Lava Wallet Controversy: Custodial Shift Sparks User Outrage

Over the past few weeks, the Lava wallet and lending platform has come under scrutiny due to a controversial update that significantly altered its trust and security model. According to numerous users, the update completely shifted Lava from a non-custodial setup to a fully custodial model, where the company now has full control over users' digital assets.

The controversy began in September 2025 when Lava users were prompted to update their app to access the latest features. However, the update screen did not disclose the drastic change in how user funds would be handled. Users were also unable to access any existing loans without completing the update.

Lava CEO Shehzan Maredia later made a post on X outlining the changes, though the details remained somewhat unclear. The general takeaway for many was that Lava had transitioned to a fully custodial model, which was particularly surprising given Maredia's past criticism of such setups in the crypto industry.

Adding to the confusion, Lava had also recently announced a $200 million fundraising round. The company promised a post-mortem on the update, but as of November 14th, 2025, no such clarification had been provided.

The Lava controversy highlights the broader issue of "decentralization theater" in crypto, where the technology is often more focused on regulatory arbitrage than true decentralization. The incident also raises questions about the transparency and security of closed-source crypto wallets, where users have no way of verifying if their private keys are truly secure.