In the last two weeks, the saying, “not your keys, not your coins,” has been repeated throughout crypto Twitter as the biggest lesson learned following FTX's unraveling and ongoing contagion effect.
Just last year at the height of crypto summer, self-custody was still a topic that did not have clear consensus outside of DeFi (decentralized finance). Self custody comes with trade-offs. People don’t trust themselves to custody their own assets. You can read for example, this except out of Forbes in a piece titled, Not Your Keys, Not Your Coins? Whatever, published on October 15, 2021.
“Not your keys, not your coins is a fun rallying cry for computer science undergraduates and paranoid warlords, but it makes absolutely no sense that the average person should be loaded with this responsibility… Be my own bank? No way. It makes much more sense to keep my assets in the safekeeping of an institution that specialises in keeping assets safe.” - David Birch, author of The Currency Cold War.
CeFi has played an important role in crypto adoption. Centralized crypto exchanges like FTX, Binance, and Coinbase were able to offer a more familiar financial experience with an easy to use UI and custodial services. With that said, there are still a few critical use cases that will require the need for custodians.
1. Certain regulations/regulators may require it.
Regulations are created to protect investors from predatory business tactics. Depending on who the regulated body is, or what type of business, a custodial solution may be required.
2. There are individuals that will never be comfortable holding their own assets and don’t want to be solely responsible for the keeping their assets safe.
There’s a reason individuals are not their own banks today. Storing your own cash had its own risks, from outsiders like robbers to disasters like fires, and thus bank accounts were created. Today, this discomfort may stem from other factors but the resulting fears of one’s assets being stolen, lost, or compromised are the same.
We should recognize that centralized crypto exchanges attempted to solve for these use cases and therefore was successful at driving a wave of adoption into crypto. Before DeFi matured to where it’s at now, CeFi exchanges provided a pathway for investors to engage with blockchain. There are of course, other challenges in trusting centralized crypto middlemen, but new blockchain solutions are being built to mitigate some of these reliances.
The key takeaway is that institutions should hold their own assets in combination with additional DeFi solutions. The argument for self-custody, especially to protect investors transacting in DeFi, has taken center stage with the expectation for both retail and institutional investors to not just know how to, but want to self-custody their digital assets. Several years ago, there weren't many solutions built for DeFi specifically, but today, both retail and institutional investors can choose from MPC or multi-sig wallet providers that help to secure and protect your keys while you self-custody your own digital assets.
In Fordefi’s announcement blog last week, which we published the morning before the potential Binance acquisition of FTX, we spoke candidly about the promise and need for a trustless network — one of blockchain’s original promises — so that we could cut out potentially dangerous reliances on middlemen who are not incentivized to protect you or your funds. We didn’t realize how timely that messaging would be but the next few days continued to prove to everyone that some of the largest downfalls in crypto to date, have been caused by centralized solutions failing to protect user funds. The reality is that if your digital assets are being held by a custodian, exchange, or other entity, and you don’t own your private keys, then you have no control or protections over what happens to the digital assets in that wallet.
Our institutional wallet is built for DeFi connectivity. Access hundreds of dApps across multiple chains with a single browser extension. Fordefi’s tech stack utilizes a layered security approach: MPC key management, granular DeFi controls, and smart contract verification. Alongside our institutional-grade security approach, our wallet platform enables clients to self-custody their own private keys and setup their own disaster recovery process.
To request a demo, please email our team at sales@fordefi.com or reach out to us direct on telegram, username @fordefi.