Recent difficulties at Celsius, BlockFi, Babel, Vauld and Novi demonstrate the fundamental flaws of centralized finance (CeFi), and clearly demonstrate why centralized operators require far stronger regulatory oversight.
This is according to Marcel Harmann, CEO of THORWallet DEX, who told Be[In]Crypto that in the absence of tougher regulation, users should seek out purely noncustodial solutions.
While cynics may say that it is hardly surprising that the CEO of a noncustodial solution would argue for noncustodial solutions, recent events would make it increasingly hard to argue that the point is factually wrong.
The bear market has witnessed protocols including Celsius and Babel Finance making changes to their service offerings, often in the form of reduced or suspended withdrawal functions. The changes are billed as “temporary” when announced, but can last for weeks. Celsius first suspended withdrawals on June 13, but nearly a month later, have yet to lift restrictions.
On July 4, CoinLoan lowered its withdrawal limits and Vauld suspended all trading activities. The two join a growing list of crypto companies who have imposed some kind of limit or suspension on their customers, preventing them from accessing all of their money.
As Harmann sees the situation, these types of decisions make the case for regulators to handle crypto projects no differently than traditional financial institutions.
He said :
With Vauld joining Celsius, BlockFi, Babel and even Meta’s Novi, it is clear that CeFi fundamentals are lacking and also add , With Vauld joining Celsius, BlockFi, Babel and even Meta’s Novi, it is clear that CeFi fundamentals are lacking
A noncustodial solution is one where no third party holds the funds. Simply put, noncustodial means self custody.
Harman also said the following about borrowing and lending in CeFi in non-custodial wallets. This immunizes them against the vagaries of bosses who might seek to suspend services during a market downturn.
They facilitate trust between strangers, which is essential for the future of inclusive global finance
While the users of decentralized solutions may look at custodial platforms with a sense of superiority, there are still some risk factors at play. We put it to Harmann that code can be attacked, or exploited, and that in DeFi it frequently is.
Over time, the most trusted solutions will prevail,” said Harmann. “Should a decentralized protocol with volumes in the billions go without incident for years on end, this is a sure sign that the code is trustworthy