5 months ago 4 min read

The Perfect Idea for DAOs is Multi-Signature Crypto Wallets


Any type of corporation could eventually practice community governance thanks to decentralized autonomous groups. We're witnessing fresh, innovative applications for DAOs, including the GameFi comic books that served as the basis for the creation of collectible card games and backing from influential figures like Vitalik Buterin, the co-founder of Ethereum, who argued that shared decision-making was beneficial in preventing collusion.

On the other hand, DAOs disintegrating or running out of ETH to repay lenders, as well as a decline in optimism, are on the opposite end of the spectrum. Along with their concern over the numerous attack vectors that have an impact on projects, the number of detractors is rising. DAOs must look at new structures in order to avoid corruption in order to put an end to this story. In order to further this egalitarian method of decision-making, multi-signature wallets are an essential step in getting users and donors to see DAOs as a safe substitute for centralized corporate structures.

Almost Safe, But Not Entirely

The largest cloud over their egalitarian structure is the worry about protecting DAO funds. A suitable governance structure is required and cannot be negotiated, and any resources invested in the DAO will be kept in its treasury. The first point to be made is that all Web3 initiatives and DAOs must continue to raise cash in order to guarantee continuous operations and future protocol growth.

Treasury management improvements should be made first, especially now that hacks have been discovered on DeFi platforms like bZx, and everyone on the DAO governance team is being held responsible for the protocol's negligence. Although there isn't a crypto wallet that is 100 percent secure, multi-signature wallets offer protection from external hacking risks because they require access to several keys.

Its Not Your Crypto if Its Not Your Keys

DAOs that aim to reduce the danger of unauthorized transactions or rug pulls will benefit from having numerous signatories approve each transaction because large sums of money could attract anyone. Key-person risk is a concern for crypto businesses just like it is for traditional ones. Multi-signature wallets have two advantages: they shield DAOs from hostile actors and prevent them from being hacked.

The most well-known instance of this type of risk may still be QuadrigaCX, where the unrecoverable status of money worth $198,435,000 was caused by the passing of the exchange's crypto creator Gerald Cotten, who was the only person in possession of the cryptographic keys to the exchange wallet. In the event of the loss of a private key, a multi-signature arrangement will serve as a backup by allowing for the storing of numerous keys in various locations.

Transactions are made even more secure and transparent by multi-signature wallets. The idea that all transactions must be signed unanimously is one of the most common misunderstandings. But in order to assure a majority vote and prevent one individual from having total power, a threshold or a particular number of signers must be satisfied, for instance, three out of five owners. DAO teams can also set spending caps for wallet owners to eliminate the need for signatures on small purchases. This will hasten business processes.

Give No Strangers Your Keys

Having a second person sign off on a transaction is not required for people using a wallet for their personal money, but it is crucial for those who are in charge of an organization's finances that other people have contributed to or when people depend on that money for their livelihood, such as salary. To tie an organization's fate to a single point of failure would be foolish and morally wrong.

Some people think the choice is between creating a DAO and using a multi-signature wallet, as though these two options are at different ends of the spectrum. However, adopting multi-signature wallets actually reduces the possibility of undermining the group's goal. Furthermore, it doesn't imply that Web3 initiatives and DAOs sacrifice decentralization in favor of a transaction's increased executability. This is the most decentralized thing there is. It is ideal to have several persons sign off on transactions because someone must sign everything. The problem with having everyone sign is that nothing will ever be done.

The challenge lies in figuring out how to best coordinate signers without returning to a system where the wealthy have bought their way to power and now hold the keys. Setting up the wallet is easy. Have a yearly rotating roundtable where three to five DAO members have the responsibility of being a signatory for a specific amount of time. Even better, DAOs may designate fresh candidates each year to mix up the regular contributors.

A Pot With Too Many Players

Of course, there is a higher chance that coordination will be difficult when there are more people engaged. More signatures are required, and everyone can view everything. Some DAOs will choose convenience over security and accept the associated risks. Some people won't give in and will gladly go through extreme lengths to get their money. In order to function more quickly and with greater flexibility, DAOs are even using "pod" or subDAO architecture, in which they generate several multi-signature wallets for smaller teams. In the end, the choice is yours: would more secure funds or nimble, centralized wallet management make DAOs a more appealing option? Only time will tell.

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