Seedless Keys And DLCs: How Lava Is Making Bitcoin Custody Straightforward

Firm Identify: Lava

Founders: Shehzan Maredia

Date Based: January 2022

Location of Headquarters: New York, USA (with some distant staff)

Quantity of Bitcoin Held in Treasury: N/A

Variety of Staff: 7

Web site: https://www.lava.xyz/

Public or Personal? Personal

Shehzan Maredia desires to make custodying Bitcoin straightforward.

For this reason he based Lava, an app that he and his staff have created that enables customers to buy bitcoin, transact with each bitcoin and stablecoins globally and now maintain their bitcoin in self-custody with out having to jot down down a seed phrase.

Maredia is certainly one of a rising listing of entrepreneurs within the Bitcoin area who believes that seed phrases — lists of 12 to 24 phrases used to get better funds from misplaced or stolen cryptocurrency wallets — are hindering mainstream adoption of bitcoin. He thinks that seedless options to self-custody will assist onboard the lots.

“I spotted that seed phrases had been an enormous barrier to adoption,” Maredia advised Bitcoin Journal, “and I went down the rabbit gap [to make] one thing higher.”

After months of R&D, Maredia developed an answer that’s now on the coronary heart of the design of the Lava app: Lava Vault.

Lava Vault

After testing quite a few totally different self-custody setups, Maredia and his staff arrived at a singular multisignature resolution that grew to become the spine of the Lava Vault.

“We constructed this two-of-two restoration resolution for self-custody the place you’ll be able to connect one a part of the two-of-two to your cloud account and the opposite is a 4 digit PIN,” he defined.

Introducing the Lava Vault, the very best self-custody app for individuals who wish to save in bitcoin and spend in {dollars} with out compromising on safety.

free, prompt, international funds
purchase bitcoin with lowest charges accessible
safe your property with seedless, 2-of-2 restoration pic.twitter.com/nEIYIHD6Dg

— lava (@lava_xyz) July 16, 2024

“If I’ve your 4 digit PIN, I am unable to steal your cash as a result of I haven’t got entry to your cloud account. If I’ve entry to your cloud account, I haven’t got your 4 digit PIN, and I am unable to brute power it,” he added.

Maredia and the staff at Lava name this design the Lava Good Key, they usually imagine that it’s serving to to offer less complicated self-custody for many who in any other case won’t wish to tackle the accountability.

“We’ve really seen a bunch of individuals utilizing it that beforehand would have simply purchased bitcoin and saved it on Coinbase,” he stated.

What’s extra, Lava Vault works seamlessly with Lava Exchange, one other product Lava lately rolled out.

Lava Vault + Lava Change = Auto-Onboarding To Self-Custody

It’s usually difficult for brand spanking new Bitcoin customers to inform the distinction between a custodial pockets that an trade gives and a self-custody pockets. It may be overwhelming for somebody new to Bitcoin to undergo the method of shifting their bitcoins from an trade pockets into self-custodial pockets, particularly if the trade gives each (e.g., Coinbase).

Lava removes this issue, although, because it permits customers to buy bitcoin throughout the app — at the very best charge accessible — earlier than mechanically sending that bitcoin into self-custody.

“We’ve got this trade aggregator we’ve constructed,” stated Maredia.

“If you wish to purchase bitcoin immediately, it’s a must to determine which trade — Kraken, Coinbase. So, we work with a number of them. We all know what worth they give you based mostly in your order, and we simply route you to the very best trade by way of Lava,” he added.

As soon as customers make their buy, the bitcoin exhibits up of their Lava Vault.

“That is tremendous helpful if I’m attempting to onboard customers to self-custody,” stated Maredia. “Now, I can inform them to obtain on to self-custody, which largely will increase the probability that they may proceed to make use of self-custody.”

As soon as customers have their bitcoin or stablecoins in self-custody through Lava, they’ll use both asset to make transactions permissionlessly with anybody on this planet. And shortly they may even be capable to borrow {dollars} towards their bitcoin with out having to show their bitcoin over to a 3rd social gathering.

