Category Archives: Blockchain, Crypto, Digital Assets, Tokens, CBDCs, Stablecoins, Metaverse, NFTs

Finliti and TerraZero Partner to Revolutionize Literacy and Investment

Partnership | Feb 29, 2024

News Release

Empowering Financial Literacy and Wealth Creation Through Intraverse Technology

In a press release today from BIGG Digital Assets Inc. announces a strategic partnership between its wholly-owned subsidiary TerraZero Technologies Inc. and FINLITI. This collaboration aims to revolutionize financial literacy and wealth creation opportunities through the use of TerraZero's "Intraverse" technology.

  • The partnership focuses on building an immersive virtual experience accessible across mobile, laptop, and desktop platforms, where users can learn about their investor risk profile by building a character and navigating through the experience, akin to character creation in MMORPGs. This innovative approach is intended to engage new audiences within Finliti's network of brokerages and day-trading investor apps.
  • TerraZero, known for its expertise in creating immersive virtual environments and web3 technology, has previously worked with notable clients such as Miller Lite, Estée Lauder, Fidelity International, and Warner Records.

See:  Finliti Delivers Personalized Financial Insights Using the Power of Psychometrics

  • The collaboration with FINLITI, a wealth management software company leveraging behavioral science for investment decision-making, aims to create gamified experiences that educate retail investors and uninitiated consumers about financial instruments and risk profiles.  Finliti, led by CEO and Founder Jennifer Schell, emphasizes the importance of bringing financial awareness to everyday investors, allowing them to interact with simulated products before engaging in real-world trading.
  • The partnership also seeks to leverage Blockchain Intelligence Group’s compliance and investigation services for crypto products and services demonstrated within these gamified environments.

This initiative is part of a broader effort to address the challenges faced by financial institutions and brokerages in adapting to significant wealth transfers and evolving investor needs.


NCFA Jan 2018 resizeThe National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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Winklevoss’ Gemini to Refund $1.1 Billion After NYDFS Findings

Enforcement News | Feb 29, 2024

Image from Gemini blog

Image from Gemini blog

Gemini agrees to a $1.1 billion refund plan after NYDFS findings

The New York State Department of Financial Services (NYDFS) has announced an agreement with Gemini Trust Company, LLC, mandating the return of at least $1.1 billion to customers of its Earn program. This decision follows the discovery of compliance failures and the mishandling of a partnership with Genesis Global Capital, LLC (GGC), which led to substantial customer losses. The settlement includes a $37 million fine and outlines Gemini's commitment to rectify the situation through the bankruptcy proceedings of GGC.

  • Gemini's pledge to reimburse $1.1 billion to Earn customers represents a substantial effort to address the fallout from the Earn program's suspension and Genesis Global Capital's subsequent bankruptcy.

See:  New York Takes Legal Action Against Major Crypto Firms

  • This settlement highlights a shift towards stronger protections for cryptocurrency investors, particularly in response to the risks associated with lending programs and third-party partnerships.  The NYDFS has imposed a $37 million penalty on Gemini for various compliance failures, emphasizing the importance of regulatory adherence in the cryptocurrency sector.
  • Gemini's operational practices, including insufficient due diligence and inadequate reserve maintenance, have led to significant reputational and financial damage, affecting over 200,000 customers.

Gemini's Response to the Resolution

In a blog post from Team Gemini said, "This settlement, pending Bankruptcy Court approval, promises the return of 100% of digital assets to Earn users, including any appreciation since the assets were lent. Gemini expects to return over $1.8 billion in today's value, with users receiving approximately 97% of their assets in kind within about two months and the remainder within the next 12 months.

See:  Binance Withdraws from Canadian Market due to Tightened Crypto Regulations

Gemini also acknowledges the New York Department of Financial Services' role in reaching this settlement and commits an additional $40 million to aid users' recovery, emphasizing their dedication to customer asset security and appreciation for users' patience throughout the process."

