"The security of our users and their funds is our top priority. Every change we've made is guided by that. Lava no longer uses DLCs - discrete log contracts - for loans because the technology doesn't meet our security standards. Our team built the largest application using DLCs, but we discovered vulnerabilities that we weren't comfortable having (ex., client-side key risk, hot keys)."
"Risks we previously thought were impossible, such as thinking oracles couldn't be manipulated to liquidate individual users, we figured out were possible in practice. We are unwilling to compromise on security for our users at any level, and we take a very holistic view on removing trust, dependencies, and counterparty risk."
"DLCs are a kind of Bitcoin smart contract that can anchor the spendability of a bitcoin balance to an external event, such as the price of bitcoin in dollar terms, through the use of a third-party "oracle". Oracle-based decentralized finance technology (DeFi) was recently exploited, resulting in a 20 billion dollar liquidation event, specifically targeting Binance's stablecoin orderbook."
Lava announced a shift from a self-custody, DLC-based lending model to a fully custodial, trusted fintech platform after a $200 million fundraise. The custody change prompted scrutiny from Bitcoin industry leaders about the investment and legal implications. Company leadership confirmed the move and cited discovered vulnerabilities in DLCs, including client-side key risk, hot keys, and potential oracle manipulation. The company referenced a recent Oracle-based DeFi exploit that caused a $20 billion liquidation event targeting Binance's stablecoin orderbook. The company framed the transition as a security-driven decision to remove trust, dependencies, and counterparty risk for users.
Read at Bitcoin Magazine
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