Not your keys, not your crypto: Recent events further highlight the risk of custodial wallets

Crypto storage has always been a topic of debate. While some individuals stand by online custodial wallets, others are more comfortable using offline storage. At the end of the day, the choice is subjective and depends on one’s needs. However, recent happenings in the crypto market have cast a shadow of doubt over web-based crypto wallets, where a crypto firm holds your login keys and is tasked with securely storing your funds. Let’s understand why:

Over the last couple of months, a spree of insolvencies and bankruptcies has rocked the cryptosphere. Reeling from the severe bear market and the aftermath of the Terra meltdown, several crypto exchanges, investment firms and lending platforms have decided to stop withdrawals and freeze accounts.

Eventually, some of these firms turned insolvent and declared bankruptcy. For instance, Voyager Digital, a crypto investing app for iOS and Android, declared bankruptcy on July 6 after freezing withdrawals in June. A few days later, crypto lender, Celsius followed suit, declaring bankruptcy on July 14. More recently, crypto lender Vauld applied to Singapore Courts seeking a moratorium order, which is like an American Chapter 11 bankruptcy filing.