Outlook

The NYDFS's action against Gemini Trust Company, LLC, culminating in a $1.1 billion customer reimbursement plan is another cautious warning to other platforms regarding the importance of compliance, due diligence, and the protection of consumer assets. This development is expected to influence future regulatory frameworks and operational standards within the digital asset market, aiming to foster a safer and more reliable trading environment for investors.


NCFA Jan 2018 resizeThe National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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Republican Senators Move to Block CBDCs in U.S. (again)

News | Feb 27, 2024

CBDC debate at capital hill, financial privacy

Republican senators have once again introduced a bill aimed at prohibiting the Federal Reserve from issuing a Central Bank Digital Currency (CBDC) in the United States, citing privacy intrusions.

Titled "The CBDC Anti-Surveillance State Act," the bill reflects deep concerns over privacy and the potential for government overreach into citizens' financial transactions. There is a growing political divide over digital currency policy and its implications for personal freedom and national sovereignty.

See:  CBDCs in Canada and Impact Drivers on Banking Choices

  • Spearheaded by Sen. Ted Cruz (R-Texas) and supported by Sens. Bill Hagerty (R-Tenn.), Rick Scott (R-Fla.), Ted Budd (R-N.C.), and Mike Braun (R-Ind.), the legislation marks another attempt by Republican lawmakers to halt the progress of a CBDC in the U.S., citing threats to privacy and freedom.
  • The bill emerges against a backdrop of heightened political rhetoric, with the Biden administration accused of seeking to infringe on citizens' privacy through the surveillance of personal spending habits. The Federal Reserve, currently in the basic research phase regarding a CBDC, has stated it would not proceed without authorization from Congress and the White House.
  • The debate over a CBDC has become a campaign talking point, with former President Donald Trump promising to ban the creation of a CBDC, framing it as a defense against government tyranny.  Trump said:

“Tonight, I am also making another promise to protect Americans from government tyranny.  As your president, I will never allow the creation of a central bank digital currency.”

Why It Matters

The introduction of anti-CBDC legislation by Republican senators highlights the complex interplay between innovation, privacy, and governance in the digital age.

See:  Is USDCs Blockrock Money Fund a Back door CBDC?

As countries around the world advance their CBDC initiatives, the U.S. faces a decision on how to balance the potential benefits of digital currencies with the imperative to protect individual freedoms. This legislation reflects concerns over privacy and autonomy but also signals the broader geopolitical and economic considerations at play in the global shift towards digital currencies.


NCFA Jan 2018 resizeThe National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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Round13 Digital Asset Fund Posts Over 40% Gains

Release | Feb 21, 2024

Freepik market growth

Image: Freepik

Round13 Digital Asset Fund (DAF) Posts Over 40% Gains Despite Volatile Market

TORONTO – February 20, 2024 – Round13 Digital Asset Fund (DAF), a native crypto fund in Canada with an innovative open-ended structure, announced yesterday gains exceeding 40% since its inception in April 2022, despite the turbulent market backdrop. This achievement underscores the Fund's exceptional ability to outperform major cryptocurrencies, with a 30% lead over BTC and a 60% advantage against ETH.

See:  Bitcoin Ordinals: Exploring the Convergence of Fungible and Non-Fungible Digital Assets

Leveraging strategic investments in 20 portfolio companies across pivotal stages such as Seed and Series A, with investments ranging from $250,000 to $5 million, Round13 DAF has curated a diverse and impressive portfolio. These companies are pioneering advancements across crucial crypto market segments, including AI, gaming and Metaverse, identity, and infrastructure. Noteworthy portfolio companies include Wombo, Improbable, Confirm, and ChainSafe.

Several portfolio entities have successfully secured funding at significantly enhanced valuations, demonstrating resilience and growth potential. A notable aspect of the Fund's portfolio is the presence of token projects poised for native token launches this year, further enriching the investment landscape. Round13 DAF remains optimistic about the prospect of additional liquidity events from its venture deals in the next three years.

