An Israeli startup Starkware believes information technology tin solve 2 of the most pressing issues in crypto trading — the inherent vulnerability of centralized exchanges and the low transactional capacity of decentralized ones.

The venture was co-founded by professor Eli Ben Sasson, who was a founding scientist for Zcash (ZEC). Besides raising virtually $40 million from prominent investors that include Sequoia and Intel Capital letter, it as well received a grant from the Ethereum Foundation.

Starkware for exchanges

Oren Katz, VP of engineering at Starkware, explained their approach in an exclusive interview to Cointelegraph:

"We basically provide a scalability engine for exchanges (or marketplaces). The commutation keeps the guild book and does the matching. The users mail orders to the commutation. The exchange matches orders and sends the ones to exist settled to us (StakWare's service). Nosotros batch a large number of trades together (could exist tens of thousands) and prepare a single STARK proof, which attests to the validity of the entire batch. The proof is sent to an on-concatenation verifier (e.chiliad. once every xv mins). In one case verified, the root land (of all user balances) is updated on-concatenation."

For decentralized exchanges, the tradeoff is that decentralization decreases. For the centralized ones, it's the loss of custody over users' deposits. This may lead to lower acquirement, equally they will not be able to trade, lend nor stake users' crypto.

Therefore, the system becomes self-custodial which almost completely eliminates the run a risk of an exchange mismanaging users' deposits. Its showtime use-case is the Deversify commutation, an Ether DEX, launched past Bitfinex.

"We take spoken with all the major crypto exchanges, some go very excited about our solution, some don't. For some, it'south a bug, for others, information technology's a feature. They say 'people trust us, we accept a good reputation'".

Why should nosotros trust you?

In response to the concern that by implementing Starkware's technology, an exchange is just moving the burden of responsibleness to another centralized entity, Katz explained:

"Ask yourself what is the worst thing that can happen if nosotros become malicious? We tin can't steal your crypto since we don't accept your keys, all we can do is terminate processing transactions."

Katz summed the value proposition of Starkware: "What we want to provide users is with the user experience, volume and cost of a centralized exchange, just without the counterparty risk."

Whether major crypto exchanges will embrace this technology is unclear. Holding millions of dollars in cryptocurrency is crushing, but besides is highly profitable. Much will depend on the users' appetite for risk.