Importance of Decentralized Smart Contracts and Self-Custody
A dive into the collapse of FTX and CEXs, the importance of self-custody, and how Glitch aims to fit into the equation.
In the wake of the collapse of blockchain platform Terra Luna and CeFi giants FTX, Celsius, BlockFi, and Voyager, the aftershocks continue to be felt throughout the crypto industry. Contagion from the Terra collapse continues to rear its head, and the full extent of the damage is still unknown. User confidence in centralized platforms has been unmistakably shaken, and a mass exodus into decentralized protocols has ensued as holders look to secure their assets through self-custody.
The rise of CeFi and CEXs has undoubtedly enabled millions of users to access cryptocurrency with the promise of a safe and simple user experience, and those promises fool many. Despite the image that FTX had indeed brought cryptocurrency mainstream by dabbling in the practices of major TradFi institutions (think sports stadium sponsorship and big-billing athlete influencers), FTX rocked the industry with its sudden fall from grace. Poor risk management and questionable practices led to a string of “lights off” events; liquidity crises, bank runs, cascading liquidations, death spirals, and insolvencies, ultimately leaving users and investors unable to make withdrawals and left to pick up the bill.
Not Your Keys, Not Your Crypto
To truly own your digital assets, you must own your cryptographic keys. This is not how centralized exchanges operate. Users pay for the convenience of using CEXs by trading actual ownership of their assets, placing their trust in the custodian giants to return their funds when they withdraw. These practices are similar to those of a bank.
Centralization relies on users trusting the platforms and third-party entities that they use. Greed and human error have led to the downfall of some of the biggest names in the space, Sam Bankman-Fried (FTX/Alameda), Zu Shu (3AC), and Do Kwon (Terra Luna). These are the personalities that investors place their trust in, but at the end of the day, these are humans and are not infallible.
Satoshi Nakamoto created the first cryptocurrency, Bitcoin, to remove the need for intermediary financial authorities and their control through monetary policy, and established the first truly decentralized peer-to-peer financial network. Bitcoin was founded on decentralization, anonymity, permissionlessness, and trustlessness. The industry has been moving away from these foundations as adoption has been made more palatable to the masses by circumventing the often arduous but necessary degree of financial literacy and understanding of self-custody to participate in decentralized finance.
Self-sovereignty is key to decentralization
Decentralization starts with self-custody. Self-custody is typically the first learning curve for DeFi participants, and it requires users to undertake and upkeep a high level of responsibility. From properly storing assets and seed phrases to being vigilant with transactions and the protocols interacted with, you are accountable for the security of your funds on-chain when you use a self-custody wallet. The blockchain is immutable, meaning there is no reversal of transactions, no recovery of funds if you misplace your keys, and no one to hold your hand if you get hacked.
Control over your financial future means being in control of your assets. The responsibility associated with self-custody is worthwhile as it removes counter-party risk, protecting users against the vulnerabilities of centralized entities. Self-custody is a prerequisite to empowering permissionless access to assets and entry to peer-to-peer markets and DeFi products.
Code is law
Decentralized smart contracts programmatically implement a series of if-then rules eliminating the need for third-party interaction and the risk of human error and greed. Smart contracts in DeFi enable decentralized and transparent transactions, which are recorded on the blockchain upon which the smart contract is deployed and remove the need for a financial institution to mediate the transaction resulting in a faster, permissionless, and trustless settlement. Perfectly audited smart contracts cannot be corrupted as they are not an institution or individual; they are self-executing lines of code that perform as they are programmed to.
Forming the foundation of DeFi, smart contracts revolutionize peer-to-peer markets as payments in escrow can be transacted securely and quickly, enabling users globally to make and receive payments anonymously with a peace of mind. Smart contracts form the backbone of decentralized applications and are governed only by the logic programmed in each contract. For example, when users interact with a decentralized exchange, they will permit the underlying smart contract to access funds stored in their wallet address, authorize transactions, and broadcast to the blockchain.
Naturally, at this nascent stage, there are still often vulnerabilities in the form of bugs in smart contract code, non-audited and non-verified code, which is at risk of attack leading to the smart contract being exploited and funds lost. These growing pains will be resolved as the industry grows and technology advances. Additionally, an increasing number of protocols and developers opt to audit their code to ensure its security and offer bounty programs to encourage white-hat hackers to help identify potential vulnerabilities and strengthen the codebase.
Enter GLITCH
Glitch is building a network to support an ecosystem of money market permissionless applications to increase financial accessibility.
One of the first native dApps on the GLITCH blockchain will be the Glitch Decentralized Exchange (GEX). The GEX is a permissionless, peer-to-peer engine that will enable users to trade assets securely, quickly, and cheaply with no third-party intermediary. As the first truly decentralized DEX, the GEX will immediately operate as a DAO and have its native token with a complete board voted upon by token holders to carry out the community’s will. The funds received from the raise after launching will be directly deposited as liquidity and to the DAO treasury. Rather than relying on any individual to guide the direction of the GEX, the DAO will give every community member a vote, voice, and opportunity to participate in governance.
Additionally, the Glitch Browser-extension Wallet alpha is already available, designed with security and user experience at its heart. The Glitch Wallet is a self-custody wallet that will enable users to store, send and receive assets on the GLITCH blockchain. We’ve built the Glitch Wallet to be a straightforward, user-friendly tool that allows people to interact with GLITCH and, in the future, a plethora of blockchains with just a few clicks. The wallet supports sending and receiving test GLCH on the GLITCH testnet and switching between the testnet and mainnet networks.
We are building a next-generation blockchain with accessibility, efficiency, and sovereignty at its core. Join us on our journey as we aim to disrupt DeFi, once and for all.
Onwards and upwards,
– Team Glitch
We’re Hiring
We’re hiring qualified candidates for FT roles across marketing, operations, and engineering. If you’re a talented DeFi enthusiast, help us take Glitch to the next level. We’re looking to fill these positions very quickly. Search out our open jobs and apply today!
About Glitch
GLITCH is a blockchain-agnostic super protocol explicitly designed for trustless money markets and decentralized financial applications (dApps). GLITCH solves the expensive fee structure of other blockchain platforms while simultaneously rewarding all ecosystem participants and guaranteeing low network fees through a unique revenue-sharing model. Glitch plans to incorporate token wrapping bridges, where dApps can run more efficiently, all in service of Glitch’s ultimate goal: to become a cornerstone of blockchain infrastructure.
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