Established by Round13 Capital, a venture and growth-stage investment firm co-founded by Bruce Croxon and John Eckert, Round13 DAF is focused on blockchain innovation and digital asset markets. The Fund's structured approach to onboarding new investors quarterly, coupled with its steadfast resilience and innovation, sets it apart in the fast-paced digital asset domain.

A Bright Future for Digital Assets

With an eye on the next 12-24 months, Round13 DAF's confidence in the digital asset market is stronger than ever. The U.S.'s recent approval of Spot Bitcoin ETFs marks a new era of growth and institutional adoption for BTC and ETH. This optimism is anchored in the belief that the digital asset market is on the cusp of significant expansion and mainstream finance integration.

See:  CSA Consultation on Public Investment Funds and Crypto Assets

Satraj Bambra, Managing Partner and CIO at Round13 DAF:

"Our dual focus on crypto capital markets and venture capital has been fundamental to our strategy.  This approach has enabled us to adeptly navigate varying market conditions, including the recent downturns and market uncertainties post-FTX collapse.  Our vision is to continue leading in the digital asset space, driving innovation, stability, and growth.  With the market poised for monumental shifts, our strategic positioning enables us to capitalize on the upcoming value surge, with BTC projected to exceed $150,000 and ETH to surpass $10,000 in the next two years."

Dig Deeper with Khaled Verjee – Managing Partner, Round13 DAF

NCFA got in touch with Round13's Digital Asset Fund, Managing Partner, Khaled Verjee to answer some additional questions.

Q: Given the impressive performance of Round13 DAF amidst a turbulent crypto market, what specific criteria or evaluation process does the fund use to select portfolio companies? 

A: Our selection of portfolio companies is underpinned by an evaluation process that emphasizes several key criteria. Firstly, Round13 DAF prioritizes companies that have secured enough capital to sustain operations for at least a three-year runway. This criterion underscores the importance of financial stability and resilience, ensuring that the company can navigate market volatilities without the immediate need for additional funding. Companies also need to have solid fundamentals and a robust business model, demonstrated by an established performance track record which includes clear revenue models, customer acquisition strategies, and scalable operations. 

We look for a strong technical founder – which is crucial for driving innovation and technical excellence, especially in the rapidly evolving crypto and blockchain sector. We also look for a second or third time CEO as these leaders bring proven track records of navigating startups to success, learning from past experiences, and applying those lessons to avoid common pitfalls and accelerate growth.

See:  Winklevoss’ Gemini to Refund $1.1 Billion After NYDFS Findings

Given the technical complexity of blockchain technology, the Fund emphasizes the importance of a strong user interface and ease of use. The portfolio companies we invest in make blockchain technology easy to use and accessible, essentially making the complexity of blockchain invisible to the user. This focus ensures that products and services can achieve wider adoption by being user-friendly and intuitive.

Q: How does Round13 DAF differentiate its investment strategy from other crypto funds, particularly in terms of portfolio diversification and risk management? 

We understand that narratives play a big role in how the market moves. Round13DAF distinguishes its investment strategy from other crypto funds through a nuanced approach to portfolio diversification and risk management, and our ability to strategically rotate in and out of assets based on our analysis of market narratives – which both protects investments from undue volatility and also maximizes returns by entering and exiting positions at opportune times. This agility is a critical differentiator.

Q:  A lot has been written about the mashup of AI integration into the crypto sector.  What are your thoughts on the future?

AI integration into the crypto sector is a natural intersection where both technologies complement each other and drive efficiencies. For instance, the ability to verify AI-generated images or videos as true copies highlights how the blockchain can enhance the credibility and security of digital content. Additionally, by aggregating latent computing power from devices like mobile phones, computers, and gaming machines, the crypto sector can offer a cost-effective and accessible means to power AI models. This not only democratizes access to AI by reducing costs but also leverages the decentralized nature of blockchain technology for training AI models.