Lava Loans

Maredia and the Lava staff lately launched a beta model of a brand new product referred to as Lava Loans, which Maredia describes as a “self-custodial model of BlockFi.”

BlockFi, now defunct, was a platform that allowed customers to make use of bitcoin as collateral for a mortgage. The principle distinction between a platform like BlockFi and Lava is that customers had to surrender custody of their bitcoin to BlockFi to make use of the service.

“Lava Loans is the primary technique to borrow towards your bitcoin with out giving it to a custodian or bridge,” stated Maredia.

Maredia created this product as a result of he each noticed the demand for it and needed one thing like this for himself.

“There’s a number of Bitcoiners who don’t wish to promote their bitcoin,” shared Maredia.

“I don’t wish to promote my bitcoin both, as a result of it’s appreciating. I’d quite borrow towards it at a decrease rate of interest than it’s appreciating,” he added.

He additionally observed that the opposite strategies of borrowing towards one’s bitcoin are each extremely inefficient and costly.

“There are billions of {dollars} of bitcoin-secured loans taking place with custodians or with Wrapped Bitcoin (WBTC),” he defined.

“To get Wrapped Bitocin, it’s a must to take your Bitcoin, KYC your self, put it on an trade, pay charges to mint it, pay a bunch of community charges to maneuver it onto Ethereum after which when you’re achieved utilizing Wrapped Bitcoin, transfer it again to your trade, pay further charges to unwrap your Bitcoin and transfer it again to self-custody. And also you in all probability have tax obligations for wrapping your Bitcoin, too,” he added.

“I wish to get these folks utilizing native bitcoin. We are able to improve the market measurement of people who find themselves utilizing precise bitcoin as collateral.”

Discreet Log Contracts (DLCs)

Lava Loans employs a selected kind of sensible contract on Bitcoin referred to as Discreet Log Contracts (DLCs).

Maredia defined that DLCs are safer than the forms of sensible contracts usually deployed on different main crypto networks.

“DLCs are attention-grabbing since you’re mainly simply utilizing the Bitcoin layer one to lock your Bitcoin and launch it underneath some predefined set of circumstances,” he defined.

“[As opposed to] sensible contracts on Ethereum or Solana that consistently maintain getting hacked, DLCs are mainly a bunch of pre-signed transactions that you simply encrypt. You virtually get formal verification of your system by default, as a result of that the cash that’s locked within the sensible contract between you and your counterparty can solely be moved underneath this predefined set of circumstances that you’ve verified,” he added.

“So, there’s lots much less technical threat versus writing arbitrary code deployed on the EVM that anybody can poke round with and exploit.”

Maredia additionally shared that the Lava staff consists of quite a few engineers who contributed to early DLC requirements.

“There’s in all probability like 10 folks, a number of which work at and contribute to Lava proper now, who learn about this tech,” defined Maredia, who additionally shared that the potential of DLCs has but to be totally realized largely due to how new the expertise is. “Not too many individuals learn about [DLCs, but] that’s as a result of the tech is early and we’re constructing it.”

Transfer Slowly And Safeguard Issues

Not like many within the crypto and broader tech area who take the “Transfer quick and break issues” strategy, Maredia and his staff are analytical and thorough. They like to conduct analysis and check merchandise rigorously earlier than bringing them to market.

“We have been doing a number of R&D over the past two years,” stated Maredia.

“We had been experimenting with a lot of issues. Even earlier than we constructed Lava Good Key, Lava Change and Lava Loans, we had been experimenting with a number of other ways to do loans, to do self-custody safety and to do on-ramp and off-ramp,” he added.

“This new self-custody safety resolution is a product of the final eight to 10 months of experimentation.”

Maredia added that whereas Lava Loans is probably going months away from going dwell, the beta model of the product has been functioning properly and offering he and his staff with essential suggestions.

“Every thing’s coming collectively,” he concluded.

Lava is a portfolio firm of UTXO Management, a regulated capital allocator targeted on the digital property business. Bitcoin Journal is owned by BTC Inc., which operates UTXO Administration. UTXO invests in quite a lot of Bitcoin companies, and maintains vital holdings in digital property.

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