After leaving Goldman Sachs to start his own business, GRVT CEO talks about the trust dilemma, vaults and self-custody in modern finance

Original title: 《Vaults vs. Self-Custody: The Trust Dilemma in Modern Finance》

Original author: Hong Yea, GRVT (pronounced "gravity")

About the author: GRVT co-founder and CEO, served as an executive director at Goldman Sachs before founding GRVT. After being exposed to Blockchain technology, he deeply realized that traditional finance could be subverted and reconstructed. Despite strong opposition from his family and colleagues, he insisted on resigning to start a business. The goal of the GRVT team is to reshape the financial market landscape and create a "Goldman Sachs on the chain" by integrating blockchain technology and self-custody solutions into traditional finance (TradFi) and decentralized finance (DeFi).

The traditional financial system in today's world still relies on a complex network of "trusted third parties" to operate. Despite the many flaws of the system, people still choose to trust bank vaults (mainly digital vaults in the current context) to keep their funds and assets.

This trust has evolved over hundreds of years. In people's minds, the traditional banking system has established a considerable degree of reliability, mainly due to the supervision of governments and the institutional guarantees and insurance provided by authoritative institutions.

Unlike the crypto world, although the traditional banking industry continues to face various security and fraud challenges, it is rare to hear about the theft of billions of dollars in funds by traditional financial giants such as HSBC or Bank of America. This security is mainly due to two factors: strong security measures and strict supervision and regulations, which largely prevent banks from mishandling user funds.

Although for early participants in the crypto space, the industry is advancing rapidly after many ups and downs, and has already ushered in its highlights, such as the passage of Bitcoin and Ethereum ETFs this year, and the attention paid to the crypto industry in the US presidential election.

But for the general public, the "cryptocurrency circle" is almost equivalent to fraud, and the outside world has this perception, which can be regarded as "self-inflicted" by some people in the industry. Just look up some recent reports from CoinDesk, the industry's leading vertical media, and you can see shocking figures: Terra, Celsius and FTX's thunderstorm incidents have lost a total of 40 billion US dollars. Additionally, according to another report from CoinDesk on the FBI investigation, total losses from crypto investment scams in the United States in 2023 were $3.94 billion.

Some crypto native OGs who are deeply involved in the industry may not pay attention to the cognitive gap between "insiders" and "outsiders", but from a longer-term perspective, the birth and future development of blockchain, cryptocurrency or DeFi, from the very beginning, has a vision of not only serving the crypto native community, but will one day be able to expand to the general public. Therefore, how to rebuild the trust value of the entire crypto industry for the general public is a key proposition for all practitioners.

After experiencing a series of bankruptcies, the author believes that self-custody based on the "disintermediary trust mechanism" is the key to achieving trust, and it is applicable to both retail investors and institutions.

Trust in the traditional banking system has been accumulated over hundreds of years and has been strengthened through regulations and security protocols. For example, after the bankruptcy of Silicon Valley Bank, there were frameworks and measures in place to protect customers' losses to a certain extent. In contrast, the crypto industry is still in its infancy, with little regulatory scrutiny, and the foundation of trust has been further eroded by rounds of scams, which runs counter to the initial intentions of Bitcoin and decentralized finance.

Against this backdrop, self-custody provides individuals and institutions with a relatively safe environment. It is an ideal solution by giving them direct control over assets, eliminating reliance on intermediaries and reducing the risk of third parties mishandling funds.

The road to building trust is long, and the key to breaking the deadlock lies in technical security

In addition to the trust issue, self-custody also solves another core pain point in the industry: technical security.

Drawing on the development of the banking industry from barbarism to regulatory maturity, there is reason to believe that as crypto self-custody technology advances, the field will gradually become more trustworthy. Although the industry as a whole is still in its early stages, current self-custody technology is already able to effectively protect assets, and its capabilities are comparable to the way large banks protect customer assets. According to CCData reports that there are currently more than 100 custody solution providers serving both institutional and retail investors in the crypto industry. Similar to the consolidation trend in industries such as automobiles, banks, and the Internet, the crypto industry is expected to experience similar consolidation in its second decade, and the current chaotic state will gradually die out.

