Non-Custodial Model

The user's private key is the sole proof of ownership and control over their assets. Loss of the key means permanent, irreversible loss of access. This includes:

• Phishing attacks targeting seed phrase entry.
• Physical loss of hardware wallets or paper backups.
• Insecure storage on internet-connected devices.
• No central authority exists to recover or reset lost credentials.

Users directly interact with smart contracts (e.g., DEXs, lending protocols). Security depends entirely on the contract's code quality and the user's ability to verify it. Key risks include:

• Logic bugs or vulnerabilities leading to fund theft (e.g., reentrancy attacks).
• Malicious or fraudulent contracts designed to drain wallets.
• Upgradable contracts where admin keys could be compromised.
• Users must audit or trust community audits of every contract they interact with.

Transactions are immutable and irreversible once confirmed on-chain. User errors have no recourse. This includes:

• Sending funds to an incorrect or unsupported address.
• Setting gas fees too low, causing a stuck transaction that may still fail after a long delay.
• Approving excessive token allowances to malicious contracts.
• Signing a malicious transaction payload that drains the wallet.

The decentralized application (dApp) frontend is a critical attack vector, even if the underlying smart contract is secure. Threats include:

• Compromised or spoofed dApp websites (DNS hijacking, phishing clones).
• Malicious injected code in browser extensions or wallets.
• Interface manipulation to trick users into signing harmful transactions.
• Reliance on centralized RPC providers that could censor or manipulate data.

Users must adopt rigorous security hygiene to mitigate non-custodial risks:

• Use a hardware wallet for storing significant value.
• Verify contract addresses and website URLs meticulously.
• Use multisig wallets for high-value or organizational funds.
• Limit token approvals and revoke unused ones regularly.
• Maintain offline, physically secure backups of seed phrases.
• Treat every transaction signature request with extreme caution.

This model uses light clients to cryptographically verify the state of the source chain on the destination chain. Relayers submit cryptographic proofs (like Merkle proofs) of transactions on the source chain to a smart contract on the destination chain, which verifies them against a known block header.

• Example: The Nomad bridge (prior to its exploit) and various Layer 2 withdrawal bridges.
• Key Feature: Trust is minimized to the security of the two connected chains; no third-party custody of funds.

These enable direct, peer-to-peer asset swaps across different blockchains using Hash Time-Locked Contracts (HTLCs). Both parties must fulfill their side of the swap within a specified time window, or the transaction is canceled and funds are returned.

• Example: AtomicDEX and cross-chain functionality within some decentralized exchanges (DEXs).
• Key Feature: Truly non-custodial and trustless; requires a counterparty for each swap.

Inspired by Optimistic Rollups, these bridges have a fraud-proof window. A set of attestors (often permissioned or bonded) submits state updates, which are assumed to be correct unless challenged within a dispute period. A successful challenge slashes the malicious attestor's bond.

• Example: Synapse Protocol's optimistic verification model for generic messaging.
• Key Feature: Reduces operational cost with a security guarantee backed by economic slashing.

These are the native bridges built and maintained by the core development teams of Layer 1 or Layer 2 networks. They are non-custodial by design, using a mint-and-burn mechanism controlled by a verifier set (often multi-sig or decentralized) that attests to lock/unlock events.

• Examples: The official bridges for Arbitrum, Optimism, and Polygon PoS.
• Key Feature: Considered the most secure route for moving assets to/from their native chain, though verifier set security varies.

A private key is a secret, cryptographically generated number that proves ownership of blockchain assets and authorizes transactions. It is the core of the non-custodial model.

• Function: Used to digitally sign transactions, providing mathematical proof they came from the owner.
• Security: Must be kept secret; anyone with the private key has full control of the associated funds.
• Relationship to Wallet: A non-custodial wallet stores and manages the user's private keys locally, never sending them to a server.

A seed phrase (or recovery phrase) is a human-readable backup, typically 12 or 24 words, that can regenerate all the private keys and addresses in a non-custodial wallet.

• Purpose: Provides a single, memorable backup for potentially thousands of private keys derived from it.
• Critical Security: Losing the seed phrase means permanent loss of access to all derived assets. Sharing it compromises the entire wallet.
• Standard: Most wallets use the BIP-39 standard to generate these phrases, ensuring interoperability.

A custodial wallet is a digital wallet where a third-party service (like an exchange) holds and controls the user's private keys on their behalf. This is the antithesis of the non-custodial model.

• User Experience: Similar to a traditional bank account; users rely on usernames, passwords, and 2FA.
• Trade-off: Offers convenience and recovery options but introduces counterparty risk. The custodian can freeze, lose, or be compelled to seize assets.
• Examples: Coinbase Wallet (exchange-managed), Binance Hot Wallet.

Self-Sovereign Identity (SSI) is a digital identity model that extends the non-custodial principle to personal data, where individuals have ownership and control over their verifiable credentials without relying on central authorities.

• Core Concept: Users hold their identity attributes in a personal digital wallet (like a crypto wallet) and present cryptographically signed proofs as needed.
• Blockchain Role: Often uses decentralized identifiers (DIDs) anchored on a blockchain as a root of trust, without storing personal data on-chain.
• Synergy: Complements the non-custodial model by applying key ownership to identity, not just assets.

A multisig wallet is a non-custodial wallet that requires multiple private keys to authorize a transaction (e.g., 2-of-3 or 3-of-5). It enhances security and enables decentralized custody.

• Mechanism: No single key holder can move funds unilaterally, protecting against theft or loss of one key.
• Use Cases: DAO treasuries, corporate wallets, and high-value personal storage where risk is distributed.
• Implementation: Governed by a smart contract on-chain (e.g., Gnosis Safe) that validates the required number of signatures.

A social recovery wallet is a non-custodial wallet design that uses a trusted group of individuals or devices ("guardians") to help recover access if a user loses their primary private key or device.

• How it Works: The wallet's signing key can be changed via a consensus of a pre-defined set of guardians, without any single guardian having withdrawal power.
• Advantage: Mitigates the irreversible loss risk of seed phrases while maintaining a non-custodial, user-owned model.
• Example: Vitalik Buterin has championed this model, and it is implemented in wallets like Argent.