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

Firm Title: 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 Workers: 7

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

Public or Non-public? Non-public

Shehzan Maredia desires to make custodying Bitcoin straightforward.

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

Maredia is one among 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 noticed 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 various completely different self-custody setups, Maredia and his workforce arrived at a novel multisignature answer that grew to become the spine of the Lava Vault.

“We constructed this two-of-two restoration answer for self-custody the place you may 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.

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safe your belongings with seedless, 2-of-2 restoration pic.twitter.com/nEIYIHD6Dg

— lava (@lava_xyz) July 16, 2024

“If I’ve your 4 digit PIN, I can not 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 can not brute pressure it,” he added.

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

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

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

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

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

Lava removes this issue, although, because it permits customers to buy bitcoin inside the app — at the very best fee obtainable — earlier than routinely sending that bitcoin into self-custody.

“We now have this trade aggregator we’ve constructed,” mentioned Maredia.

“If you wish to purchase bitcoin as we speak, you must work out which trade — Kraken, Coinbase. So, we work with a whole lot of them. We all know what value they give you primarily based 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 reveals up of their Lava Vault.

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

As soon as customers have their bitcoin or stablecoins in self-custody by way of Lava, they’ll use both asset to make transactions permissionlessly with anybody on the planet. And shortly they may also have the ability to borrow {dollars} in opposition to their bitcoin with out having to show their bitcoin over to a 3rd get together.

Lava Loans

Maredia and the Lava workforce lately launched a beta model of a brand new product known 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 primary 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 solution to borrow in opposition to your bitcoin with out giving it to a custodian or bridge,” mentioned 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 whole lot 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 somewhat borrow in opposition to it at a decrease rate of interest than it’s appreciating,” he added.

He additionally seen that the opposite strategies of borrowing in opposition to 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, you must 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 additional charges to unwrap your Bitcoin and transfer it again to self-custody. And also you most likely have tax obligations for wrapping your Bitcoin, too,” he added.

“I wish to get these individuals utilizing native bitcoin. We will enhance 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 known as Discreet Log Contracts (DLCs).

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

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

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

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

Maredia additionally shared that the Lava workforce consists of various engineers who contributed to early DLC requirements.

“There’s most likely like 10 individuals, a whole lot 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 absolutely 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” method, Maredia and his workforce are analytical and thorough. They like to conduct analysis and check merchandise rigorously earlier than bringing them to market.

“We have been doing a whole lot of R&D during the last two years,” mentioned Maredia.

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

“This new self-custody safety answer 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 reside, the beta model of the product has been functioning nicely and offering he and his workforce with necessary suggestions.

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

Lava is a portfolio firm of UTXO Administration, a regulated capital allocator centered on the digital belongings business. Bitcoin Journal is owned by BTC Inc., which operates UTXO Administration. UTXO invests in a wide range of Bitcoin companies, and maintains important holdings in digital belongings.