Safe airdrop is imminent, detailed analysis of the current state of DAO fund management tools

Original Title: 《DAO Fund Management Tool Industry Analysis》

Original Author: Gu Wenjun, Bixin Ventures

1. Introduction

Currently, DAO fund management generally adopts a multi-signature wallet approach, which requires multiple accounts to confirm before executing a transaction. Compared to accounts controlled by a single private key, once the private key is stolen, the funds in the account are at risk. The multi-signature wallet approach offers higher security, supports more complex transaction logic, and has strong functional scalability.

Security: Allows the addition of multiple signing accounts, and the execution of transactions requires confirmation from multiple accounts.

Supports more complex transaction logic: For example, allows batch processing of transactions, merging multiple simple transactions into one, where users only need to sign a single batch transaction.

Functional scalability: Users can add multiple modules with different functions, such as social recovery modules (for regaining access to Gnosis Safe in specific environments) and allowance modules (modules with limited execution permissions).

2. Current Development Stage

The main projects in the DAO fund management industry currently include: Gnosis Safe, Multis, Coinshift, Parcel, and Llama, with Gnosis Safe being the largest DAO fund management tool. It provides developers in the industry with a platform to build, technical documentation, tutorials, and funding support. Multis, Coinshift, and Parcel are built on the Gnosis Safe platform. The number of accounts and asset scale using the multi-signature fund management tools built on the Gnosis platform is included in the statistics for Gnosis Safe.

1) Judging the stage based on the ratio of organizational accounts to individual accounts

According to data from Dune Analytics, as of July 18, 2022, the total number of Safe accounts established on Gnosis is 78,300, while the number of accounts on Aragon is about 1,900, totaling approximately 47,500.

According to data from Crypto.com, as of July 30, 2021, the global number of cryptocurrency users has reached 221 million. The 78,300 accounts account for only 0.035%, as multi-signatures are generally used for organizations. Therefore, we consider the 78,300 accounts to be organizational accounts.

By analogy with the population and number of enterprises in China, the total population of China in 2020 was approximately 1.4 billion. According to the "2020 China Enterprise Development Data Annual Report," as of 2020, there were 140 million market entities in operation or existing in China, accounting for about 10% of the total population.

Taking the United States as an example, according to statistics from the U.S. Small Business Administration (SBA) in 2019, the number of businesses in the U.S. was approximately 30.73 million, with a total population of about 324 million, meaning the number of businesses accounts for 9.48% of the total population.

Due to the different national conditions in China, the United States, and globally, the per capita account number and average enterprise account number vary. Here we assume that one individual opens only one bank account and one enterprise (market entity) opens only one bank account, then enterprise accounts account for 10% (China) and 9.48% (U.S.) of individual accounts.

Therefore, the current 0.035% ratio of organizational accounts compared to the approximately 10% ratio of traditional organizations to individual accounts indicates that the DAO fund management industry is still in a very early stage.

2) Judging the development stage through asset scale as a proportion of the total cryptocurrency market

According to data from Boardroom.info, the total amount of funds within DAOs is $7.47 billion (as of July 18, 2022), accounting for only 0.74% of the total market value of $1 trillion (according to Coingecko data). From the asset proportion perspective, the DAO fund management industry is still in the early stages of industry development.

3. Industry Pain Points

DAO fund management tools are crucial for the development of DAO projects, and there are currently the following pain points:

1) Security

The most commonly used accounts are externally owned accounts (EOAs). Most accounts established on Ethereum are EOAs, characterized by the use of a single private key for encryption. Once the private key is controlled by someone else, they gain control over the account's ownership. Currently, MetaMask and Imtoken are simple EOAs, including various hardware wallets. Most assets are stored in external accounts, which poses certain security risks.

2) Transparency in asset allocation and expenditure processes

Since DAO treasuries hold various tokens, many projects hold more than 50% of their own project tokens, with some even exceeding 80%. These tokens are the operational funds for the project, used for personnel salaries, vendor payments, and other expenditures. Therefore, it is necessary for project parties to regularly assess the amount of DAO funds used for minimum baseline expenditures and the expenditure budget for the near future, while ensuring that there is a sufficient proportion of stablecoins in the DAO treasury to cover these necessary expenses, such as personnel salaries and operational costs.

However, during different market phases, token prices can vary significantly. Since the tokens in the treasury represent the project's funds, token prices will severely impact the project's short-term development, and in severe cases, there is a risk of cash flow disruption leading to project suspension or outright cessation. Therefore, DAO fund management tools need to reflect transparency in asset allocation and expenditure processes, allowing managers to clearly see the project's financial status and risk levels.

4. Solutions

1) Smart contract accounts + multi-signature wallets

Another type of account on Ethereum is the smart contract account. Each smart contract account has a unique Ethereum public address, and unlike EOAs, it does not use a private key but utilizes blockchain smart contracts to stipulate the logical conditions under which corresponding actions are executed, such as access permissions and transaction execution logic.

