Hats.finance has announced the gradual termination of its custody service, as the market has not grown as expected and its share has been eroded by AI security tools.

**December 1 — Hats.finance announced it is phasing out its custodial operations, per official sources.** The protocol said following a review, sustaining its centralized user interface (UI) and server operations is no longer viable. There is no new legal or operational framework in place to support its existing custodial tech stack moving forward. Since 2021, Hats.finance has stood by the principle that “a decentralized market should have decentralized security safeguards.” That vision has not aligned with reality, however. Its smart contract security budget failed to grow in line with the expansion of the DeFi ecosystem as anticipated. Meanwhile, the rapid rise of AI security tools and growing maturity of secure, reusable smart contract building blocks have cut market demand for protocols like Hats, leaving the HATS token without long-term sustainable value backing. **Key next steps:** - Hats’ custodial front-end (UI) and back-end (server) will go offline by December 31, 2025. - Most functions tied to this custodial tech stack will be phased out. - The Hats protocol itself remains deployed on-chain and governed by a DAO; core contracts are built to run per their code logic. - Users seeking to withdraw funds via the custodial UI should submit requests by December 17, 2025 (noting a 7-day cooldown period plus a 7-day withdrawal window).