In DeFi, counterparty risk is solved with code and self-custody is the norm. Paulina Jóśków shares how the shift towards DeFi is something that even large centralized exchanges have acknowledged will happen. Part of Crypto2023, presented by Bitstamp:
Let’s face it, crypto still has a reputation problem and, as of now, rightfully so – but 2023 is the moment to change that at a root level. Recent events have only accentuated a lack of trust in the space from both businesses and consumers. The worst part is that this has been due to counterparty risk, a problem that crypto is meant to bypass by design.package.
Time and again we’ve seen how different kinds of custodial services have turned this risk into a reality. From Mt. Gox in the early days of crypto, to FTX, Celsius Network and Three Arrows Capital, they all failed to deliver on their obligations towards users – and not just any users. Many of those affected were newcomers to the space who simply weren’t aware that self-custodial alternatives are available.
Unlike a bank, custodial services in crypto are not insured and many are registered off-shore. In the event of a hack or bankruptcy, it's very likely that users lose all their assets and no customer service representative will answer to explain what happened. Some custodians have built their businesses on the back of this information asymmetry.More education around existing decentralized infrastructure and self-custodial onboarding is the first step in solving this problem.
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