Multi-signature wallets are built on the basis of smart contract accounts, establishing a DAO fund management solution that requires authorization from multiple accounts to execute certain specific actions. This fund management solution also supports complex logic, allowing for the setting of specific access permissions, transaction execution conditions, and more.

Of course, even with the smart contract account + multi-signature wallet solution, the most chosen fund management tool, Gnosis Safe, experienced a security incident in December 2021. This incident was likely a phishing attack targeting users of the Gnosis Safe Multi-Sig application by a hacker team. The address 0x34cfac64 is the official address of Gnosis Safe, and the attacker hardcoded this address into a malicious contract, making this series of operations applicable to all users of Gnosis Safe Multi-sig applications, and there may have been other victims in this attack.

2) Optimize product functions to enhance transparency of DAO fund inflows and outflows

Multiple projects adopt various methods to enhance the transparency of DAO funds, such as:

1: Llama provides a mechanism to categorize incoming and outgoing funds and link outgoing funds to relevant proposals.

2: Parcel and Multisafe support one-click large-scale payments of ETH or ERC-20 tokens through four methods: CSV import, scheduled payments, member expenditure limits, and dashboards to express current asset allocation.

3: Multis enhances the transparency of asset allocation and expenditure processes by optimizing the UI interface, designing functions that better match user habits, and dividing the functional interface into: Dashboard, Transactions, Balances, Wallets, Contacts, etc. Multisafe sets its functions as Home, People, Assets, Transactions, etc.

5. Potential and Scale

The main measurement indicator for DAO fund management tools is the scale of funds, so here we mainly analyze and speculate on the future potential and scale of the fund management tool industry based on the amount of funds stored in multi-signature wallets. According to data from Boardroom.info, as of July 18, 2022, the total scale of funds within DAOs is $7.47 billion, accounting for 0.74% of the total cryptocurrency market of $1 trillion.

Assuming that the funds stored using DAO fund management tools account for 5%, 10%, and 15% of the total cryptocurrency market, the growth potential of the DAO fund management tool scale compared to the current total amount of funds would be 569.3%, 1238%, and 1908%, respectively.

6. Technical Route

Currently, there are three main technical routes, with the majority of DAO fund storage adopting the third solution, namely smart contract accounts + multi-signature wallets.

1) Externally Owned Accounts (EOAs)

Externally Owned Accounts (EOAs) are blockchain accounts controlled by a single pair of public and private keys. Currently, about 96% of funds are stored in external accounts. EOAs use a set of private keys to bind account ownership, serving as a mapping of real-world bank accounts in the blockchain industry.

Since the code hash of external accounts is empty, it can also be judged by the code hash, for example:

Key files are stored in the data directory (datadir points to or defaults to the directory), corresponding to the keystore directory, where private key files are stored after encryption. The key file is a JSON format text file that can be opened and viewed with a text editor, formatted as follows:

The keystore contains the address corresponding to this key and some encryption-related information, including account address, encryption algorithm, and encrypted plaintext, etc. The client reads the key file and encryption password to decrypt the private key, and then uses the private key to sign the sent transaction.

The characteristics of external accounts are as follows:

1) Have an account balance

2) Controlled by a private key

3) Can send transactions (transfers and receipts)

4) No associated code

2) Smart Contract Accounts

Contract accounts are accounts controlled by code, with the account address generated when the smart contract is created. Transactions of contract accounts are not controlled by a private key but are triggered by transactions or calls from other smart contracts to execute the contract code, thereby generating related transactions.

Only contract accounts have code, which stores the codeHash (the hash value of the Ethereum Virtual Machine code of this account). This field is immutable after generation, meaning that the smart contract code is unmodifiable. Ethereum accounts consist of four fields: a random number, account balance, contract code (if any), and storage (usually empty). External accounts can trigger transactions, while contract accounts cannot initiate transactions proactively; they can only execute according to the pre-written smart contract code when triggered.

Comparison between contract accounts and external accounts:

The relevant characteristics of contract accounts are as follows:

1) Have an account balance

2) Can generate transactions

3) Have associated contract code

4) Trigger contract code execution through transactions or calls from other contracts

3) Smart Contract Accounts + Multi-Signature Wallets

Multi-signature (Multisign) wallets are essentially smart contract accounts that require signatures from multiple users before the smart contract can execute relevant operations, including single transfers, batch payments, etc.

A simple example is: there is a contract account that requires a transfer to be signed by both the initiator (Alice) and another person (Charles). Therefore, when Alice transfers 20 ETH to Bob through this contract, the contract will notify Charles to sign, and only after he signs can Bob receive the 20 ETH (see the diagram below).

