Company Name: Lava
Founders: Shahzan Meridia
Date of Establishment: January 2022
Headquarter Location: New York, USA (with some remote staff)
Amount of Bitcoin in the vault: Unavailable
Number of Employees: 7
website: https://www.lava.xyz/
Public or private? private
Shahzan Maridia wants to make it easy to store Bitcoin.
That’s why I founded Lavaan app he and his team created that allows users to buy Bitcoin, transact with Bitcoin and stablecoins globally, and now keep their Bitcoin in self-custody without having to type a seed phrase.
Maridia is one of a growing list of bitcoin entrepreneurs who believe seed phrases — lists of 12 to 24 words used to recover funds from lost or stolen cryptocurrency wallets — are holding back bitcoin’s mainstream adoption. He believes alternatives that don’t require self-custody seeds will help bring it to the masses.
“I realized that seed phrases were a huge barrier to adoption,” Maridia told Bitcoin Magazine, “and I went down the rabbit hole to (make) something better.”
After months of research and development, Maredia developed a solution that is now the core of the Lava app design: Lava Vault.
lava vault
After testing a number of different self-custodial setups, Maredia and his team came up with a unique multi-signature solution that became the backbone of Lava Vault.
“We built this two-by-two self-custodial recovery solution where you can attach one part of the two-by-two to your cloud account and the other part is a four-digit PIN,” he explained.
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Secure your assets with seedless redemption, 2 of 2 pic.twitter.com/nEIYIHD6Dg— Lava (@lava_xyz) July 16, 2024
“If I have your four-digit PIN, I can’t steal your money because I don’t have access to your cloud account. If I have access to your cloud account, I can’t get your four-digit PIN, and I can’t force it on you,” he added.
Maridia and his team at Lava call this design the Lava Smart Key, and they believe it helps provide simpler self-protection for those who may not want to take on the responsibility.
“We’ve already seen a bunch of people using it who were previously buying bitcoin and holding it on Coinbase,” he said.
Furthermore, Lava Vault works seamlessly with Lava Exchange, another product recently launched by Lava.
Lava Vault + Lava Exchange = Auto-direction to self-care
It can often be difficult for new Bitcoin users to differentiate between an exchange-provided custodial wallet and a self-custodial wallet. It can be overwhelming for someone new to Bitcoin to go through the process of transferring their Bitcoin from an exchange wallet to a self-custodial wallet, especially if the exchange offers both (for example, Coinbase).
However, Lava removes this difficulty, as it allows users to purchase Bitcoin within the app – at the best available price – before automatically sending that Bitcoin to self-custody.
“We set up this exchange,” Maridia said.
“If you want to buy Bitcoin today, you have to decide which exchange to buy it from – Kraken or Coinbase. So, we work with a lot of these exchanges. We know what price they give you based on your request, and we direct you to the best exchange through Lava,” he added.
Once users make a purchase, the bitcoin appears in their Lava Vault.
“This is very useful if I’m trying to guide users to self-care,” said Maridia. “Now, I can ask them to download files directly to self-care, which greatly increases the likelihood that they will continue to use self-care.”
Once users have their bitcoin or stablecoins in their custody via Lava, they can use either asset to conduct permissionless transactions with anyone in the world. Soon, they will also be able to borrow dollars against their bitcoin without having to hand over their bitcoin to a third party.
lava loans
Maredia and the Lava team recently released a beta version of a new product called Lava Loans, which Maredia describes as a “self-custodial version of BlockFi.”
BlockFi, which is now defunct, was a platform that allowed users to use Bitcoin as collateral to obtain a loan. The main difference between a platform like BlockFi and Lava is that users had to give up custody of their Bitcoin to BlockFi in order to use the service.
“Lava Loans is the first way to borrow against your bitcoin without giving it to a custodian or bridge,” said Maridia.
Maridia created this product because he saw the demand for it and wanted something like it for himself.
“There are a lot of Bitcoin users who don’t want to sell their Bitcoin,” Maridia said.
“I also don’t want to sell my bitcoins because they’re going up in value. I’d rather borrow against them at a lower interest rate than see them go up in value,” he added.
He also noted that other methods of borrowing against Bitcoin were inefficient and very expensive.
“There are billions of dollars in loans secured by Bitcoin through trustees or through Wrapped Bitcoin (WBTC),” he explained.
“To get Wrapped Bitocin, you have to take your Bitcoin, verify your identity yourself, put it on an exchange, pay a fee to mint it, pay a bunch of network fees to move it to Ethereum, and then once you’re done with your Wrapped Bitcoin, you move it back to the exchange, pay an additional fee to unwrap your Bitcoin and move it back to self-custody. And you probably have tax obligations for wrapping your Bitcoin as well,” he added.
“I want to get these people using the original Bitcoin. We can increase the market size of people using the actual Bitcoin as collateral.”
Discrete Records Contracts (DLCs)
Lava Loans uses a specific type of smart contract on Bitcoin called Segregated Ledger Contracts (DLCs).
DLCs are more secure than the types of smart contracts typically deployed on other major crypto networks, Maridia explained.
“DLC is interesting because you’re essentially using the first layer of Bitcoin to lock up Bitcoin and release it under a pre-defined set of conditions,” he explained.
“Unlike smart contracts on Ethereum or Solana that are constantly being hacked, DLCs are a set of pre-signed transactions that you encrypt. You almost have formal verification of your system by default, because you know that the funds locked in the smart contract between you and the counterparty can only be transferred under a pre-defined set of conditions that you have verified,” he added.
“Therefore, there is much less technical risk compared to writing arbitrary code that is deployed on the EVM that anyone can manipulate and exploit.”
Maredia also noted that the Lava team consists of a number of engineers who contributed to early DLC standards.
“There are about 10 people, many of whom work at Lava and contribute to it now, who know about this technology,” explained Maridia, who also shared that the potential of DLCs has yet to be fully realized largely due to the newness of the technology. “Not many people know about (DLCs), but) that’s because the technology is in its early stages and we’re building it.”
Move slowly and protect things.
Unlike many in the crypto and broader tech space who take a “move fast and break things” approach, Maridia and his team are analytical and thorough. They prefer to research and test products thoroughly before bringing them to market.
“We’ve done a lot of research and development over the past two years,” Maridia said.
“We were experimenting with a lot of things. Even before we built Lava Smart Key, Lava Exchange, and Lava Loans, we were experimenting with a lot of different ways to issue loans, provide self-security, and do internal and external transfers,” he added.
“The new self-guarding security solution is the product of eight to ten months of testing.”
Maridia added that although Lava Loans is likely several months away from launch, the beta version of the product is working well and providing him and his team with important feedback.
“It all comes together,” he concluded.
Lava is a subsidiary of UTXO Managementa dedicated capital allocation entity focused on the digital asset industry. Bitcoin Magazine is owned by BTC Inc., which operates UTXO Management. UTXO invests in a variety of Bitcoin businesses, and holds significant stakes in digital assets.