Last week, Lava published an an update about their roadmap and future plans (#1274219). In the update, Lava's CEO spoke about "rebuilding the product from ground up" and how "no service is fully trustless."
This caught a few of their customers off guard. These customers began relationships with Lava under the impression that the bitcoin they put up for collateral was held in on chain contracts that did not involve custody.1
There was a minor uproar about this change, especially since some customers felt that it was not made clear to them that the change was occurring. Apparently they were presented with this update screen:
While this update marked a change from Lava's previous goal of using DLCs to a “cold storage and institutional-grade security systems that have safeguarded over $100B in assets globally.”
the crux of the problem to Kemeys is that he and other users had no idea the update authorized a change from a non-custodial to a custodial setup.
The Blockspace Media article goes into this change in some depth, particularly from the users' perspective as
Lava did not return Blockspace’s question regarding whether or not the raise prompted Lava to ditch DLCs. However, Maredia told Blockspace that he will be releasing a post mortem to clear the air this Wednesday, and we will update this article as relevant.
It's an interesting read, especially for those looking to learn about how not to communicate with users about fundamental changes to a live product.
Footnotes
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I'm still not convinced a DLC is all that different from custody: you need to be sure that the oracle will not collude with your counterparty for it to be truly custodial. But that just speaks to the nature of loans: you can't have a loan with self-custodial collateral. ↩
non-custodial? Regardless, you're right. There is also no point; if you put something up for collateral you literally don't own it. Same with your mortgage and your car financing.