Many retail investors are reluctant to use self-custody because it is more troublesome to operate, and the rapid market fluctuations and hype sentiment also make many people seek convenience and would rather take the risk of improper handling of funds. Institutions are a little ahead, and various self-custody solutions are also developing.

But the author would like to take this opportunity to reiterate that self-custody is indispensable for both retail investors and institutions.

The reform of self-custody is not only a technical change, but also a philosophical change, which is about regaining control and establishing a trust model that is solidified in the financial system. As the industry matures further, we have reason to foresee that self-custody will no longer be just one of the options, but will truly become a must-have for users who value security and trust.

The end of Web3 wallets?

The original intention of Web3 is "trustlessness". GRVT is working hard to build a trustless self-custody centralized exchange. One of the major features is the GRVT self-custody wallet, which is technically supported by Dfns, headquartered in France. GRVT has worked with leading Web3 wallet infrastructure providers to solve a problem that is considered "difficult to solve" in the blockchain field: private keys. Through the GRVT wallet, users can easily connect to everything in the Web3 world and avoid risks like FTX.

Unlike decentralized exchange wallets, the GRVT wallet is unique in that users can enjoy an extremely simplified user experience, providing powerful decentralized protection measures without having to face the complexity of existing Web3 wallets: no mnemonics are required, private key recovery is more convenient, and the risk of asset theft or loss is greatly reduced. Although many platforms have made similar promises, only a few have actually delivered.

An important consensus reached by GRVT and Dfns is that the old private key storage methods are flawed - from handheld hardware to handwritten notes. Although the goal of decentralization is to fight centralization and fraud, the reality is that crypto traders lack convenient tools to manage encryption keys, which frequently leads to irreparable losses caused by loss or wallet entrapment.

GRVT Wallet: Zero Threshold Self-Hosting

GRVT Wallet has designed a simple Web authentication process (WebAuthn) for first-time wallet users and experienced traders, allowing users to create and access wallets through passwords and cryptographic keys, which eliminates the complexity associated with crypto wallets.

Dfns allows access to GRVT wallets through fingerprint or facial recognition. Biometrics is not only a secure two-factor authentication method, but also fast, user-friendly, and widely used in traditional Internet banks. This process combines the convenience of Web2 with the advantages of asset security and self-custody.

Using Dfns technology, GRVT can utilize an off-chain, permissioned peer-to-peer network, using multi-party computing (MPC) with traditional public key infrastructure. Through MPC, GRVT Wallet provides the following key advantages:

· No single point of failure: The GRVT wallet allows multiple devices to be connected and sets up multiple security barriers to prevent hacking.

· Responsive recovery: Provides multiple recovery options, such as setting up a recovery wallet and generating backup codes in case all credentials are lost.

· Continuous transactions: Replacing the connected device will not affect the public key or address, and Dfns is used to register and certify the public key. This ensures the continuity of fund transfers and enhances manageability that other wallet providers have not yet provided.

In addition, the GRVT wallet does not save the user's private key, nor does it send the security information of the username to any external server. Although it is called the GRVT wallet, it is completely out of GRVT's control. This protects users' funds from the impact of server leaks and exchange risks. With the GRVT wallet, we have laid the foundation for simple, safe and secure transactions in the crypto world.

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Disclaimer

Cryptocurrencies carry a high level of risk. The content of this article does not constitute a distribution, offer or promotion of financial services or products, nor does it represent their suitability or legality. GRVT is not a regulated entity and your funds are not protected by regulation. Before making any decision based on the content of this article, please always seek financial and legal advice and read GRVT’s risk disclosure and disclaimer in full.

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