The Need For Transparency and Accountability When It Comes To Being a Custodian

The current situation with Bit4You has raised additional concerns about the risks and responsibilities involved around crypto custody and centralized services. To bring Web3 into its next phase of success and drive mainstream adoption, we must address these concerns and consider some insight into what can be done to prevent similar situations from occurring.?

To recap - Belgian's exchange Bit4You halted operations where their users were locked out of their funds. It was particularly striking that Bit4you was taken down because 81% of client funds were held via CoinLoan, a third-party platform that subsequently entered insolvency. This does not compute for me; the situation shows the need for increased transparency and accountability within the space. It is of the utmost importance that customers know how their funds are being held and what is being done when they are stored in custody.

CZ, CEO of Binance, commented on the downfall of FTX and suggested that cryptocurrency exchanges should hold assets on a 1:1 ratio rather than run on fractional reserves. This is something that I agree with. The assets held by the custodian should only be put to work with the user's explicit consent. Because exchanges have been mismanaging people's funds, there is a growing interest in self-custody solutions, i.e., individuals taking on the responsibility of holding and securing their assets.

The crypto space is undoubtedly in need of both custodial and non-custodial solutions. However, for custodians to effectively operate, they must do so in a manner that:?

1. Enables transparency for users?
2. Educates users on financial terminology, ensuring they have an understanding of how their assets are managed
3. It is free from excessive reliance on third-party platforms and
4. Mitigates and manages the risks associated with fractional reserve holdings via avenues such as recovery options.

How Venly looks at custody vs. self-custody

At Venly , safety and security is our core priority. We only offer custodial solutions to bolster end-user safety and recovery mechanisms by implementing cutting-edge blockchain technology. As such, our position as a custodian is strictly technical and focuses on supporting the business and end-user to securely manage their private keys and help them regain access to their account if they have forgotten their private key. In no circumstance does Venly ever move client's assets from their blockchain wallet to another location. I'm sharing more on our security standards here.

To conclude, the events surrounding Bit4you have driven home the importance of transparency and responsibility in crypto. The industry needs to work together alongside regulators and key players to ensure that education remains a vital part of developing and adopting these solutions.?