Cube.Exchange squares the circle of decentralization

One year out from the FTX implosion, traders have better choices for decentralized exchanges that remove or limit counterparty risk. But while DEXs with centralized-like user experience have begun to gain traction, they are still not as performant as their CEX competitors. And not everyone is keen on self-custody.

Cube.Exchange set out to split the difference. The platform offers spot trading of four crypto assets, differentiating itself with a user-centric approach to asset control. It takes the transparency of the blockchain, and pairs it with the convenience and performance of familiar centralized off-chain exchanges.

The exchange transitioned Tuesday from a private beta phase to a public beta. Its development was informed by the failings of centralized players, including the bankruptcies that wracked the industry in 2022.

Unlike conventional exchanges, Cube allows users to maintain ownership of their assets, using MPC wallets, with withdrawals and trades requiring explicit user authorization.

The team behind the exchange refers to it as a hybrid model, combining an off-chain matching engine for trading and on-chain settlement to layer-1 blockchains.

“On the custody and settlement side, we focused on using multiparty computation for custody of the assets and then focusing on directly connecting to each individual blockchains,” Bartosz Lipiński, CEO of Cube.Exchange told Blockworks.

“We wanted to find a middle ground where the exchange doesn’t own your assets — we never put them on our balance sheet as liabilities to our clients and classify them as our assets — because they are in the MPC wallet.”

When users deposit assets, such as bitcoin (BTC), the funds remain isolated and viewable at all times on a native Bitcoin block explorer. When they execute a trade, the transaction happens peer-to-peer. Cube batches trades and settles them periodically back to the Bitcoin network.

It’s like Cube acts as a centralized interoperability layer between chains, serving the same function as proof-of-reserves, but better, because the exchange never fully takes custody.

Read more: Crosschain DEXs: The Next Frontier

“Think of it as this like meta layer-2 that takes the state that happened on the exchange and settles MPC wallets to Bitcoin and Ethereum for example,” Lipinski said.

He emphasized the importance of separating asset custody from trading, citing it as a potential conflict of interest in the crypto asset trading space.

Lipinski sees a trend towards greater use of MPC solutions, citing Binance’s self-custody wallet, offerings from Coinbase and Fireblocks as examples.

The difference from, say, Fireblocks, is that Cube vertically integrates custody with the exchange and doesn’t charge clients for the MPC solution, making it suitable for retail users not just institutional players.

Solana in the mix

Curated Solana validators are the real-time record keepers of all trading, similar to how Pyth’s oracle network publishes price data. They also serve as “MPC guardians” to help users custody assets.

Cube itself does not hold a wallet key share, but facilitates vault recovery services for users who lose access to their own private key.

Lipinski became interested in the Solana ecosystem at an early stage, after leaving his job at Citadel, where he was head of equities application development.

“I got into it because of COVID,” he told Blockworks. “My wife told me to stop baking bread at home, so I started playing with Solana.”

Cube’s initial launch follows a $9 million fundraising round in October, and includes spot trading of native BTC, ETH, SOL and BONK — a Solana meme coin — each paired with USDC.

The exchange is actively applying for licenses around the world, but is already registered as a virtual asset service provider (VASP) in Australia and Poland. The latter should provide EU-wide access to the exchange.

A public beta phase is expected to last around one to two months, Lipinski said.

“I want to build the best exchange out there, both from the market makers perspective and the user’s perspective,” he said.

---

Start your day with top crypto insights from David Canellis and Katherine Ross. Subscribe to the Empire newsletter.

Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. Subscribe to the Forward Guidance newsletter.

Get alpha directly in your inbox with the 0xResearch newsletter — market highlights, charts, degen trade ideas, governance updates, and more.

The Lightspeed newsletter is all things Solana, in your inbox, every day. Subscribe to daily Solana news from Jack Kubinec and Jeff Albus.