Multisignature wallets are an extremely powerful tool for any group looking to secure crypto together in a decentralized, non-custodial, and democratic way. In today’s piece we will explain what a multisig wallet is, why multisigs are an essential part of the DAO tooling stack, and some of the features Squads has built on top of the multisig primitive to enhance the overall multisig experience.
Self Custody is Key 🔑
Crypto has enabled the “Internet of Value,” where we have the ability to store our wealth on chain in various cryptographic forms, whether that be cryptocurrencies or pfp NFTs worth more than the average American’s yearly salary. If you choose to hold your crypto with a centralized exchange (CEX), you no longer have full control of your crypto. If the CEX is required by law to freeze your account because your state decides transacting crypto is a crime, the CEX can and will seize your assets. Remember the phrase “not your keys not your coins?” It’s these type of situations that phrase is referring to. Jesse Powell, CEO of a popular cryptocurrency exchange Kraken, confirmed this on Twitter.
Censorship isn’t only beholden to the crypto world. As we’ve seen in Canada with Trudeau freezing the accounts of citizens that protested lockdowns, storing your money with banks is far from a risk free business. Blockchains have enabled us to fully own and control our own money without risk of censorship and it’d be wise for us to take advantage of this feature. Also, unless we hold our crypto in a non-custodial wallet like Phantom or Metamask, we wouldn’t be able to directly interact with our favorite decentralized applications.
Now that we’ve established why self custody is key 🔑, let’s discuss how multisig wallets allow you to “be your own bank” in a more secure way than holding your funds in one single non-custodial wallet.
A Primer on Multisigs 🔐
Let’s begin with a brief historical overview of multisignature wallets so we can understand their importance. Multisigs were first implemented on the Bitcoin blockchain when Bitcoin holders wanted to enhance the security of their wallets. Before multisigs, the only form of protection for your funds on chain was the single private key (or recovery seed phrase) linked to your public key (today better known as your wallet address). If this private key is lost or stolen, your funds are compromised. This means all the wealth you’re storing on chain is beholden to a single point of failure. That’s a lot riding on the safe storage of one string of letters and numbers.
Whenever you send crypto from your wallet, a transaction is created and signed by the wallet’s corresponding private keys. By signing the transaction, you are declaring you are the owner of the funds and the transaction you’re sending is valid. Thanks to the invention of the multisig, it is now possible to further protect our funds by requiring approval from multiple private keys in order to transact. This means you can have a shared wallet with multiple parties approval necessary to execute transactions. You can think of a multisig as a decentralized, co-owned bank vault that needs multiple keys to open, with no middlemen sitting between you and your vault.
Multisig configurations are commonly known as requiring m out of n signatures, where m is the number of private keys required to approve a transaction and n is the total amount of private keys associated with the multisig wallet. It’s worth mentioning the private keys don’t necessarily need to be owned by different people, they just need to be on different devices.
For example, you could have a “2 out of 3” multisig which has 3 private keys associated with the storage of the funds, and requires signatures from 2 out of these 3 keys to execute transactions. This way, if one key is compromised, the hacker would only be able to access the funds if he gets his hands on another key. “Multi-key one vault” technology has actually been used to secure treasuries for centuries! Only difference now is that it’s on the blockchain.
Multisigs 🤝 DAOs
If your community funds are centralized in one individual wallet, are you even a DAO?
It’s clear single key addresses are not the best option for web3 businesses and communities. If the funds of a large DAO are stored on a single wallet, that means the private key is either entrusted to just one person in the DAO or multiple individuals at the same time, which are both not the safest options. Multisigs are essential for DAOs and web3 startups because they enable collaborative custody and ensure decentralization of control of funds. No single party can move community funds; there has to be consensus by all participants on the multisig.
Multisigs Secure Billions! 💰
Gnosis Safe, the most popular multisig solution on Ethereum, currently secures ~$97B of value on the Ethereum blockchain for DAOs, individuals, and even some centralized exchanges like Bitfinex, who hold ~345M in a Gnosis Safe 😱. There are over 51,000 Gnosis Safes deployed, and that’s largely because Gnosis was one of the first to create a user friendly interface where anyone could spin up a multisig with no coding knowledge.
While Gnosis Safe does an incredible job of securing billions of dollars on the Ethereum blockchain, gas fees on Ethereum are costly which prices out many users and limits the amount of transactions they can execute before racking up a big bill. With user experience in mind Squads chose to build on Solana, the blockchain with the cheapest fees and fastest transaction confirmation time. These features make Solana a great blockchain for micro transactions, which is helpful to DAOs that need to make a large amount of decisions on chain whether that be transferring funds, creating proposals, or voting on proposals.
Solana is a young blockchain, and consequently is behind Ethereum in terms of TVL and DAO innovation. Solana secures $8B, while Ethereum secures $130B. There are thousands of DAOs on Ethereum, and just a small handful on Solana. Solana is growing rapidly, increasing in TVL by ~$7.8B in TVL in the last year. As the Solana ecosystem continues to grow, so will the number of decentralized organizations holding large amounts of crypto. Two of the most notable protocol DAOs on Solana are Mango and UXD, whom recently entered the top five of all DAOs in terms of treasury value with $706M and $688M respectively. With Squads’ treasury vaults, all DAOs big and small are able to secure their crypto and NFTs in an easy to use interface their communities can understand.
Squads: Multisig & Beyond! 🚀
Squads was designed with the intention to be Solana’s most easy to use multisig. While the multisig is an incredibly powerful tool in itself, it’s just one feature of the Squads application.
In addition to a secure multisig, Squads has:
- Built in vault with clean interface to display NFTs and cryptos
- Swaps directly in the vault powered by Raydium (600+ cryptocurrencies supported)
- Link Twitter identity to wallet address powered by Cardinal (added social component to multisig voting)
- Governance features such as tokenless member weighted voting, codified on chain membership, and proposals
- Mobile version for on the go signing transactions and voting (coming soon)
- DeFi integrations such as Katana’s structured products to generate yield directly from vault (coming soon)
- Open source codebase
- Audited by Neodyme
Until Next Time 👋
Hopefully by now you understand why multisigs are crucial for the crypto ecosystem. They make hackers lives more difficult by increasing the number of private keys necessary to move funds, enhance security without outsourcing to centralized entity (self custody), eliminate single points of failure, and allow for true co-ownership of digital assets for web3 communities, investment clubs, start-ups, and DAOs.
Squads is a unique multisig solution due to its slick UI, affordable transaction cost, and growing number of features built on top of the multisig primitive. In future articles expect to hear more about governance, subDAOs, and the different tools Squads offers ready to turn your community into a real DAO. If you want to make your own Squad, go to our website here.
Thanks for reading!
