What Is The Current State of Solana DeFi?
Rocket Pool rETH | margin.fi lending | Multichain Future | Can DAOs Survive?
GM, this is your Daily Bolt briefing.
In today's briefing, we present intelligence updates on the latest developments in critical Solana decentralized finance initiatives, alongside valuable analysis regarding the multi-chain landscape.
Additionally, with the activation of ETH Shapella, we have includes our notes on Beethoven X's recent Twitter space session with Rocket Pool concerning decentralized liquid staking.
That isn’t it; continue reading to get expert takes on whether or not DAOs can survive the scrutiny of US regulatory authorities. ⬇️
Over and out.
1/ Beethoven X Twitter space - DeFi Re-imagineered with Rocketpool
Preview: In this Twitter space, Beethoven X and Naly are joined by Darren Langley to discuss Rocketpool, Balancer, $rETH, Shanghai upgrade and more. Click here to listen to the full episode.
Length: 69 mins | OUR NOTE: 2.5 mins
In theory, anyone can stake their $ETH but in practice, there are a number of barriers of entry, including that the minimum staking requirement is 32 $ETH.
Those who want to spin up an $ETH full node need to have technical knowledge on running a validator.
Rocketpool is a decentralized liquid staking protocol, meaning people can stake their $ETH onto their protocol with any amount.
As their protocol grows, there will be more liquidity for $rETH.
One of the most important parts of their management committees is the incentive management committee.
Balancer started on Ethereum and the initial innovation it offered was the weighted pools.
2/ Marinade Finance - Introduction of marginfi
Preview: In this Twitter Spaces, Marinade Finance invites marginfi to discuss the protocol, latest updates, and news. Click here to listen to the full episode.
Length: 31 mins | OUR NOTE: 3 mins
Here are some key takeaways:
marginfi is a decentralized finance platform that operates on the Solana blockchain.
It offers lending and borrowing services for cryptocurrency assets, allowing users to earn interest on their deposited assets or borrow crypto at a variable interest rate.
Solana's architecture is designed to scale with network usage, ensuring that it can handle increased demand without sacrificing performance.
Solana's low transaction fees make it an attractive option for users looking for a cost-effective way to transact on the blockchain.
One of the biggest challenges for marginfi is the current lack of liquidity on Solana. However, they plan to address this by building a liquid venue for people to lend, borrow, and trade on.
They are also monitoring other venues, such as Drift, Mango, and Zeta, as they come online to find opportunities for arbitrage and simple exchange as collateral.
Super Stake is a leverage strategy used by marginfi on the Solana blockchain; the strategy involves users depositing SOL or MSOL to borrow an equivalent amount of SOL or MSOL. The borrowed funds are then used to purchase more SOL, which is again deposited to borrow additional SOL, and the process continues in a loop.
3/ Orca Finance - Multichain in DeFi
Preview: Orca Finance, Albridge, SafePal and Nexa discuss the future of multichain in DeFi ecosystem. Click here to listen to the full episode.
Length: 60 mins | OUR NOTE: 4 mins
Here are some key takeaways:
Projects are looking to go completely native on multiple chains.
Most projects tend to launch on one chain initially to gauge user demand, multi-chain projects aim to address market fit for cross-chain use cases.
Nexa is a cross-chain tokenization platform that offers three products.
The first product is the Nexa Chain, which enables projects to expand new chains in the future because their token contracts are already native to those chains.
The second product is the Cat Bridge, which can be used to migrate tokens between chains after minting has happened on each chain.
The final product is the Cat Sale, which is a sale platform where projects can launch their tokens or NFTs on multiple chains with one sale.
Albridge is building a bridge between different blockchain networks to enable seamless transfer of assets across them; they aim to provide fast transaction times with low fees while maintaining security.
On the Revelo Intel platform, we’ve summarized these 3 episodes and in total, would have saved you: 2 hours and 2 minutes!
Unchained Ep. 479 - Are DAOs Strong Enough to Survive the Regulators?
In this episode of The Unchained Podcast, host Laura Shin is joined by Gabriel Shapiro General Counsel at Delphi Labs, and Fatemeh Fannizadeh Lawyer and Researcher at Geneva.Legal to talk about legal issues around Utah DAO, Ooki Dao, MakerDAO, Mango Markets, and more!
Read or listen to our notes below for more information.
DAOs
Gabriel
DAO is a Decentralized Autonomous Organization that is resistant to extrinsic exercises of authority.
DAO is a group of people who have gathered together to do something, such as setting the rules for a non-chain.
