The Modulus Exchange Trust Score System is a revolutionary solution which aims to restore trust in exchanges, particularly those dealing in digital assets and cryptocurrencies.
When an exchange operator runs our accounting server software on their exchange, the accounting server maintains a counter of the order book, trades, deposits, and withdrawals associated with the exchange. The counter then gets inserted into a blockchain.
Note: There is no storage of actual order, trade, deposit, and withdrawal data on the blockchain. Instead, only a hash is stored. This obfuscates the data and ensures that nobody can determine the actual trade volume or custody amount based on this hashed value which is stored in the blockchain.
The exchange will have an account with one of our custodial service providers, including BitGo, Fireblocks, Copper.co, or another similar provider. That provider runs a separate accounting server software application from Modulus, which maintains hashed values. The custodial service provider, as well as the exchange, will provide API endpoints to which our Exchange Explorer App connects.
When a regulator, or another interested party, seeks to view an exchange in our Explorer App to receive a snapshot of the Exchange Trust Score, they will open the app and view a list of supported exchanges which run our accounting software. When the user clicks on the exchange, the Explorer App will connect to the blockchain and obtain the latest counter values for the exchange for orders, trades, deposits, and withdrawals. It will then connect to the custodial service provider and obtain the latest counter value for deposits and withdrawals, while simultaneously connecting to the actual exchange accounting server via API to get the latest counter values.
From there, a comparison is automatically computed. If the numbers do not match, a flag is displayed. If the values do match, but are off by a certain percentage, that information is relayed. Additionally, the Explorer App allows the auditor to see line graphs of these values, as well as line graphs of deposits as compared to withdrawals.
Note: Line graphs do not show actual currency amounts, but, rather, just an index value, so the actual custody amount will not be known. All exchange information is kept confidential.
Centralized digital exchanges operate as a third-party facilitating the trade of assets. Those trades are not P2P, nor are they recorded onto the blockchain as they would be with a decentralized exchange. Users put their faith in the exchange to process transactions appropriately, a trade-off they make because centralized exchanges process trades at a much faster rate than decentralized exchanges. Unfortunately, there is no assurance to the user that the exchange is processing transactions correctly and in the appropriate order. Transaction data provided by an exchange may be manipulated or misreported.
The bedrock of any exchange is its reputation, and, for too long, digital asset exchanges have been in the news for all the wrong reasons. Even exchanges which are among the most popular in their geographic region have been shown to have been shown to have engaged in chicanery over the years. Traders want to know that their assets are secure.
The Modulus Exchange Trust Score System allows exchanges to provide proof that they are operating above board. Without giving away any proprietary data, an exchange can advertise its trust score, backed by one of the most trusted name in FinTech: Modulus. Through this system, Modulus can verify that an exchange is operating in compliance with regulatory requirements and in good faith. That verification is a strategic differentiator for an exchange that is competing for users against so many others. It is easy to see the marketing and branding implications this system could offer a well-run exchange.
Modulus is known throughout the financial technology segment as a leader in the development of ultra-high frequency trading systems and blockchain technologies. Over the past twenty years, the company has built technology for the world’s most notable exchanges, with a client list which includes NASA, NASDAQ, Goldman Sachs, Merrill Lynch, JP Morgan Chase, Bank of America, Barclays, Siemens, Shell, Yahoo!, Microsoft, Cornell University, and the University of Chicago.
For years, we have been leading the charge for greater trust and accountability in the digital assets space. Just this year, Modulus launched a groundbreaking Blockchain-as-a-Service offering, an enterprise blockchain for decentralized verification and tracking, featuring cutting-edge AI-based capabilities. In 2018, Modulus launched a market surveillance and risk management solution, which targeted abuse within cryptocurrency markets. Modulus developers are well-versed in creating solutions that crackdown on bad actors, while allowing exchanges to differentiate themselves based on their commitment to security.
Contact us today to schedule a demo, and prepare your exchange for the coming regulatory burdens! See the Modulus Difference in action.