent those of, nor should they be attributed to, CCN.
Last modified: January 10, 2020 3:12 PM UTC