In our first instalment of the “Squads 101” series, we explained the history of multisignature wallets and why they are an integral piece of the crypto ecosystem. They enable democratic co-ownership of digital assets and enhanced security for web3 teams and individuals. While the multisig itself is a key piece of the DAO tooling stack, DAOs require more than what it offers alone. DAOs need on chain governance, treasury diversification, and communication in the form of chats, votes, & proposals. Squads integrates collective treasury management and on chain governance into one protocol, streamlining these fragmented DAO processes.
There are two types of Squads you can create: a multisig, or a “team.” A multisig requires signatures from multiple team members to confirm transactions, meaning each team member has equal voting power. A team is essentially the same as a multisig, with customizable voting power and proposal creation added on top. In today’s article, we will explain both types of Squads, their use cases, and the problems they solve. The goal of this article is to provide you with all the information necessary to know which type of Squad is best for you.
Why Use a Multisig? 🤔
Multisigs are used primarily for two reasons: co-ownership and increased security. There is no other way to truly co-own digital assets, and there is no other way to secure crypto with multiple private keys. Let’s explore two examples where multisigs help in these respects, the first of which applies particularly to the Solana ecosystem.
Let’s say you are part of an NFT community with a $100K treasury that continues to grow from secondary sales. The project founder openly shares the treasury wallet address so the community can keep track of its value and audit transactions. This transparency is good and necessary, but it isnt enough. In this situation, you wouldn’t be able to see a suspicious transaction until it’s already executed. By the time you see it, it’s already too late. On the other hand, if community funds are kept in a multisig, you can see the suspicious transaction initiated before it’s approved. This gives you time to notify the other members of the multisig to nullify the transaction. Below you can see what this looks like in Squads. You can tell the transaction hasn’t been approved yet by the “active” sign in the bottom right corner of the proposal.
If your community treasury is stored in an individual wallet instead of a multisig, you are trusting the one person in control will:
a) never rug your community
b) never lose his private keys
c) securely store private keys either IRL where no one can steal them or in an encrypted storage service like Skiff
d) never break the device he stores his private keys directly on (have you ever spilled water on your computer and worried you’d never get your data back?)
e) never get phished or hacked
There’s a better option than keeping your community funds in one wallet. Projects can begin the process of decentralization by starting a multisig with their co-founders, or even with an elected member of the community. This way if the founders ever turn sour, there is an elected individual to represent community interests on the multisig.
Few founders in the Solana ecosystem are using multisigs to secure their community funds. Whether communities choose Squads’ solution or not, it’s time the Solana ecosystem acknowledges the importance of the multisig.
Now let’s discuss an example where multisigs are useful for individuals. If you are confident in the decentralization and up time of the blockchain your multisig is deployed on, a multisig may be a good option to store crypto savings. The average TradFi savings account offers 0.06% interest, with no features aside from storing money. Multi-signature wallets offer greater customizability by offering swaps, diversification, staking, & co-ownership all without relying on a centralized third party.
Let’s say you have a portion of your crypto you actively trade with, so you keep it in a non-custodial wallet like Phantom. You also have a portion of your crypto you want to store, stake, and forget about — letting it accrue rewards until the next bull run. Similar to a safety deposit box, it makes sense for you to store digital assets you’re HODLING with extra security. An option here could be to set up a multisig where you add:
a) different devices you own onto the multisig (computer, phone, etc.)
b) a family member or close friend in a different location onto the multisig.
This way, if one of your keys gets compromised, the hacker still has to get an additional key to steal your funds. There are many multisig configurations you can implement and each comes with its own set of risks. We DO NOT recommend you take your life savings out of the bank**. We are simply acknowledging as decentralized technology advances multisigs will become an increasingly popular option to store savings.**
Now that we’ve recognized a few use cases for multisigs in general, let’s explore what makes Squads’ solution more than just a normal multisig, and how it serves web3 teams.
Squads Type #1: The Multisig 🔐
One of Squads’ core innovations is the ability for anyone, with or without technical knowledge, to create a multisig for just a few bucks. While this is a powerful innovation in itself, web3 teams need more than just co-ownership of funds. In Squads’ multisig treasury, your team can democratically store, diversify, and earn yield without ever leaving the protocol. Let’s go through a few types of web3 teams that may find this infrastructure useful.
- Web3 Start-Up
Suppose your team just won a hackathon. Your investors can fund your Squads multisig directly where it can be secured on chain until its ready to be streamed to employees. If part of your treasury is in SOL and you’d like to stake it, all you have to do is swap SOL for mSOL or scnSOL. Once the swap is executed, you’ll be earning yield and securing the Solana network!
