Self-Custody: Your Key to the Freedom of DeFi

By Kirsty Moreland

In a brave new world of DeFi, crypto is key – and self-custody means financial freedom. Here, we explain how and why.

As we’ve touched on, true financial freedom is the state of financial independence that you achieve when you have full control of your finances—and don’t need financial institutions to approve your decisions.

When you hand over control of your financial success to places like banks and hedge funds, you reduce your burden of responsibility for those funds – but you also reduce your control over them.

In fact, you end up becoming dependent on these financial services and typically have little say in how they manage your funds.

How can we be truly free if we still have to ask for permission to spend or use our funds? And still rely on others to keep our money safe?

Let’s take a look at the most common financial institutions and how compatible they are with your financial freedom – so you can decide if self-custody is for you.

Banks

Banks are by far and away the most popular services individuals and businesses use for storing or investing their money. After all, the vast majority of all money in circulation exists as bank deposits. In the United Kingdom, bank deposits represent 96% of all money, while other countries have similar figures. 

There are a few reasons behind this. For one, banks are generally insured and are extremely convenient to use. And they also tend to offer a bunch of services and investment options that appeal to practically everyone. 

But if you’re looking for financial freedom, you won’t find it with a bank. 

After all, financial freedom is all about maintaining full control of your finances. When you use a bank, you’re essentially handing over control of your assets—usually for the sake of simplicity or security. But this is a trade-off… What you gain in simplicity, you lose in control.

Have you ever needed to ask a bank to approve a payment, increase your withdrawal limit, or even move your money to another bank? If yes, then you have experienced first-hand how limited your control really is. 

Can you even remember a time when you were genuinely in total control of your own finances? We can’t. 

As a result, using banks to secure your funds might be convenient, but it is no substitute for true financial freedom.

Stocks

Thanks to the development of online trading platforms and the huge array of simplified investment products and apps, the number of individuals holding stocks of their favorite companies has climbed in recent years. 

The benefits of stocks are obvious. Many stocks have seen their market value increase considerably in recent years, while many pay dividends that can be used as a simple passive income stream—and you’ve almost certainly come across stories of people who have struck it rich with stocks. 

But while stocks can be profitable, they don’t offer financial freedom, because their performance is completely reliant on the success of the underlying company. This is great when the company is doing well, but not so great if they don’t meet your expectations. 

You also need to contend with potential fees upon fees when dealing with stocks. Including fees for buying, selling, or trading your stocks; fees for withdrawing your money; and might even get taxed on any earnings they make you. 

Stocks always sound like a good idea, until the truth hits home. Shouldn’t true financial freedom mean you’re not reliant on others?

Hedge funds

Besides banks and stocks, hedge funds are perhaps the next most commonly used means to achieve financial independence. 

These are essentially investment firms that take in money from customers, and then use this money to make investments in assets they believe will gain value—before distributing the majority of the profits to their customers. 

They often have their own dedicated team of market analysts, traders, and brokers to stand the best chance of making the right investments. This can mean you can earn a strong return on your investment (ROI) when investing with one, but they’re not without their drawbacks. 

The first of these is their high barrier to entry. If you want to invest with a prominent hedge fund, odds are you’ll need to put up at least $100,000 to do so. They also generally offer limited control over how your funds are used or when you can take your money out, since part of the arrangement means handing over control to their team—for better or for worse. 

Financial freedom should be available to all. Not just wealthy risk-takers. 

Overall, hedge funds might free you from making investment decisions, but you’ll sacrifice the accessibility and ownership of your funds in return.

Self-custody means access to DeFi

Instead, one of the best ways to achieve true financial freedom is to simply cut out the middlemen! 

Sounds complicated? It’s not. Using crypto as a store of value opens up a huge variety of new options, the most important of which is the ability to be your own bank. This means no limitations on your access to your funds, no fees and no need to ask permission when you move your assets around. And while self-custody of these assets is a big step, it is absolutely worth your while.

An incredible new swathe of decentralized finance services is removing the barriers to your financial freedom! Yes, believe it: DeFi’s sole objective is letting you have access to financial services – like lending, borrowing and staking – without a middle man. Self-custody means more choices, bigger rewards and more freedom to manage and grow your money -and your life – as you see fit.

The growing DeFi industry is transforming (and democratizing) how we manage our money, and it can absolutely benefit you. If you want to know about the DeFi revolution, check out our School of Block video right here.