Decentralized Custody
Last updated
Last updated
Today when investors put funds into a new DeFi or NFT project, the project owners often have full control of the funds. There needs to be better controls in place to manage the capital, especially if we want the space to attract larger inflows from institutional investors and pension funds. At the same time decentralized can't mean forgoing the risks management systems that well-run TradFi firms have shown is critical.
Today the management of capital for each project is haphazard. We can't completely blame project owners for this since the cost of building a project plus KYC plus audits is very expensive. Asking them to also build proprietary treasury control systems is too much.
That's why CollectiVerse is developing shared resources into our Layer 3 for all projects in our ecosystem to leverage. Decentralized custody is one of those resources, providing a turnkey system to manage investor funds in a decentralized way so developers don't have to build it themselves.
Decentralized custody ensures the treasury is managed by the community and not a project owner who can steal the capital at whim. This offers powerful signaling for legitimate builders.
The way our decentralized custody system works is that the funds are placed in a contract where moving funds requires two signatures: governance holders of a project and CollectiVerse team/community multisig.
To be clear, decentralized custody doesn't mean the CollectiVerse team wants to define how governance works for a project. In fact, just the opposite: we want projects to experiment with governance so we learn best practices. For example, we have no issue if a project wants to delegate their votes to a particular person or leader. The only part of governance we set is related to protecting a project's treasury, contracts, and holders' votes. In this context, these are our governance rules:
Limit a single wallet from having too large a stake in a single project to minimize manipulation / whale risk.
Not allow any wallet or funds to be seized (as this would also affect governance votes)
Any wallet that can request a project's treasury must be whitelisted by a governance vote that includes at least 60% of holders (this will likely be the most important vote for a project so should be done early).
Ensure that approved proposals used a proper approach that gave holders at least 5 days to vote. As we discuss here, we are working with a partner to provide an app that provides notifications and allows for on-chain voting so it's accessible to a broader audience and participants in CollectiVerse can be more easily involved.
Must whitelist any contract that uses a project's token.
When there is a proposal approval vote by governance holders to use the funds, the whitelisted wallet can request funds and the CollectiVerse multisig will sign off after assuring the proposal vote was handled in a fair manner and that the funds requested match the proposal.