2. Art Collector DAO
If you are part of a DAO that buys and sells NFTs, Squads has an interface to display them all. You can click into the NFT to view its attributes, and batch deposits (up to 5 NFTs in one transaction). We recently ran a poll in our Discord asking what features we should add next, and buying NFTs directly in the UI was on the list 👀
3. Investment DAO
Squads’ integration with Raydium allows teams to trade over 600 cryptocurrencies. If your team is more into DeFi, Squads is integrated with Katana, a yield generation protocol powered by options strategies like covered calls and cash secured puts. You can view the Katana strategies available for deposits by pressing on the “earn yield” tab inside your vault. If not for yield generation and swaps directly in vault, crypto would need to be withdrawn to an individual wallet before being deployed into DeFi. Putting team funds into an individual wallet creates security risks and gives bad actors the opportunity to act maliciously. Multisigs remove this risk.
Whether your team is creating a protocol, trading, collecting art, or is a subDAO within a larger organization, Squads’ tooling stack can support it.
Squads Type #2: Codified Teams 🫂
Squads’ codified teams are multisig vaults with proposal creation, customizable allocation of voting power, and on chain immutable membership. The main difference between the teams and multisig options is that teams offer more governance customizations. In Teams, you can create discussion proposals and vote directly on chain. Bringing the entire decision making process on chain creates censorship resistant, transparent, and immutable governance processes. Once a proposal is passed, it can never be overturned and all votes are auditable. In the teams option, the “voting” tab is where you can view, craft, and vote on proposals. You can filter the list to show specific types of proposals (ie: active or ready for execution) and sort the list by newest or oldest. When you click into a proposal you’ll see its details, author, who’s voted on it, and whether it’s ready for execution or not.
Since Squads stores team positions on chain, no one can take away your position unless you lose access to your wallet or are voted out. Voting and proposals also take place on chain which makes them transparent, censorship resistant, and accessible to view in the future. This can help teams evaluate where they went wrong as a collective, who’s making the best proposals, and who’s contributing the most or the least. If not for the blockchain keeping track of these contributions, it would be left to a human to record. This would be far less efficient and subject to censorship.
With the goal of easily tracking transactions & contributions, Squads integrated Cardinal, a dApp on Solana that links Twitter identities to wallet addresses. This way, instead of identifying someone in your Squad by a long string of letters and numbers, you can see their Twitter handle and NFT profile pic! This adds a social component to Squads communications, which makes it easier to identify who’s doing what in your Squad.
Why Use Teams? 🤔
When teams organize, there needs to be a structure in place to facilitate efficient decision making. The teams option gives you the ability to flexibly allocate governance power. This means each team member can be awarded a specific amount of governance power based on their positions in the Squad.
Let’s say Alice starts an investment DAO called “GigaBrain Investments” with two of her friends, Joe and Sal. The team agrees Alice is the most crypto savvy of the group, so she should have the most voting power. The team also agrees that Joe should have more voting power than Sal, since he had better returns over the past year. In order to accurately reflect this proposed construct, Gigabrain Investments can allocate Alice the largest governance token allocation, Joe the second largest, and Sal the least. While this example is primitive, it displays the function of flexible governance power. It allows for unique organizational structures that are specific to what your team needs. Alice’s team is small, so it’s appropriate for each member to vote on every investment decision. This is not the case for every DAO.
As DAOs grow larger, it becomes increasingly inefficient for every DAO member to vote on every decision. With Squads, you can create small working groups (“subDAOs”) that focus on a particular domain (ie: marketing) and still operate within the governing principles of the larger DAO. subDAOs can have their own treasury and “sub-government” which can help streamline decision making and make the DAO more autonomous. If you have 50 people in your DAO, does it make sense for everyone to vote everytime the DAO wants to pay someone for a completed bounty? No, it makes more sense to delegate these decisions to a small working group within the DAO focused on payroll. And how can governance structures reflect expertise? When making investment decisions for the DAO treasury, should those that are only proficient in marketing have equal voting power to those with years of experience as professional investors? It depends on how your DAO wants to run it’s governance. Perhaps your team creates an investment subDAO and delegates all treasury decisions specifically to that team. Or maybe the DAO wants everyone to vote on investment decisions, with the caveat that those with proven experience in investing have more voting power than those who lack it. Regardless of how your team wants to handle its organizational design, Squads’ infrastructure allows your team to create the governance structure it prefers.
Conclusion
Squads is far more than just a simple multisig. It combines collective treasury management, DeFi, and on chain governance all into one protocol. Squads is made for small teams which execute on value-aligned missions. Based on the mission, structure, and size of the organization, they may prefer either the multisig option, the teams option, or a combination of both. For teams that need elaborate proposal discussions and customizable voting power to reflect hierarchy within the ranks, teams is a better option. For groups that simply need a vault to co-own, co-secure, and invest together, a multisig will do the trick. In the next issue of Squads 101, expect us to dive deeper into subDAOs, how they help DAOs succeed, and where Squads fits into that organizational puzzle. We look forward to sharing it with you. Thanks for reading!
