Centralization is often considered necessary to achieve convenience in the crypto space. However, following the failure of centralized crypto lender Voyager, people have begun to acknowledge the importance of self-custody. Ethos 2.0 wants to capitalize on that momentum and aims to provide a decentralized approach to the services that made Voyager so famous.

Voyager Bankruptcy After Cutting Corners

The initial approach by the Voyager team was to introduce crypto lending through a decentralized approach. They worked and merged with the original Ethos team to emphasize the decentralized approach. Unfortunately, the Voyager management ultimately decided to take the easy route and cut a few corners to provide centralized lending while still tapping the booming crypto industry.

Although that approach is not abnormal in cryptocurrency circles, it also creates a domino effect when things go wrong. For example, the corners cut by Voyager ensured the company eventually got caught up in the collapse of Three Arrows Capital.

That hedge fund took loans from Voyager and other institutions to gamble on crypto assets. One of their gambles, TerraUSD (UST), imploded in the summer of 2022. As a result, 3AC could not pay back the $670 million it borrowed from Voyager.

Making matters worse is the crypto price drop the collapse of UST triggered. All markets lost over 60% of their value and, combined with 3AC defaulting on nearly $700 million, forced Voyager to file for bankruptcy.

While it is tough to say a decentralized approach would have prevented this domino effect, things likely would have played out differently. More importantly, Voyager's bankruptcy affected hundreds of users who did not have an opportunity to take custody of their funds.

Furthermore, the defunct lender received a cease-and-desist from the FDIC in late July 2022. Until then, Voyager claimed customer funds were FDIC insured, which was incorrect. The bank where funds were stored is, but neither the lender nor its clients have direct protection, as the bank did not collapse. Overall, the whole ordeal caused a lot of unrest in the crypto industry, but new solutions loom on the horizon.

Righting the Voyager Wrongs with Self-Custody

Only the user should be able to take custody of crypto funds. No centralized entity should control user funds, no matter the degree of convenience they offer. Self-custody is still tricky as it comes with a very steep learning curve. Only some people want to take responsibility if something goes wrong. Ethos 2.0, a project created by the initial Ethos team members and several former Voyager members, aims to improve things.

Their approach focuses on helping users combine convenience and self-custody. Users still need to learn to control their funds and store them securely. However, there is a backup solution to help users "unlose keys" and help them recover these keys if something goes awry. The use of "Magic Keys" is possible through enterprise-grade key encryption, sharding, and backup systems.

If users lose their keys, they can upload the encrypted version through Ethos. Doing so allows them to verify their identity by answering security questions and completing 2FA.

Afterward, users gain access to the third key shard to restore their keys. However, Ethos does not access the keys or user funds at any time. It is a viable "safety net" without compromising self-custody in favor of convenience. A company spokesperson had also revealed that the company utilizes MPC, Shamir Secret Sharing and other state-of-the-art technologies to help their users stay in the clear.

Ethos users will keep funds safe in their self-custody vault, also used to accrue staking returns for those engaging in proof-of-stake opportunities. Users can also access live trading with zero counterparty risk and explore best price execution across dozens of decentralized exchanges. In addition, every trade - and learning more about DeFi - awards users with reward tokens. Holding more tokens reduces ecosystem fees.

Recovery Tokens for Voyager Users

As hundreds of people fell victim to the Voyager bankruptcy, Ethos aims to extend recovery tokens to that group. More specifically, 1 billion ETHOS tokens are set aside for those victims with a VGX recovery program now active and accepting submissions from creditors and VGX holders. The decision by Ethos makes sense, as the team aims to build Voyager "the right way" through decentralization and self-custody.

Moreover, the team's approach strikes a chord with anyone tired of relying on centralized intermediaries. Funds should never be kept on centralized platforms unless they are traded immediately.

Self-custody is the only viable solution for everything else. With Ethos 2.0, that approach becomes more accessible to mainstream and novice users, which may spark broader adoption of cryptocurrencies.

