Self-Guard Is More Than a Feature TechRadar

As markets rise, people feel more comfortable placing their cryptoassets in trusted third parties such as centralized exchanges and centralized lending platforms that promise increasingly attractive returns. The good times never last, however. As markets peak and monetary policy tightens, companies that have become overleveraged on the rise are exposing themselves to liquidity risks. If you have deposited your crypto-assets in these products, perhaps unaware of their risk taking, your assets are exposed to their risks.

Not your keys, not your coins

Pretty much everyone in crypto has heard that phrase by this point. This phrase is more applicable in the current market environment. The crypto and traditional markets are currently undergoing a contraction. With every contraction, whether in the crypto or traditional markets, companies with high leverage are more likely to fail. Worse still, there have been countless stories of unscrupulous people companies seeking funds from their clients to cover the cracks.

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We strongly recommend that people transfer your funds from centralized services to self-custodial (sometimes called non-custodial) wallets. Make sure it’s really in free custody, otherwise you still don’t have full control of your assets. Learn more about the difference between custodial wallets and self-custodial wallets here.

Exposure to risk from failing crypto products

Self-custody does not completely protect against the risks associated with failing projects. We saw it dramatically with LUNA/UST a month ago. However, there is a difference between custody projects and self-care projects. The risks of LUNA/UST were obvious to many as the finances were mostly on-chain, transparent and free from observation for anyone. Despite this, many participants, whether retail users or “sophisticated” institutional ones, were wiped out.

A far worse problem is with centralized crypto products, as their finances are shrouded in mystery. He prevents any foreknowledge of their impending troubles until he suddenly explodes. It is already happening now.

Celsius Network, a centralized crypto borrowing/lending platform, suddenly announced on June 13 that it was freezing client assets. This was particularly shocking given their CEO’s tweet responding to rumors of customer withdrawal freezes the day before.

Mike, do you know at least one person who has trouble withdrawing from Celsius?,

why spread FUD and misinformation.

If you get paid for this, let everyone know you choose your side, otherwise our job is to fight Tradfi together…

— Alex Mashinsky (@Mashinsky) June 11, 2022

.@CelsiusNetwork suspends all withdrawals, exchanges and transfers between accounts. Acting in the interest of our community is our top priority. Our operations continue and we will continue to share information with the community. More here :

— Celsius (@CelsiusNetwork) June 13, 2022

This prompted a market-wide sell-off, during which centralized exchange Binance, the world’s largest crypto exchange, announced the “temporary pause in bitcoin withdrawals”.

Temporary break from $BTC withdrawals on #binance due to a blocked transaction causing a backlog. Should be fixed in about 30 minutes. Will update.

Funds are SAFU.

— CZ 🔶 Binance (@cz_binance) June 13, 2022

Since then there has been alleged stories of Celsius customers see their collateral liquidated despite having sufficient assets to re-secure their loans. They were unable to do so due to the freezing of the account. June 15, The Wall Street Journal reported that Celsius had hired restructuring lawyers to “advise on possible solutions to its growing financial problems”. For Celsius customers, the Terms of use indicate that their funds could be confiscated:

In the event that Celsius goes bankrupt, goes into liquidation, or is otherwise unable to repay its obligations, any Eligible Digital Asset used in the Earn Service or as collateral under the Borrow Service may not be recoverable, and you may not have any remedy or legal right. in connection with Celsius’ obligations to you other than your rights as a creditor of Celsius under applicable law.

Meanwhile, rumors started circulating on June 14 that the famous crypto hedge fund, Three Arrows Capital (3AC) was insolvent. Like Celsius, 3AC had sequestered a large amount of ETH in stETH. The problem with stETH is that although a secondary market is available to trade the staking derivative, it is far less liquid than ETH. While Celsius was trying to find liquidity by selling stETH, 3AC was selling a lot more. On June 15, rumors of 3AC’s solvency issues were confirmed with co-founder Su Zhu’s tweet.

We are communicating with the affected parties and are fully committed to resolving this issue.

— Zhu Su 🔺 (@zhusu) June 15, 2022

Self-care is insurance

While it’s impossible to know if there will be contagion or how far it might spread (hopefully we’ve seen the worst already!), one thing is certain: if you keep your crypto yourself, you will have much greater control over your money during highs and lows.

Self-custody is certainly more than insurance, however, its role as insurance is essential. It is insurance against third parties, whether financial institutions or governments. All insurance comes with a premium, and self-care is no different. In this case, it is paid as personal liability, but the benefit is peace of mind.

The mission of bitcoin.com is to create economic freedom, which is why we devote the majority of our resources to the development of self-preservation Bitcoin.com Wallet and other self-care products like the DEX Verse. Use them to take control of your Bitcoin, Bitcoin Cash, Ethereum and ERC-20 tokens (support for more chains is on the way!).

Dennis Jarvis is CEO of bitcoin.com

Image credits: Shutterstock, Pixabay, Wiki Commons