Why Non-Custodial Storage Is Perfect For Retail Investors

For many who are part of the Millennial and Gen Z demographic, the choice between traditional savings accounts with 0.5 % APY (annual %age yield) and cryptocurrency services that offer up to 12.65% APY is a no-brainer.

The added risks that are often associated with using digital assets as a store of value don’t seem too worrisome for this new segment of retail investors. This is complemented by the fact that proper security tools and custody are already available.

Platforms such as BlockFi and the more retail-friendly Celsius Network are currently providing services that used to be within the exclusive purview of banking institutions.

Both offer APYs of 8.6% and 12.65% respectively. Young investors figure that this a better deal if they’re already keeping their savings with a third party, while the underlying assets, cryptocurrencies, continue to appreciate. An observation that rings especially true amid current fears of inflation in fiat currencies and a recent bull run for their digital counterparts.

The Problem with Custody

However, these services only offer custodial solutions, meaning that the funds that are stored in these digital savings accounts remain under the platform’s control.

This is, after all, how they are able to provide these high APYs: they use these funds to offer cryptocurrency loans that pay fees which they then redistribute among savers. In effect, platforms like BlockFi and Celsius are just translating the previous banking model onto the blockchain.

As new investors explore the blockchain and cryptocurrency space they usually find out that one of the key advantages of this technology is decentralization: the fact that no central institution or third party gets to have a say over their money. The recurring failures of these kinds of custodial solutions to safeguard their clients’ holdings have led to popular maxims among cryptocurrency communities like “not your keys, not your coins.” Ever since the Mt. Gox debacle in 2011, non-custodial alternatives have been preferred by savvy investors.

The Non-Custodial Solution

The truth is that those who are just joining the blockchain and cryptocurrency space can find better ways to store their funds, all while receiving yields that can be equally or even more profitable than custodial APYs.

As the blockchain and cryptocurrency space continues to evolve, new developments in decentralized finance have made it possible for retail investors to earn yields and even additional assets from staking their funds into specific protocols. This practice, known as yield farming, can often produce up to 300% APYs and is partly responsible for the whopping $57 billion in total value locked in DeFi applications.

What’s more important is that many of these protocols have seamlessly integrated with existing wallets for digital assets. This means that investors can receive yields without ever losing control of their funds.

Popular solutions like browser-based wallets are often used to stake crypto assets into DeFi protocols, while safer and more privacy-focused options such as Unstoppable Wallet have included these DeFi integrations plus the necessary security that a long-term holder would seek.

A dedicated wallet application can take digital asset storage a step further than access to higher returns on DeFi. It can include features such as in-wallet swaps on popular decentralized exchanges, VPN and TOR browser integrations, and interoperability between major cryptocurrencies like Bitcoin BTC/USD, Ethereum ETH/USD, and fully-shielded Zcash ZEC/USD.

Overall, this makes the case that retail investors are better off relying on decentralized solutions, such as fully-integrated wallet services, than blockchain adaptations of banks and other centralized, custodial financial services.