Multicoin Multi-signature standards on Solana, why did we invest in Squads Labs for multiple rounds?

Multi-coin Multi-signature Standards on Solana Why Did We Choose to Invest in Squads Labs for Multiple Rounds?

Original Title: Build With Squads

Author: Vishal Kankani, Multicoin Capital

Translated by: Kaori, BlockBeats

Today, we are proud to announce our investment in Squads Labs, the core contributor to the Squads protocol and a leading multi-signature solution on Solana. Their recent $5.7 million funding brings Squads’ total funding to $12.5 million to date.

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We first invested in Squads at the end of 2021, and since then, they have grown to become a strong pillar of the Solana ecosystem. We believe they offer the best multi-signature solution for institutional traders, cryptocurrency consumers, and builders on Solana.

The Evolution of Financial Custody

Regardless of technological advancements, the need for custody has remained consistent. Since the era of goldsmith bankers in the 17th century, businesses have heavily relied on banks to safeguard their assets. However, as demonstrated by the recent collapse of Silicon Valley Bank, banks still carry inherent bankruptcy risks even after centuries of evolution.

In addition to simple custody, Wall Street relies on a complex network of clearing and settlement layers. Until recently, this process was a physical affair, reaching its peak during the paperwork crisis of Wall Street in the 1960s. To address this crisis, entities that later evolved into the DTCC were created, digitizing securities and becoming the central hub for all clearing and settlement services. However, despite electronic trading reducing execution time to seconds, settlements still took days.

After the global financial crisis in 2008, the custody industry underwent a transformation. Regulatory scrutiny led to the consolidation of major custodian banks (which already held an oligopoly). As of the end of June 2022, the total custodial assets of the top four custodian banks amounted to $136.6 trillion. Modern custodian banks offer services beyond simple custody; they provide fund management, securities lending services, etc., often generating internal conflicts of interest. The concentration of assets and the emergence of conflicts of interest have brought new forms of risk. A concrete example is the hidden pricing disputes between the world’s top two custodian banks, BNY Mellon and State Street.

Blockchain represents the next generation of evolution – it is the best combination of digitization and verifiable tools. They custody digital assets natively, enable instant global payment settlements, allow real-time trade settlements, and greatly reduce counterparty risks. Additionally, smart contracts have the potential to not only streamline back-office operations but also, according to multiple research findings, save the financial industry billions of dollars. Therefore, we believe that assets in the real world will be tokenized in the future. We have already seen this trend – over $1 billion in nominal private loans and US government bonds are circulating on-chain.

However, being one’s own custodian is challenging and can result in single points of failure. To address this issue, custody must be decentralized within organizations and allow multiple parties to exercise power in a sovereign but programmable manner. Thus, the ultimate state of custody that we envision is a future where organizations can store and manage their assets through multi-signature wallets.

Squads: Solana Multisignature Standard

As cryptocurrencies mature, institutional investors and internet-native organizations need a way to manage assets. This is where multisignature wallets, or simply multisig wallets, come into play. Unlike simple cryptocurrency wallets that only require one party to sign transactions, multisig wallets require multiple parties to sign transactions.

Squads was launched in February 2022 as one of the first multisig wallets in the Solana ecosystem. Since then, investors and developers on Solana have quickly embraced it as a universal standard.

Today, over 100 teams, including well-known teams like Helium, Hivemapper, Jito, Drift, Marginfi, BackLianGuaick, Jupiter, Pyth, Tensor, and more, rely on Squads (v3) to coordinate team and financial assets (valued at approximately $500 million at the time of writing). The Squads (v3) codebase has undergone 13 months of rigorous testing, four independent audits, and most importantly, formal verification.

Traditional enterprises have perfected access control that allows specific employees to handle fund transfers in various contexts. To achieve meaningful scale, internet-native organizations also need similar controls.

Building on top of the Squads protocol, Squads has created a powerful, feature-rich platform that offers teams a comprehensive set of project management tools, including team permissions. Developers can use Squads as their program upgrade authority, eliminating key person risk and reducing the risk of malicious code entering production. It also provides them with financial management control capabilities, facilitating storage and distribution of grants, managing fundraising assets, income streams, liquidity mining rewards, and more.

What’s Coming Next?

Earlier this week, Squads launched a major upgrade to the Squads platform and introduced some new products that make it even more powerful than before.

SquadsX

In addition to the desktop and mobile interfaces, Squads now has its own web extension wallet – SquadsX. It is Solana’s first multisignature browser extension wallet.

SquadsX is designed for teams and institutions, enabling them to interact with decentralized applications and DeFi for the first time while still providing enterprise-level security. SquadsX addresses the biggest challenge of multisig (lack of availability with DeFi) and enables new group management activities such as liquidity provision, borrowing, lending, and on-chain transactions, all directly from the Squads multisig.

Squads (v4)

In addition to SquadsX, Squads has also released a major upgrade to the protocol, “Squads v4”. Squads (v4) has been audited by Neodyme, OtterSec, and Trail of Bits, with formal verification by OtterSec and Certora currently underway. By the end of November 2023, the Squads (v4) codebase, audited rigorously, will be set in stone. Squads (v4) brings some new killer enterprise features, and we’ll highlight a few below:

1. Time Lock: Squads (v4) introduces a time interval between program upgrades approval and on-chain execution. The time lock increases the likelihood of discovering errors before the new code goes live.

2. Roles and Permissions: Squads (v4) provides enhanced accounting and spending capabilities across multiple addresses. Permissions include spending limits and enabling withdrawals without reaching the threshold.

3. Fee Relay: Squads (v4) also introduces a “fee relay,” allowing multi-signature wallets to pay all gas fees associated with Squads. Once activated, team members can sign transactions with zero SOL balance, simplifying operations and enabling decentralized applications to cover gas fees.

4. Batch Payments: Most crypto-based startups have several employees and contractors, just like traditional organizations. Squads (v4) introduces the ability to execute batch payments. This is a highly popular feature.

5. Address Lookup Table (ALTs) Support: Every Solana transaction requires listing each interacting address as part of the transaction. Prior to the introduction of ALTs, the address limit per transaction was actually 32. In Squads (v4), with the introduction of ALTs, the number of addresses per transaction has increased to 256, allowing users to perform more complex transactions.

With SquadsX and Squads (v4), the Squads team has built a blockchain-native hosting infrastructure and is now leveraging it to develop exciting new products and attractive revenue streams.

Operating a business involves financial management, payroll, human resources, and engineering operations. In the crypto field, operations also include authorization, transaction limits, on-chain voting, code authority, delayed implementation, and more. The average person does not interact with protocols, and the reality is that only a few in the crypto space directly engage with these protocols. This means there is tremendous potential in simplifying enterprise operations in the market. We believe that Squads opens the doors for the crypto space in a secure and reliable manner, offering some of the most attractive enterprise-level and institutional-level products on the market today.

In the past 18 months, despite the bear market, the Squads team has demonstrated strong focus and execution. We are thrilled to support Squads in leading the new era of internet-native infrastructure, enabling self-hosting and on-chain capital coordination.

We will continue to update Blocking; if you have any questions or suggestions, please contact us!