Starkware, an Israeli startup, believes that it can solve two of the most pressing issues in crypto trading-the inherent vulnerability of centralized exchanges and the low trading capacity of decentralized exchanges.
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The joint venture was co-founded by Professor Eli Ben Sasson, founding scientist of Zcash (ZEC). In addition to raising nearly $ 40 million from prominent investors including Sequoia Capital and Intel Investments, it also received a grant from the Ethereum Foundation.
Starkware working on exchange solutions
Ork Katz, Starkware's vice president of engineering, explained their approach in an exclusive interview with Cointelegraph:
"We basically provide a scalability engine for exchanges (or markets). Exchanges hold orders and match them. Users post orders to exchanges. Exchanges match orders and send us orders to be settled (StakWare's service ). We process a large number of transactions in batches (possibly tens of thousands) and prepare a single STARK certificate to prove the validity of the entire batch. The certificate will be sent to the on-chain validator (for example, every 15 minutes). After verification, the root status (of all user balances) will be updated on-chain. "
For decentralized exchanges, this tradeoff is reducing decentralization. For centralized accounts, this is the escrow loss on user deposits. This may lead to lower revenues as they will not be able to trade, lend or mortgage users' cryptocurrencies.
Therefore, the system will become self-hosted, which can almost completely eliminate the risk of exchanges managing user deposits. Its first use case is the Deversify exchange launched by Bitfinex, which is an Ethereum decentralized exchange (DEX).
"We've talked to all the major cryptocurrency exchanges, some are very excited about our solution, some are not. For some, this is a mistake, for others it is a Function. They say "People trust us and we have a good reputation."
Why should we believe you?
To address concerns that by implementing Starkware's technology, the exchange simply shifted the burden of responsibility to another centralized entity, Katz explained:
"Ask yourself the worst thing that can happen even if we become malicious? Since we don't have your key, we can't steal your cryptocurrency, and all we can do is stop processing transactions."
Katz summarizes Starkware's value proposition:
"We want to provide users with the user experience, quantity and cost of a centralized exchange, but without the risk of counterparties."
It is unclear whether the technology will be adopted by major cryptocurrency exchanges. Holding millions of dollars or even hundreds of millions of cryptocurrencies, although burdensome, can be very profitable. Much depends on the risk appetite of the user.