NCFA Jan 2018 resizeThe National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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A Beginner’s Guide to Buying Bitcoin

Feb 19, 2024

How to buy Bitcoin

So, you've heard about the buzz and are considering buying Bitcoin. It's a world that might seem complex at first glance, with its own lingo and an ever-evolving landscape. But let's break it down into more digestible bits, shall we? You might still be wondering exactly what Bitcoin is.

In essence, it's a form of digital currency that operates without a central authority. Transactions with Bitcoin are recorded on a public ledger called the blockchain, ensuring transparency and security – two elements at the heart of this digital revolution.

Exploring the Initial Steps to Enter the Cryptocurrency Market

Think of entering the cryptocurrency market like dipping your toes into a new kind of financial ocean. You’d probably want to go to a place where the waters are monitored, and that’s exactly what a digital asset exchange does for you.

These exchanges are platforms where you can BTC buy or other cryptocurrencies with traditional money. It’s like an online marketplace, but instead of buying handcrafted goods, you're exchanging your dollars for digital coins that you can use for various online transactions, investing, or as a potential store of value.

Entering the crypto market is akin to starting a journey into a new landscape filled with unique opportunities and challenges. It's critical to understand the infrastructure supporting digital currencies. A good place to begin is by familiarizing yourself with the different types of wallets for storing your assets.

From hardware wallets that offer physical security to software wallets that ensure quick access, choosing the right wallet is a foundational step in your crypto journey. This preparation, much like choosing the right gear before an adventure, lays the groundwork for a secure and informed entrance into the realm of digital currency.

Understanding the Basics: What Bitcoin Is and How It Works

If you're totally new to the idea, Bitcoin is pretty much like gold in the digital realm. You can mine it, you can trade it and its value fluctuates based on market demand. The difference? Bitcoin operates on a decentralized network of computers.

This means that no single institution or government has control over it. Transactions are verified by network nodes through cryptography and recorded on that public ledger we mentioned earlier, the blockchain.

Selecting a Reputable Digital Asset Exchange for Your First Purchase

When you're ready to dip your toes and buy Bitcoin, choosing the right exchange is like picking a beach with the best weather – it's crucial. Look for one that offers not just a wide selection of digital assets, but also emphasizes on security and ease of use.

A good exchange should guide you through the process smoothly, likened to a friendly beach instructor who ensures your first swim goes without a hitch. Do your research to find an exchange with a solid track record, glowing user reviews and responsive customer service.

The Importance of a Secure Trading Platform for Your Cryptocurrency Ventures

Imagine holding a unique, priceless jewel. You'd want the most secure safe to keep it in, right? The same goes for your cryptocurrency investments. With stories circulating about digital heists and hacking incidents, a secure trading platform is your digital safe.

Advanced security measures, such as two-factor authentication and cold storage for funds, ensure your digital assets are protected. Before you buy Bitcoin, scrutinize the platform's security features as thoroughly as you'd examine a lock for that hypothetical safe.

Supporting Fintech Innovation Through Cryptocurrency Exchanges

Cryptocurrency exchanges don't just let you buy bitcoin; they're on the frontier of financial technology, often referred to as fintech. By using these platforms, you're part of a movement that's reshaping how we think about money and transactions.

These exchanges are forcing traditional financial institutions to sit up and take notice, adding blockchain technology to their arsenals or developing collaborations with these trailblazing companies. As you trade in cryptocurrencies, you're supporting innovation that could make financial systems more inclusive, efficient and transparent.

The Critical Role of Customer Support When Trading Digital Assets

Ever been in a new city and found yourself lost? Good customer support from a digital asset exchange is like bumping into a friendly local who helps you find your way. As you start trading and managing your digital Bitcoins, questions will arise.

Whether it's about navigating the platform, understanding fees, or resolving a transaction issue, accessible and knowledgeable customer support can be a saving grace. This is especially true for new traders, for whom quality assistance can be the difference between a positive and a daunting experience.

