Decentralized finance (DeFi) has become increasingly popular in recent years, providing users with access to a range of financial services that are not controlled by centralized authorities. However, with this increased accessibility and freedom comes a greater responsibility for users to manage their own security. One of the most important aspects of securing your DeFi assets is self-custody and the management of private keys.
Not Your Keys, Not Your Crypto
But what exactly does custodial control mean?
Custodial simply means your crypto holdings are held by a third party — the exchange — and you are not the sole controller of your assets. Banks, brokers, and other financial institutions usually provide custody in the traditional financial system. However, in the DeFi ecosystem, self-custody is the norm. This means that users are responsible for managing their own assets and ensuring their own security.
So why is self-custody important in DeFi?
- Increased security: When you manage your own assets, you are in complete control of your security and your funds.
- Decentralization: Decentralization is one of the key principles of DeFi. By self-custodying your assets, you are being an advocate for decentralization.
- Financial freedom: Self-custody provides users with greater financial freedom. Users can access DeFi services from anywhere in the world without relying on traditional financial institutions or intermediaries.
Take Back Control
Self-sovereignty is an essential aspect of DeFi because it puts the power and control back in the hands of individuals. It gives people control over their own funds and financial choices; it provides greater privacy and security. Self-sovereignty makes financial services more accessible to people who may not have access to traditional banking services. With DeFi, anyone with an internet connection can participate in the global financial system. Finally, self-sovereignty promotes transparency in financial transactions. With the blockchain’s public ledger, all transactions are visible and traceable.
In summary, managing your own funds in DeFi gives you control over your assets, increases transparency and security, and allows you to participate in the innovation and growth of the DeFi ecosystem. It’s an important step towards financial autonomy and independence.