One significant drawback is the custodial nature of this approach. This aspect implies that users must trust a third party to manage their funds, which can lead to potential security risks or loss of control over one's assets. Additionally, by centralizing the management of funds, it makes the system more susceptible to regulatory scrutiny. Regulatory bodies could enforce Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations more easily on these custodial entities, which adds a layer of complexity and potential vulnerability.

Mining pools, as a crucial component of the cryptocurrency ecosystem, are also highlighted as being inherently custodial and, thus, already exposed to the risk of regulatory actions. The enforcement of KYC/AML measures on these pools is a practical example of how state mechanisms can influence or control aspects of the cryptocurrency world. Despite these concerns, there is an undeniable advantage in the immediate liquidity of mining rewards that services like Cashu offer. This feature is particularly appealing as it provides miners with instant access to their rewards, enhancing the flexibility and efficiency of receiving and using their mined cryptocurrencies.

In summary, while the pursuit of enhanced privacy on networks such as LN through solutions like Cashu presents clear benefits, such as the immediate liquidity of mining rewards, it also raises significant concerns regarding custodianship and regulatory vulnerability. These factors contribute to the ongoing debate about the best practices for achieving privacy while maintaining security and regulatory compliance within the cryptocurrency space.