Non-Custodial by Design
Bitcoin-native, non custodial lending isn’t a compromise, its a win-win.
In light of some recent developments, it's worth expanding on why we feel this is the case at Lygos. First, let's rewind just a few years to the custodial lending failures of crypto past. The billions in losses and destruction of trust was “Murphy’s Law” at work. What can go wrong, eventually will go wrong. Yes, there were some malicious actors, but some had genuinely good intentions. CeFi lenders believed that they were offering a higher quality product with a better user experience.
Unfortunately, when pushed to the extremes of a frothy and competitive market, intentions can shift and risk manifests. What seems like a great way to provide users more flexibility, lower rates, better yield, ends up putting their funds at risk. Lenders pledge collateral they represented would not be rehypothecated. The proof of reserves that was promised is continuously delayed. Backroom deals are cut without visibility for end customers. When custodial lending fails, everyone loses (other than bankruptcy lawyers).
This is exactly why we believe that a non-custodial platform, where users have control, transparency, and choice is necessary for long term success. Lenders are rarely equipped to be custodians of collateral, nor should they be. By giving borrowers increased control over their collateral, we eliminate the most common cause of failure within the industry. It's why we chose to build our platform using Discreet Log Contracts that have secured over $100M in transactions. It's also why we launched with Magnolia Financial as an independent third-party oracle, ensuring borrowers can repay loans and reclaim their collateral without the cooperation of lenders or the platform.
In the same vein, we will be announcing a number of integrations with wallet providers giving increased custodial choice. Allowing users to verify, sign transactions, and enter loans directly from where they already custody their bitcoin. Custodial choice should not be a sacrifice in the name of UX. Non-custodial is aligned with Bitcoin’s principles and more resilient.