Centralization is often considered necessary to achieve convenience in the crypto space. However, following the failure of centralized crypto lender Voyager, people have begun to acknowledge the importance of self-custody. Ethos 2.0 wants to capitalize on that momentum and aims to provide a decentralized approach to the services that made Voyager so famous.

Voyager Bankruptcy After Cutting Corners

The initial approach by the Voyager team was to introduce crypto lending through a decentralized approach. They worked and merged with the original Ethos team to emphasize the decentralized approach. Unfortunately, the Voyager management ultimately decided to take the easy route and cut a few corners to provide centralized lending while still tapping the booming crypto industry.

Although that approach is not abnormal in cryptocurrency circles, it also creates a domino effect when things go wrong. For example, the corners cut by Voyager ensured the company eventually got caught up in the collapse of Three Arrows Capital.

That hedge fund took loans from Voyager and other institutions to gamble on crypto assets. One of their gambles, TerraUSD (UST), imploded in the summer of 2022. As a result, 3AC could not pay back the $670 million it borrowed from Voyager.

Making matters worse is the crypto price drop the collapse of UST triggered. All markets lost over 60% of their value and, combined with 3AC defaulting on nearly $700 million, forced Voyager to file for bankruptcy.

While it is tough to say a decentralized approach would have prevented this domino effect, things likely would have played out differently. More importantly, Voyager's bankruptcy affected hundreds of users who did not have an opportunity to take custody of their funds.

Furthermore, the defunct lender received a cease-and-desist from the FDIC in late July 2022. Until then, Voyager claimed customer funds were FDIC insured, which was incorrect. The bank where funds were stored is, but neither the lender nor its clients have direct protection, as the bank did not collapse. Overall, the whole ordeal caused a lot of unrest in the crypto industry, but new solutions loom on the horizon.

Righting the Voyager Wrongs with Self-Custody

Only the user should be able to take custody of crypto funds. No centralized entity should control user funds, no matter the degree of convenience they offer. Self-custody is still tricky as it comes with a very steep learning curve. Only some people want to take responsibility if something goes wrong. Ethos 2.0, a project created by the initial Ethos team members and several former Voyager members, aims to improve things.

Their approach focuses on helping users combine convenience and self-custody. Users still need to learn to control their funds and store them securely. However, there is a backup solution to help users "unlose keys" and help them recover these keys if something goes awry. The use of "Magic Keys" is possible through enterprise-grade key encryption, sharding, and backup systems.

If users lose their keys, they can upload the encrypted version through Ethos. Doing so allows them to verify their identity by answering security questions and completing 2FA.

Afterward, users gain access to the third key shard to restore their keys. However, Ethos does not access the keys or user funds at any time. It is a viable "safety net" without compromising self-custody in favor of convenience. A company spokesperson had also revealed that the company utilizes MPC, Shamir Secret Sharing and other state-of-the-art technologies to help their users stay in the clear.

Ethos users will keep funds safe in their self-custody vault, also used to accrue staking returns for those engaging in proof-of-stake opportunities. Users can also access live trading with zero counterparty risk and explore best price execution across dozens of decentralized exchanges. In addition, every trade - and learning more about DeFi - awards users with reward tokens. Holding more tokens reduces ecosystem fees.

Recovery Tokens for Voyager Users

As hundreds of people fell victim to the Voyager bankruptcy, Ethos aims to extend recovery tokens to that group. More specifically, 1 billion ETHOS tokens are set aside for those victims with a VGX recovery program now active and accepting submissions from creditors and VGX holders. The decision by Ethos makes sense, as the team aims to build Voyager "the right way" through decentralization and self-custody.

Moreover, the team's approach strikes a chord with anyone tired of relying on centralized intermediaries. Funds should never be kept on centralized platforms unless they are traded immediately.

Self-custody is the only viable solution for everything else. With Ethos 2.0, that approach becomes more accessible to mainstream and novice users, which may spark broader adoption of cryptocurrencies.