As markets rise, people feel more comfortable putting their crypto assets on trusted third parties, such as centralized exchanges and centralized lending platforms that promise increasingly attractive returns.
However, the good times never last. As markets peak and monetary policy tightens, companies that became overleveraged on the way up are exposed to liquidity risks. If you deposited your crypto assets in these products, perhaps without realizing their risk, your assets are exposed to their risks.
We strongly recommend that people move their funds from centralized services to self-custodial (sometimes called non-custodial) wallets. Make sure you are truly self-custodial, or you don’t have full control over your assets yet. Read more about the difference between custodial and custodial wallets here.
Self-custody does not fully protect you from the risks associated with failed projects. We saw this spectacularly with LUNA/UST a month ago.
However, there is a difference between custody projects and self-custody projects. The risks of LUNA/UST were apparent to many because the finances were mostly on-chain, transparent and free for anyone to observe. Despite that, many participants, both retail and “sophisticated” institutional users, were eliminated.
A much worse problem is centralized crypto products because their finances are shrouded in mystery. He avoids any foreknowledge of his impending problems until he suddenly explodes. This is already developing now.
Celsius Network, a centralized crypto lending/lending platform, suddenly announced on June 13 that they were freezing customer assets.
This was especially shocking given its CEO’s tweet in response to rumors of freezing customer withdrawals the day before.
Virtually everyone in crypto has heard this phrase by now. This phrase is more applicable in today’s market environment. Crypto markets and traditional markets are currently experiencing a contraction. During every contraction.
whether in crypto or traditional markets, highly leveraged companies have a higher chance of failing. Worse still, there have been countless stories of unscrupulous companies seeking their clients’ funds to plug the cracks.