Cold-Hot Wallet Isolation

What is Cold-Hot Wallet Isolation?

Cold-Hot Wallet Isolation is essentially not a technology but a method of asset management. It refers to the segregation of assets between cold wallets and hot wallets, which can also be understood as the separation of assets between offline and online environments.

In the context of Orders, the hot wallet is used solely to facilitate basic Swap transactions to ensure transactional efficiency, thereby storing a small portion of the liquidity pool funds online. The hot wallet utilizes a 2/3 threshold multisignature scheme, where each transaction and transfer requires the signatures of at least two of the multisignatory parties. The private keys used are unique, and if they need to be recovered, the signatures of the remaining signatories are still required.

Once the asset amount in the hot wallet reaches a certain threshold, assets exceeding this threshold are transferred to the cold wallet. The cold wallet is mostly offline and requires the multisignatory parties to come online and sign to complete the asset transfer whenever the hot wallet falls below the threshold. The cold wallet employs a 3/5 threshold multisignature, necessitating simultaneous signatures from at least three of the five signatories. The multisignature private keys are also unique, and in the event of loss, recovery would require simultaneous signatures from the remaining signatories.

Moreover, during system upgrades, which involve asset transfers, all signatories must be present and sign simultaneously for assets to be transferred. After the transfer, a joint signature is again needed to obtain multisignature authority for the new address.

In summary, by employing Cold-Hot Wallet Isolation and Threshold Multisignature, the security of the Orders liquidity pool can be maximized, eliminating any opportunity for unauthorized asset appropriation.