While many people eagerly trust companies with their crypto assets, that trust might be misplaced. The recent Coinbase debacle shows there is no guarantee if the company goes bankrupt, making many people rethink their solution. As a result, non-custodial solutions or platforms segregating company and user funds are in high demand, and CakeDeFi checks the right boxes.
Asset Custody Is A Tricky Aspect
On paper, it makes sense to trust a centralized exchange or wallet provider. They take care of the logistics associated with handling crypto assets and still grant users access to funds on demand. However, users can’t do anything without “permission” from the exchange or wallet provider. Moreover, users rarely have access to their wallet’s private keys, which is not ideal.
Traditionally, that poses no real issues until something goes awry. Companies can even ensure users’ assets are safe by segregating company funds and users’ assets. One would expect all significant crypto companies to take that latter approach, but that is not the case. Even a firm like Coinbase has mingled funds – for some reason – and was forced to admit customer funds are at risk.
Coinbase confirmed that user assets are treated as company funds – in a recent SEC filing – if bankruptcy comes into the equation. It is a very sobering and problematic thought, indicating users’ little control over their money. Although it is unlikely Coinbase will go bankrupt overnight, the company suffers from fewer users, less revenue, and a collapsing stock price. It creates a volatile cocktail of concern and highlights the need for users to understand the importance of asset custody.
Non-Custodial Wallets vs. Cash Flows
There are other ways to manage crypto assets beyond using exchanges or custodial wallets. Those who are HODLers will often store funds in a non-custodial wallet, although it is not the most obvious option for crypto novices. Additionally, others want to use their assets to create a [passive] cash flow, either through staking, lending, or liquidity mining.
The one aspect to consider in that latter case is whether the platform you are entrusting funds to is financially healthy. Moreover, that provider needs to segregate between customer funds and company assets, unlike what Coinbase has been doing in recent years. Sadly, few companies are transparent regarding user assets, leaving much speculation.
Thankfully, some platforms let users tap into a cash flow without concern. CakeDeFi, for instance, is very transparent about how it handles customer assets. Their company holdings never touch customer funds and vice versa, ensuring there is distinct segregation between the two. Even if CakeDeFi were to become insolvent, creditors could not touch customer assets.
Moreover, the Cake DeFi project has a very healthy financial status. The company has achieved tremendous payouts in 2021 and will continue that trend in early 2022. Q1 of this year saw $73 million in DeFi rewards being paid out to platform users without skipping a beat. Such developments are essential in a falling market, a time when the financial stability of a project or company will become apparent quickly.
Those market conditions have yielded an all-time high growth across customers, deposits, and payouts while staying cash flow positive. Furthermore, the company has a 3-4 year financial runway even if revenue dried up and crypto prices tanked by another 80%.
Make The Right Call
Crypto users and enthusiasts bear the responsibility of analyzing companies and projects they interact with. That applies twofold when entrusting your money to a third party. Companies that are not financially stable, lack asset segregation, or have little transparency are best avoided. Reputable companies will gladly share their [quarterly] with the world to indicate how they are performing.
While the honesty of Coinbase needs to be praised, the end result is anything but positive. Lying to users for years – or not making the context clear – is a very big problem. Moreover, a company that has been around that long should have worked on asset segregation years ago. It remains a mystery why they have not done so, but the cat is out of the bag now.
Discussion about this post