Embracing a New Era of Financial Involvement With Digital Asset Trading

What's fascinating about the world of cryptocurrencies is its potential to redefine how we handle our finances. It drives the conversation about what money is and how it could be in the future, making it both an exciting and somewhat unpredictable venture.

See:  Blockchain Private Credit Grew 55% in 2023

But just like the internet changed the way we communicate and access information, digital currencies like Bitcoin could revolutionize our concept of value exchange. This marks a new era not just for tech enthusiasts, but for anyone interested in the potential for more a personable and empowered financial future.


NCFA Jan 2018 resizeThe National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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Citi’s PoC Success in Private Market Tokenization

Tokenization | Feb 16, 2024

Unsplash Joshua Lawrence, Citi

Image: Unsplash/Joshua Lawrence

Citi collaborates with Wellington Management and WisdomTree to explore the tokenization of private markets, aiming to revolutionize the $10 trillion sector

Feb 14, 2024:  Citi, in partnership with Wellington Management and WisdomTree, have successfully completed a proof of concept for the tokenization of private markets. This initiative, conducted on the Avalanche Spruce institutional test Subnet, aiming to use blockchain technology to gain operational efficiencies and new functionalities within the $10 trillion private markets sector, traditionally bogged down by complex and manual processes.

  • The collaboration tested the tokenization of a Wellington-issued private equity fund, demonstrating the potential of smart contracts to streamline operations compliantly.  The result of the experiment?   Smart-contracts could enable buy- and sell-side institutions to engage with distributed ledger infrastructure in a low-risk, regulatory-compliant manner, offering unprecedented operational efficiencies.

See:  Fund Tokenization: Fractional Issuance, Streamlined Redemption, and Servicing Benefits

  • By encoding fund distribution rules into smart contracts, the initiative promises greater automation and an enhanced compliance and control environment for issuers, distributors, and investors.
  • Citi's exploration into tokenization is not just theoretical; it includes practical scenarios of transfers using smart contracts, showcasing the feasibility of new operating models that could revolutionize the market.

Nisha Surendran, Emerging Solutions Lead for Citi Digital Assets:

"Smart contracts and blockchain technology can enable enhanced rule-enforcement at an infrastructure-level, allowing data and workflows to travel with the asset. We believe that by testing the tokenization of private assets, we are exploring the feasibility to open-up new operating models and create efficiencies for the broader market."

You may also link:

Swift’s Blockchain Breakthrough Boosts Global Tokenization

Real World Implementation of Real Estate Tokenization


NCFA Jan 2018 resizeThe National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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NCFA Fintech WhispererNCFA Fintech Fridays PodcastNCFA Weekly Newsletter

 

Addressing The Paradox of Governance Tokens

Governance Tokens | Feb 15, 2024

Governance tokens by security type De.Fi

Image: De.Fi

Promise of Decentralization versus Reality of Governance Token Structures

Governance tokens enable democratic decision-making processes within decentralized autonomous organizations (DAOs). These tokens, designed to democratize governance by granting voting rights to token holders, promise a future where stakeholders have a direct say in the direction and operation of a project. However, recent data and analyses suggest that the actual governance structures facilitated by these tokens may not live up to the ideals of good governance they aim to embody.

Crypto governance tokens don’t have good governance.

Governance tokens are a pathway to a more inclusive and participatory governance framework, and are meant to be different than centralized decision-making models. In theory, these tokens empower their holders with the ability to influence decisions, propose changes, and vote on key issues related to the project's development, financial management, and strategic direction.

See:  Are DAO governance attacks avoidable?

Despite the promise of governance tokens, practical implementations have often fallen short of creating truly democratic governance structures. the data reveals several critical issues that undermine the effectiveness of governance tokens as tools for good governance.  Bottom line is poor governance can erode trust among stakeholders, lead to low community engagement, and result in short-sighed and poor decisions for the long term sustainability and health of a project.

