The centralization of crypto asset management results in the death spiral of margin calls, withdrawal freezes, crypto “bank runs” and crypto market turmoil. The rise of the “too big to fail” centralized players is attributed to the complexity of asset management across emerging chains and protocols. Investors prefer to delegate to manage such complexity to the centralized players and face withdrawal freeze later on. The emergence of cross-chain messaging protocols promises simplification of cross-chain asset management and the demise of centralized players.
One of such protocols Lachain delivered the first-ever solution for non-custodial multichain asset management from a single chain. It made it as easy to transfer crypto between yield protocols on different chains as between bank savings and deposit accounts. This may result in an expansion of noncustodial accounts directly managed by asset owners and decentralized funds with transparent strategies encoded in smart contracts and immune to withdrawal freezes.
The centralization of crypto assets management results in the death spiral of centralized margin calls undermining crypto and bitcoin as a substitute for gold
The collapse of the algorithmic “stable coin” UST contributed to the margin calls of leveraged centralized hedge fund Three Arrows Capital and alike. The lender of such funds as Celsius and BlockFi had to close their loans to the hedge funds and sell off the collateral. This sell-off dumps the crypto prices down which triggers the next waves of margin calls and sell-offs sending BTC below $18,000. The depositors of Celsius found their accounts blocked for withdrawals. This accelerates the “bank run” across lending institutions and forces them to sell crypto assets.
Bitcoin, unlike gold, is heavily used as collateral for leveraged bets by centralized crypto funds and lenders. In the case of global macro volatility, the centralized players undermine BTC stability with the death spiral of margin calls sell-offs, and withdrawal freezes self-enforcing with “bank run” panic.
The complexity of cross-chain crypto asset management is the root cause of the high centralization
Over 60% of all Defi transactions were made by institutions in 2021 accordingaccordingly to Chainalysis. The institutions manage assets to optimize portfolio yields across over a hundred chains and thousands of protocols visible in DefiLama. The yields on top chains and protocols are declining and thus active management to move assets to newer protocols with higher yields is among the main jobs for the institutions.
The cross-chain yield discovery and transactions were too complex and risky. For example, to transfer an asset from a lending protocol on one chain to another chain, a user needs 8-12 transactions. First, open an account on another chain with a risk of losing the private key to the account, and top up it with a “gas” currency to pay for a transaction. This gas currency can be bought on a centralised exchange or a swap. Afterward, the user needs to find and use a cross-chain bridge or swap to transfer crypto to the new account to resend it to the destination protocol address. The bridges are very centralised which resulted in over $700 million in losses to hackers on Ronin bridges and Wormhole bridges this year.
As a result of such complexity, the asset owners prefer to delegate the above transactions to the institutional.
Multichain platforms make it easier to manage assets across the chains
Beefy is a multichain yield management protocol, but liquidity is fragmented across farms on different chains, i.e. investor of a particular chain can not deposit to the farm on another chain. Beefy connects farms with different wallets on different chains, otherwise if there is an investment opportunity with high yield on some chain and the investor does not have assets on the wallet of this chain – deposit is impossible.
Multichain and Stargate resolve problems of liquidity fragmentation via cross-chain swap of chain specific assets. These instruments are helping investors to transfer assets across chains, but yield offers are not offered and users must search for it in 3rd party yield farming protocols and do their own research.
Zerion is giving access to multichain and yield opportunities, otherwise gas-token management and overcomplexity of transactions are still present. Other emerging market participants such as Rubic are trying to resolve these problems by creating a bridge and yield market in a single app, but still the investor needs to transfer his assets from one chain to another in order to complete cross chain transaction.
Lachain is the first example of how assets owners can easily manage assets cross-chain and skip intermediaries
Lachain made the multiverse of chains interoperable and easy to use with the combination of Layer Zero and Layer One protocols. Lachain is the multichain platform with a cross-chain messaging protocol, on-chain validation of bridge transactions, and smart contracts engine.
Lachain labs delivered the first-ever solution for noncustodial multichain asset management from a single chain – multichain yield market. The platform made it as easy to transfer crypto between yield protocols on different chains as between bank savings and deposit accounts.
Before Lachain It required dozens of transactions to re-stake an asset to another chain including the purchase of a gas token on a centralised exchange.
With Lachain investors need to sign one transaction and everything else is done by a smart contract empowered by Lachian messaging and bridges with on-chain validation.
This makes it easy to farm yield across chains for retail investors or launch a decentralised fund. The funds may have a simple index strategy or algorithm encoded in a smart contract or a DAO to approve and sign manual investment decisions.
This may result in an expansion of non-custodial accounts directly managed by asset owners and decentralised funds as an alternative to centralised asset managers.