Decentralized means that the power to make decisions is widely dispersed among a potentially Anonymous Global set of people, and they may vote through tokens or voting tokens.
Autonomous means that it is resistant to extrinsic exercises of authority, and it should not depend on any particular company or specific group of people.
Dao set the rules for an entire blockchain system, usually technological and blockchain oriented.
In Dao, it does not necessarily mean that it is impervious to external changes or forces, but rather that only the token holders can act in it.
In Dao, there is still some flexibility, decision-making, and mutability involved.
Fatemeh
DAO is a group of people who are coordinating, organizing, and governing anything, such as a treasury, protocol, or anything else that may be governed on-chain.
There is no minimum level of decentralization, but there are thresholds at which something is centralized or decentralized.
If a corporation makes 100 of the decision or has vote rights over what the Dao governance decides, then it is centralized.
If a single person or group of extrinsically-affiliated persons has more than a majority of the means of determining consensus, then it is centralized.
There are a number of different Dao that have come into existence and they are all taking different shapes and forms.
Legal Issues Around DAOs
Gabriel
It is confusing for people when it comes to the legal implications of a Dao, such as whether it is a partnership or a decentralized autonomous corporation.
Regulators and class action litigators argue that a Dao is an agreement to co-own Assets, but there are countervailing considerations such as whether it is highly rivalrous.
There is no clear legal classification and it might differ depending on what Dao people are looking at.
There are many unanswered questions about the definition of a Dao.
Fatemeh
Participants in Cardano ($ADA) and DAOs face potential liabilities for activities conducted without being registered in a jurisdiction.
Participants can be held liable for software problems and taxes if a jurisdiction decides to pay tax in that jurisdiction.
There is no certainty of what the possible liabilities faced by participants are, and it is important to be clarified for peace of mind.
Borgs Concept
Gabriel
The first step to address the risks and uncertainties around DAOs is to create entities such as Wyoming DAO LLCs and Dallas companies where every people is a member or shareholder.
The second step is to stick to the real concept of Dao, which is that they are robots with a decentralized base of people who can give them limited flexibility and business functions.
The third step is to take legal agreements that involve a lot of discretion and potential regulatory license.
Creating legal blockchain hybrids, cybernetically enhanced legal entities, borgs, and token to token swaps among DAOs, which can be merged with DAO or other on-chain constituencies without being agents.
Token-to-token swaps between DAOs can be done by setting up an entity adjacent to the Mars DAO and owning a bunch of Osmo tokens.
Marscoin now has direct on-chain control over tokens, and emergency multi-figs can halt the protocol or change parameters in an emergency.
There is a way to plug a hole, which is by creating a multi-segment entity with the power to only use this power in an emergency, and to sue the entity if they abuse it.
There is a bridge between the off-chain world and the on-chain robots that still is Web3 and is accountable and innovative in its way.
Fatemeh
Borg's Concept also highlights the concept of compartmentalizing risk by having smaller entities instead of one.
Borg’s Concept argues that a single centralized point of failure creates a single centralized point of failure.
Borg’s Concept also suggests that there are ways to mitigate the liability of decentralized actors, such as multi-fig signers, and there is a way within the framework that this risk can be mitigated.
There are benefits and risks of setting parameters on a smart contract or deciding new code to adopt, the economic loss Doctrine, and the use of Cayman Foundations for Borgs.
Cayman Islands is a good jurisdiction for Borgs due to its memberless foundations and zero tax but also requires strict virtual asset service provider licensing.
Wyoming LLC Law
Gabriel
MetaCartel Ventures DAO(MVD) is an LLC that uses smart contracts to make Venture Investments.
MVD uses an ordinary Delaware LLC for this, but people want it to be easier with less custom Drafting.
Wyoming dialogue suggests creating a specific type of LLC for DAOs, with custom rules such as publicly filing documents, Smart contract addresses, and member management.
The Delaware LLC law states that a DAO is an LLC, but it is a function of state law that can be declared dissolved by the secretary of state of Wyoming.
There is also a rule in the law that if the DAO is inactive for a year, it is deemed dissolved.
Fatemeh
Wyoming has had a small adoption of blockchain-based technology, with around 400 registered entities.
Wyoming is not a default option for those who want to experiment or own physical assets that they cannot otherwise do otherwise.
All jurisdictions are trying to understand blockchain-based technology, this is due to the lack of understanding of old laws and understandings when applied to these organizations.
Utah’s DAO Law
Utah is the most innovative jurisdiction as of the date of recording fwhen it comes to recognizing corporations as legal persons.
