‼️ Self Custody vs Centralised Custody
Crypto gives you complete control of your money—but this power comes with serious risks.
If you lose your private keys, you lose access to your funds. Millions of users have already lost funds because they misplaced recovery phrases, lost phones, or fell victim to scams. While individual custody can empower, it introduces a critical single point of failure: you.
On the other hand, relying on third-party exchanges (like Mt. Gox, FTX, and Celsius) to store crypto hasn’t worked either. Centralised platforms frequently collapse because of fraud, mismanagement, and hacks—leaving users again with nothing.
Ultimately, centralised custody has proved just as risky as traditional banking.
🧠 A Smarter Solution: Collective Custody
Blockchain-based ROSCAs solve these problems with a collective custody model (also known as second-party custody).
Rather than relying on a company or managing your private keys alone, users form small trusted groups called Pods.
Each Pod manages a shared multi-signature wallet, meaning no single person can control the funds. Any action (like withdrawals or payouts) requires group consensus.
However, if you compromise your personal key or lose your device, Pod members can safely recover access to the wallet for you, using built-in social recovery mechanisms.
Academic research — and the lived experience of communities around the world — consistently shows that ROSCA participants overwhelmingly behave in good faith, because of shared social bonds.
This makes participants ideal second-party custodians in a decentralised financial system.
That said, no system is without risk. Even with strong social ties, things can still go wrong — and that’s where protocol design steps in.
⚠️ Risks & Mitigations of Collective Custody
Members acting in bad faith might:
- Stop contributing after receiving a payout
- Refuse to sign transactions
- Collude or block access to shared funds
- Exploit vulnerabilities in the underlying wallet or smart contract infrastructure
To manage these risks, the protocol integrates both social and technical safeguards:
✅ Social Safeguards
- Pods are self-selected groups built on real-world relationships (friends, family, colleagues, community members)
- Inactive or uncooperative members can be replaced by group consensus
- Majority rules (e.g. 4-of-6 multi-sig) prevent any one person from hijacking funds
🔐 Technical Safeguards
- Non-paying users will be flagged by the on-chain reputation system as lower performing, affecting their future eligibility for rewards or payouts.
- All Pod funds are secured using SAFE (formerly Gnosis Safe) smart contracts — the most trusted multi-sig wallet in crypto, protecting over $60B in assets
- This protects against code-level exploits, contract bugs, or centralised backdoors — common failure points in both DeFi and custodial platforms
- SAFE’s code is open-source, audited, and widely battle-tested across major DAOs and DeFi protocols
Together, these social and technical protections offer a more resilient way to manage funds — balancing autonomy with safety, and making community-run finance secure for everyone.
In future versions, the protocol may introduce soft penalties to discourage poor behaviour — like cooldowns that delay payouts or slashing that reduces your accumulated Seeds. The goal is to keep everyone accountable while protecting good-faith users.