Bitcoin wallet and lending platform Lava has come under scrutiny in the past few weeks due to the lack of clarity regarding recent updates. According to many users of the app, the rug was kind of pulled out from under them, as the update in question completely changed the trust and security model of the wallet by switching from a non-custodial setup to a fully trustless and custodial model, where Lava has complete control over users’ digital assets.
According to a report blockspaceThe controversy began in September when Lava users were shown a screen indicating that an update was necessary to gain access to all the latest features. Notably, the update screen did not indicate that there would be a complete change to how custody of user funds is handled behind the scenes in the Lava app. Additionally, without the update there was no way to access loans already taken through the app.
Finally, Lava CEO Shahezan Maredia made an x post There have been some changes in terms of how the financial app works behind the scenes. The details of the changes outlined in the post are somewhat vague, but the conclusion for many was that Lava would be moving towards a fully custodial model. In response, Owen Kemmis, Foundation Head of Physical Design asked publicly on x For more specific information about what exactly changed and whether those changes have already been implemented via an update to the app.
A move to a custodial model would be particularly awkward for Lava, as Maredia has long list of posts on x Regarding the problems of custody arrangement. Additionally, while all this was happening, Lava also did announced A new fundraising round of $200 million. Maredia reportedly told blockspace An autopsy will be provided on Wednesday regarding the incident, but no update providing more clarity had been published as of this writing on Thursday.
Catch. Lava was founded as DLC based and “non custodial”; i.e. local keys (for what it’s worth – not 100% accurate while the lender is also oracles, but, small steps).
1. I have an active loan.
2. I used to have a “Contract is updating, please wait” type loading screen.
3. There…– Owen Kemmies (CTV+CSFS entertainer) (@OwenKemis) 4 November 2025
One of the biggest criticisms of the crypto sector is the large amount of decentralization theater that typically occurs. this issue was going on full release A few weeks ago a large amount of crypto infrastructure went down due to an Amazon Web Services (AWS) outage. A large part of the decentralization theater taking place in crypto over the past few years has also been centered around stablecoins, and there is a growing understanding that much of the technology used in crypto is now primarily Focused on regulatory arbitrage for centralized entities Rather than any kind of cyberpunk philosophy.
In the above X post by Maredia, the Lava CEO said they are taking a different approach than those using “trust theater” in the crypto industry. However, Lava’s app included a level of decentralization questioned In the past, as it was originally built on the concept of discreet log contract (DLC) with Lava finally acting as the relevant oracle. Additionally, the Lava app has also worked on a closed source Based on this whole time, so what’s really going on behind the scenes isn’t really known.
Stablecoins are just traditional fintechs that have to use the term “blockchain” for regulatory arbitration purposes. There really is no point in building on Bitcoin. Solana is so centralized that it’s basically just traditional fintech. Maybe a “stable series” was eventually used.
– Kyle Torpey (@kyletorpey) 13 November 2025
Users of closed-source crypto wallets are effectively using a custodial system, as they have no way of knowing whether the developers behind the app have access to users’ private keys. Open source software is generally seen as a requirement for any Bitcoin-related software, as the whole point is to work as a decentralized financial system without trusted third parties. This is why Bitcoin Core goes the extra mile with practices like Node Client reproducible manufacturing and forcing users to manually opt-in to software updates.
reason for Crypto adoption by the Trump administrationThis may be a continuation of this division of space between Bitcoin’s focus on decentralization and the fintech-esque use cases that heavily involve centralized stable coins.