Who really controls Lava’s bitcoin collateral?

By admin On Nov 7, 2025

Lava, a lender of USD and stablecoins that accepts bitcoin (BTC) as collateral and that heavily advertised its affinity with the Bitcoin community, is at the center of a social media firestorm.

In fact, it’s facing a flurry of allegations so numerous that counting the number of claims is almost impossible.

These allegations include:

The involuntary transfers of its customers’ funds
The use of centralized services like single–party oracles for ostensibly non-custodial services
Downplaying its use of Solana while advertising its Bitcoin alignment
A forced migration away from Bitcoin’s Discreet Log Contracts (DLCs)
Displaying stablecoin balances as though they were USD
Confusing customers as to the effective interest rate for loans
Possibly missing licenses to hold its customers’ funds

It must be noted that all of these allegations are merely complaints sourced from a growing number of social media posts and the company has denied any wrongdoing.

Its founder, Shehzan Maredia, is also actively responding to complaints with his own version of events.

Throughout the past week, people have complained about Lava’s disturbing level of control over its users’ funds while advertising its alignment with Bitcoin values like decentralization.

According to the company’s own terms of service regarding wallet functionality, “The Company has no custody or control over the contents of your wallet,” yet customers complained that it was moving ostensibly self-custodial funds.

According to several critics, users with BTC loan collateral at Lava experienced a forced migration from Bitcoin DLCs to “a more hybrid model” of asset custody.

Lava contests this characterization, claiming that the transition was a technology switch that was repeatedly messaged in advance.

“Users aways consented to updates,” wrote the Lava founder.

Is the interest rate for Lava loans 5% or 13%?

On the topic of misrepresenting the effective interest rate of loans, Maredia tweeted that customers could access USD using BTC as collateral for loan rates as low as 5%.

However, after someone pointed out that the actual rate for a loan might be as high as 13%, Maredia acknowledged that 5% might not be a realistic loan rate for every customer.

While downplaying its use of alternate blockchains, Lava founder Shehzan Maredia frequented Bitcoin podcasts and media appearances.

Indeed, he’s often conducted full-length interviews about Lava without mentioning any blockchain except Bitcoin — even while previously relying on alternatives like Solana and centralized stablecoins for core functions of its service.

Most worryingly, some Bitcoin influencers have expressed concerns that Lava might not hold sufficient licenses to conduct business as a money transmitter if its activities were, in legal fact, money transmission.

Alongside its denials of all of the above allegations, Lava denies that it’s engaged in the business of money transmission.

According to its founder, “custodial/non-custodial isn’t really a binary. It’s more of a spectrum. People talk about them in black and white terms, but it’s not that clear.”

Protos reached out to Lava for comment and will update this story if/when we receive a reply.

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