Signing Process

Ordered multi-signature, where the signing order among signers is a serial sequence.

Broadcast Multi-Signature

The signing order among signers is a parallel sequence, with no interference.

7. Competitive Landscape

Currently, the main projects providing DAO fund management services in the market include: Gnosis Safe (including fund management platforms built using its platform, such as Multis, Coinshift, Parcel, etc.), Aragon, Compound Governor, Daohaus, and Substrate. Although DAO building platforms mainly provide DAO building services, they also have the function of DAO fund storage.

This report mainly measures the industry competitive landscape based on the scale of fund storage and potential DAO participants (Members). Potential DAO participants refer to users who may participate in the DAO governance process in the future, such as users on the multi-signature wallet Gnosis Safe participating directly in DAO governance (proposals, voting, arbitration, etc.).

1) DAO Fund Storage Scale Criteria

2) Potential DAO Participants (Members) Criteria

8. Concentration

1) As of July 18, 2022, according to data from DeepDAO, Boardroom, and Tally, based on the DAO fund storage scale criteria, the top four fund management platforms are: Gnosis Safe, Substrate, Compound Governor, and Aragon, with corresponding stored fund scales of: $987.2 million, $313 million, $163.1 million, and $147.5 million, respectively. The market shares of these four projects are: 61%, 19.4%, 10.1%, and 9.1%, resulting in a CR4 of 99.6%. According to Bain & Company’s classification of market structures, a CR4 of 99.6% belongs to an oligopoly type I.

2) If counted according to the DAO Active Members criteria, the top four fund management platforms are: Compound Governor, Gnosis Safe, Substrate, and Aragon, with corresponding DAO Active Members counts of: 2,400, 1,600, 25, and 9, respectively. The market shares of these four projects are: 59.5%, 39.6%, 0.6%, and 0.2%, resulting in a CR4 of 99.9%, also belonging to an oligopoly type I.

9. Barriers

1) Switching Costs

Once a DAO project chooses a fund management tool, it generally will not switch or frequently switch unless there are serious issues, such as security problems or functionality that fails to meet needs, based on the following reasons:

1: Some fund management tools expand horizontally by adding DAO building functions on top of fund management functions. For example, Gnosis Safe also has DAO building capabilities, which, although inferior to projects focused solely on building functions, can still enhance attractiveness and stickiness to project parties by providing a one-stop solution, reducing the likelihood of project parties switching fund management platforms.

2: There is already a certain level of familiarity with the fund management tool, and a certain level of proficiency has been reached in operation. Switching to another fund management tool would require relearning and exploration, incurring a certain learning cost.

3: New fund management tools have not yet been tested over time, leading project managers to have doubts about fund security.

2) Brand/Reputation

The fund management tool industry exhibits a "the strong get stronger" pattern, meaning that the more funds a tool manages and the longer it operates, the more its security and stability are proven, establishing a reliable image among project parties and forming a brand/reputation. New fund management tools also require a similarly lengthy period to prove their reliability.

10. Development Driving Factors

The development of the DAO fund management tool industry is driven by the following factors:

· The trend of users migrating assets from external accounts to smart contract accounts due to security needs

As more and more hacking incidents targeting external accounts (EOAs) occur, leading to significant asset losses for users, people are realizing the unreliability of relying on a single private key for security. This has prompted consideration of adopting smart contract accounts authorized by multiple users to mitigate the risk of fund loss due to single private key leakage.

· The number of organizations adopting the DAO governance model

Another factor influencing the development of the DAO fund management platform industry is the trend of adopting the DAO governance model, i.e., the number of DAOs. The more DAOs there are, the larger the corresponding fund scale within DAOs; conversely, the fewer DAOs there are, the smaller the corresponding fund scale generally is.

11. Core Competitive Factors of Projects

1) Security

Security is a fundamental requirement for DAO fund management tools. In July 2017, the multi-signature wallet Parity, founded by Polkadot founder and former Ethereum CTO Gavin Woods, was hacked, resulting in the theft of 153,000 ETH (worth approximately $30 million). Following this incident, Parity's multi-signature wallet disappeared. This illustrates that once a multi-signature wallet experiences a major security issue, it can have a severe impact on the project's future development. Therefore, security is a lifeline.

2) Product Functionality

DAO funds differ from personal funds, serving organizations in operations, similar to corporate bank accounts in the traditional world. There are significant differences in payment processes, fund efficiency assessments, payment efficiency, and payment transparency compared to personal use. Therefore, DAO fund management tools need to be designed with user needs in mind.

12. Major Risk Points

1) Security

The main risk point in the DAO fund management tool industry comes from security. If a serious security incident occurs, it could deal a devastating blow to the project, reflecting a weakness in this niche industry in terms of fault tolerance.

