In traditional finance, a trusted third party or “escrow agent” holds assets in custody and releases these funds to the respective parties once certain conditions were fulfilled. An escrow within the Arwen system refers to an on-blockchain smart contract between two parties, trader and exchange.
Escrows protect your coins if an exchange is hacked, becomes malicious, or goes offline.
When you trade with Arwen, you don’t need to deposit your coins at the exchange. Instead, you lock your coins in an on-blockchain user escrow. Arwen escrows use the blockchain itself, in the form of a smart contract, to securely hold coins between you and the exchange. If you create a Bitcoin escrow, the Bitcoin blockchain is the agent of escrow. Arwen has a coin recovery mechanism if you cannot close an escrow, read about it here.
At least two escrows are required to trade. One 'User Escrow' and one 'Exchange Escrow'. Both must be associated with the same exchange.