Celsius, BlockFi, Voyager: An Endless List of Reasons Why Users Need To Take Self-Sovereignty Seriously
The ongoing issues affecting various major DeFi projects have sparked fear and concern among enthusiasts. When multi-billion dollar projects suspend trading and withdrawals without further communication, there is cause for concern. Portal, a self-hosted Layer 2 wallet and DEX on Bitcoin, shows things can be done differently.
DeFi Issues Pose Serious Problems
People who keep tabs on DeFi and cryptocurrency will know there are several struggling platforms today. The year 2022 has not been kind to projects like Celsius, BlockFi, and Voyager Digital. These platforms represent between $1 billion and over $5 billion in Total Value Locked, respectively, none of which are accessible to users today. That means users cannot deposit, withdraw, trade, or collect their rewards.
When such big players become crippled, people will want an explanation. However, users should have known better than trusting centralized providers who claim to be a necessary gateway to decentralized finance. Trusting a platform that controls a user's funds is not the way to go, even if they promise higher yields. That latter aspect has made these companies lax as they engaged in risky bets with customer funds, and they now pay the price for doing so.
Celsius and BlockFi both operated as cryptocurrency exchanges, whereas Voyager is one of the biggest crypto lenders today. It is remarkable how all three platforms need to use custodial accounts, locking users out of their funds when company decisions fail to pay off.
Decentralized finance is all about user control, privacy, and accountability. The three companies mentioned earlier have compromised on at least one of these three pillars, introducing central points of failure that should have never existed.
Valuable lessons need to be learned from these experiences. DeFi users are more eager to remove funds from centralized DeFi providers than ever before, and they have begun exploring alternative options. For instance, Portal, one of the many solutions built on top of the Bitcoin network, provides users with a self-hosted wallet and DEX to perform atomic swaps. Additionally, the team is working on establishing a broader range of DeFi solutions, including staking and lending.
Why Self-Custody Is Essential
The purpose of decentralized finance is user empowerment quickly, securely, and privately. That includes removing the need for custodial access by third parties while still giving users options to swap and use their crypto assets freely. Building on secure blockchain networks can lead to maintaining anonymity while accessing open and transparent markets. There is no need to share private keys with anyone else, nor will privacy erode.
More importantly, Portal, as a Layer-2 and Layer-3 solution on Bitcoin, facilitates private and off-chain execution of smart contracts. Not in the traditional sense, although the technology supports asset issuance, swaps, liquidity, derivatives, and more. In addition, Portal's approach enables zero-knowledge cross-chain swaps and censorship-proof communication. All of that is possible thanks to the native security of the Bitcoin network, and without dealing with wrapped coins or intermediaries.
One may think these features would force users to compromise on speed and efficiency. That is not the case, as the Layer-2 solution is on par with centralized exchange execution speed, with the added bonus of privacy. Furthermore, self-custody DeFi solutions will often provide high yields without the risks associated with dealing with centralized intermediaries.
Thankfully, the DeFi industry is home to many exciting non-custodial protocols today. Notable examples include Aave, Alpha Homora, Bancor, Interplay, etc. These projects can be found across various blockchains, although overall interest in building on Bitcoin keeps rising. Thanks to smart contract layer Stacks and EVM-compatible layer Rootstock, there is tremendous potential in building the next generation of self-custodial solutions on the Bitcoin blockchain. That would also make these applications leverage the most secure and immutable network.
As the focus shifts - or should shift - to self-custody and self-hosted solutions, issues of the Celsiuses and Voyagers of the world will affect fewer users. Users, especially those with larger sums in their wallets, have no obligation go through centralized and custodial providers to access DeFi products and services, regardless of the high yield they may claim to offer.
The technology and infrastructure to do better and take control is here and accessible to everyone willing to use them. More importantly, there is no need to rely on "lesser" networks, as very powerful solutions are being built on the biggest and most secure blockchain in the world.