  • In many projects, governance tokens are distributed in a manner that results in a significant concentration of voting power among a small group of holders. This concentration can occur due to initial token distribution events favoring early adopters, developers, or large investors. As a result, the democratic ideal of one token, one vote is compromised, leading to governance decisions that reflect the interests of a few rather than the collective will of the community.
  • Another challenge facing governance token-based systems is the consistently low participation rate in governance votes. Factors include a lack of engagement or interest from token holders, the technical complexity of participating in votes, and the perception that individual votes have little impact on the outcome. This apathy undermines the governance process, making it less representative and effective.

See:  Arca Report: DAOs – Institutional Guide to Decentralized Governance

  • The governance mechanisms enabled by tokens can be complex, requiring a deep understanding of the project's technical and financial aspects. This complexity can exclude average token holders from the governance process, as they may feel ill-equipped to make informed decisions or engage meaningfully in discussions.
  • Governance token holders may be motivated by short-term gains rather than the long-term health and success of the project. This short-termism can lead to decisions that prioritize immediate profits over sustainable development, potentially compromising the project's future viability.

Digging Into the Data

An analysis by Web3 firm De.Fi has revealed significant governance risks associated with nearly 75% of the top tokens by volume. Out of 429 tokens with governance frameworks analyzed, about 75% exhibit risk factors in their contracts. These risks include hidden owners and wallets with special permissions that could potentially exploit the system or pose other security threats.  Here's the breakdown (see chart above):

  • Over 38% of the token contracts are managed by a single wallet or externally owned account, allowing that wallet to call privileged functions of the contracts at any time. The level of risk varies depending on the permissions granted to the wallet, with critical permissions posing direct dangers to user assets.
  • Only 16.6% of the analyzed contracts are managed by multisig wallets, which are considered more secure as they require up to five different private keys to approve any transaction. Multisig wallets help reduce risks associated with phishing and malware-based hacking.
  • About 14% of the contracts either lack governance mechanisms entirely or do not disclose them.
  • Approximately 6.8% of the contracts have hidden ownership, enabling the contract creator to revoke ownership and veto votes, which is a significant red flag.
  • 10% of the tokens have renounced contracts, where creators have relinquished the right to modify their code or governance features, enhancing decentralization.

Addressing the Issue

Several mechanisms can be implemented to mitigate the risk of power concentration:

  • Projects can aim for a more equitable distribution of governance tokens, such as through airdrops to a wider base of users, rewards for community contributions, or limiting the amount of tokens that any single entity can hold.
  • Use a quadratic voting system which weights votes based on the square root of the number of tokens a voter holds, diminishing the power of large holders and amplifying the voice of smaller ones.
  • Allow token holders to delegate their voting rights to representatives or to join voting pools can help balance power dynamics, ensuring that the interests of smaller token holders are represented.

See:  Research: Ownership of Top 10 Web3 DAOs is Surprisingly Concentrated

  • Use time-locked voting where the voting power of tokens increases with the length of time they are held can encourage long-term commitment over short-term speculation and reduce the influence of large, transient stakeholders.
  • Simplify the voting process, improve the accessibility of information, and educate token holders about the importance of their participation can increase engagement. Additionally, use quadratic voting or other mechanisms that mitigate the influence of large holders could make the governance process more democratic.
  • Ensure that decision-making processes are transparent and that outcomes are communicated effectively can build trust in the governance system. Establish clear guidelines for proposals, voting, and the implementation of decisions is crucial for accountability.

Conclusion

While governance tokens hold the promise of decentralized and democratic governance, the reality is that their current structures often fall short of this ideal. By addressing the challenges of concentration of power, low voter turnout, complexity, and short-termism, the DeFi community can work towards creating governance models that truly reflect the principles of good governance - inclusive, fair, hack-proof, and focused on the long-term sustainability of the project.


NCFA Jan 2018 resizeThe National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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