13. Major Project Introductions

1) Gnosis Safe

1) Introduction

Gnosis was founded in 2015, initially positioned as a prediction market. After several years of development, it is now both a fund management tool (multi-signature wallet) and, after merging with XDAI, a sidechain of Ethereum, building a dedicated chain to carry funds. Gnosis Safe, as the largest management platform for DAO fund storage, is also positioned as an open platform for other projects to build their fund management solutions, such as Multis, Coinshift, Parcel, etc. Currently deployed chains include Ethereum, XDAI, Energy Web Chain, Polygon, BSC, and Arbitrum, forming a multi-chain deployment situation, and promoting the adoption of more applications on the Gnosis chain.

2) Development History

In 2015, founded on Ethereum, positioned as a prediction market.

In December 2018, launched the ecological development fund plan.

In the second quarter of 2019, launched the DxDAO building platform and deployed the DutchX auction protocol.

In the fourth quarter of 2019, launched Gnosis Safe Multisig multi-signature wallet.

In December 2020, released Gnosis Custom Market Maker trading tool.

In March 2021, launched SafeSnap, a decentralized governance tool suite.

In May 2021, launched the multi-chain plan.

In November 2021, merged with the Ethereum sidechain Xdai to become Gnosis Chain.

In July 2022, completed $100 million in financing and rebranded as Safe.

3) Token

BlockBeats previously reported that Gnosis Safe will be spun off from Gnosis Ltd. and will establish SafeDAO, managing the Gnosis Safe ecosystem and infrastructure through the issuance of SAFE Tokens. The total supply of SAFE is fixed at 1 billion tokens, minted by the SAFE Foundation. Gnosis team product manager Lukas Schor stated on social media that the multi-signature wallet Gnosis Safe has completed the token airdrop snapshot for historical users, but did not disclose the specific block height of the snapshot.

Safe Token Economic Model

Safe also launched the Guardian Program, allocating 50,000,000 SAFE Tokens (5% of total supply) as rewards to Safe contributors. Guardians refer to any active community members who have made positive contributions to the Safe ecosystem. The first batch of Safe Guardians will be allocated 25 million SAFE Tokens, with 50% of the 25 million SAFE available for immediate claim, and the other half to be released over four years.

SafeDAO Guardian Token Allocation Ratio

4) Team

Co-founder: Martin Kppelmann, an entrepreneur and thinker in the blockchain field, co-founded the decentralized Gnosis prediction market and addressed issues related to decentralized market-driven governance mechanisms. In addition to entrepreneurial activities, Martin has researched the economic incentive structures of different consensus mechanisms and scalability solutions through state channels. He co-hosted Ethereum meetup groups in Silicon Valley and San Francisco. Martin is known for his work and research on "Basic Income on the Blockchain: Circles."

Co-founder: Stefan George, an entrepreneur and developer, became interested in Bitcoin in 2013. Stefan has worked in tech companies in Silicon Valley and startups in Berlin. After obtaining a master's degree in computer science, he traveled in Asia for a year in 2014, then began working on Gnosis in Berlin. Stefan led the development of Gnosis and implemented the smart contracts behind the prediction market platform.

COO: Dr. Friederike Ernst, a physicist who obtained her Ph.D. from Freie Universität Berlin and conducted years of fundamental research at Columbia University and Stanford University. Friederike has also been a part-time expert in cryptography for many years. She now leads the company's operations at Gnosis full-time. Additionally, she is the secretary-general of the German Blockchain Association, a leading think tank for blockchain policy in Germany.

Advisor: Joseph Lubin, co-founder of Ethereum. Jeremy Millar, office director at ConsenSys. Ledger Partners, originally one of Oracle's first Java architects.

5) Community Size

Twitter followers: 40k, Discord followers: 6.2k

6) Financing

In July 2022, Gnosis Safe completed $100 million in financing, led by 1kx, with participation from IOSG Ventures, Tiger Global, A&T Capital, Blockchain Capital, Digital Currency Group, Greenfield One, Rockaway Blockchain Fund, ParaFi, Lightspeed, Polymorphic Capital, Superscrypt, and over 50 other strategic partners and industry experts. This investment is intended to build applications and wallet ecosystems using safe accounts through grants and accelerator programs.

Participating Institutions

Participating Industry Experts

7) Operational Data

As of July 18, 2022, Gnosis Safe's total fund storage amount is $39.56 billion (including DAO funds and individual funds), with the number of Safes (accounts) created being 78,547 and the total number of transactions being 419,019.

Total amount of funds stored in Gnosis Safe as of July 19, 2022, Source: Dune Analytics

Total transaction volume in Gnosis Safe as of July 19, 2022, Source: Dune Analytics

Note: By searching "SAFE" on Etherscan, you can find the SAFE contract address with a blue verification mark. The address marked by Etherscan as "Safe Foundation" began deploying the mainnet test on April 20, 2022, at 09:55:55 PM + UTC.