The Coala Dao Model Law provides a framework for jurisdictions to pass a law, automatically recognizing those who meet its conditions as legal persons.
The model law is structured in a way that through the principle of functional and technical equivalence, the conditions that generally need to be met for corporations to be recognized as legal persons are fulfilled by doubt.
This model looks at dollars and sees that those are not going to be registered and we don't want those to have to go and register in a public registry of the state of Utah or other jurisdictions.
The model law requires a registered agent to be in Utah for the sit-down, as well as other adaptations such as serving legal papers.
Gabriel
The model law is a more interesting approach than just turning all DAOs into modified types of ordinary business entities.
The model law carves out the types of things that a Dao should be, but this can be a tricky exercise due to the need for words to describe the way a Dao should be right.
It can be difficult to determine if the limited liability applies or if someone can retroactively use the way things are phrased to challenge whether it applies.
There are other jurisdictions that may adopt variations on the model law, such as offshore island jurisdictions and the State of New Hampshire.
New Hampshire has decided to wait to integrate modern law, which must be tailored to the rapidly evolving regulatory space in the US. All stakeholders must be involved to ensure success.
Ooki Dao Lawsuit
The first legal action in Ooki Dao is an investigation and claim against both the original bZx development company and the bZx Dao that managed the bZx protocol.
The Commodity Futures Trading Commission(CFTC) then filed a lawsuit against Ooki Dao and a class action against all of those same players related to a hack of the bZx protocol.
The core of the CFTC's claim is that the bZx protocol was a credit protocol on Ethereum and other blockchains, which enabled people to engage in leveraged trading on tokens.
The CFTC then sued Ooki Dao for violations of the Commodities Exchange Act.
Another legal action is a class action against all of those same players related to a hack of the bZx protocol.
The CFTC is seeking a default judgment against the entire Dao, which is an unincorporated association of some sort.
At this early stage, the lawyers are determining whether a cognizable claim has been made that can move forward potentially to trial.
Fatemeh
The Ooki case is one of the most famous cases right now, and everyone is waiting to see what will happen next.
If a judgment against the Dao is enforced, it will create incentives for Dao participants to become more privacy-oriented and pseudonymous, so they cannot be held liable.
Participants must declare their tokens in their tax declaration each year to avoid liability for decisions made by the Dao or other participants.
Unincorporated associations are the same thing as partnerships and can be confusing in California in terms of service of process issues.
If the Dao is an unincorporated association, it has at least something close to personhood that based on the relevant precedence can be served on it without having to serve each individual member.
MakerDAO Case
Gabriel
The legal status of DAOs was decided differently in two cases, Ooki and Maker.
In the MakerDAO case, two entities were sued, one had been dissolved before the lawsuit and one had not.
The judge reviewed the merits of the claim and applied the Economic Loss Doctrine.
In the Ooki Dao case, the judge said there was no special relationship between the developers and the plaintiffs, and that the defendants were not trying to make money off of the plaintiffs.
In the MakerDao Case, the judge applied the Economic Loss Doctrine and found that the defendants were not trying to make money off of the plaintiffs.
The Defi protocol system does not meet the standard rule of Torts, which states that if you only incur an economic loss due to someone's negligence, you do not have a claim against them.
People using Defi protocols typically disclaim all liability and do their own research before using them.
The MakerDao case illustrates that although there are potential lawsuits against DAOs, there are also potential lawsuits against developers.
Fatemeh
The decision to make a Dao Case against the Office of Foreign Assets Control(OFAC's) decision to list the software as persons sanctioned is a positive one.
This decision to make a Dao Case is taking away a lot of people’s freedom to privacy and assembly, and it has Ripple effects everywhere else in the world.
The reality is that whatever OFAC decides who to put under sanction, has ripple effects everywhere else in the world, and we should not vilify privacy.
The government will pursue individuals responsible for violations of regulations and criminal statutes even if they are operating through an entity.
Mango Markets and Future Developments
Gabriel
It is difficult to make a legally binding agreement in difficult situations, such as when someone is coerced into agreeing to something to get money back.
If the decision is made according to the governance rules of the Dao, it must be upheld, and it was a challenging situation due to time pressure, financial pressure, and stress involved in making the decision.
Avi cleverly arranged the agreement so that the users could be made whole and only the treasury funds of the Dao, which had been raised in a sale of mango tokens, would be reduced.
The industry is trying to self-regulate and target its responsibilities in protecting users, software, and compliance strategies.