DeFi Education Core Principles
Level 3 - Virgin DeFi Analyst
Welcome Avatar! Over the last 100+ articles at DeFi Education you’ve gotten to see our analysis and views on crypto, DeFi, markets, specific tokens, security, tech, laws, and so on.
If you’re a long time reader, you likely have some sense for how we think about things.
We decided it was time to really think about what we believe to be important for you to focus on as an industry participant and for the industry to move towards.
We decided to write down our core principles. The opinions and values that form the basis for our judgment, which we like to think has been quite good so far.
Path to Sustainability
Most applications use token incentives to bring in users, liquidity and pay for desired behaviors. There is nothing inherently wrong with this approach - applications need users and early users deserve to be rewarded for contributing to the advancement of the network or application. The problem is that a lot of applications do not think about life beyond the token. We prefer protocols that are built with a path to sustainability in mind with the goal of removing reliance on token incentives in the long run.
User Oriented
There are plenty of technically interesting projects out there, but we are looking for projects people want (or need) to use and are able to use. User friendly interfaces built for the average person instead of developers and DeFi autists are preferred (unless those are the sole intended users).
Token Value Capture
This is a tricky one these days due to the regulatory backdrop. We obviously want protocols to have tokens that capture value in some form (either through creative tokenomics or distributing protocol earnings). However, we are sympathetic to the fact that regulatory risk reduces the options teams have to implement token value capture. Projects that figure out tokenomics that provide some degree of value capture while navigating the regulatory mine field will have an edge.
Speed
The crypto market evolves very quickly and often times there are short windows (few months) to capture outsized opportunities before competitors and forks start to copy your success. Speed is key. Teams that move slowly may also be purposely deferring product releases so that their tokens can vest and they can move on. Teams that push hard to keep releasing new features and experiment with new ideas are less likely to be in it purely for financial gains (and more likely to achieve product market fit!).
Privacy / Anonymity
As zero knowledge technology comes online we’ll be giving more ‘points’ to products and protocols which make the extra effort to preserve user privacy. Until we have fully secure systems (likely years/decades away) there is some risk in using the Internet for anything - whether online banking or DeFi. Since crypto can be stolen irrevocably and often untraceably, the absolute best defense against crime is staying anon. Requiring or tracking user information by DeFi apps is a hard no for us.
Free Software
“Free Software” is software which respects the rights of users and the community - the freedom to run, copy, distribute, study, and improve the software. We don’t agree with making certain parts of a DeFi platform - like the frontend - non-free software. Products released under restrictive licenses (no forks) aren’t DeFi.
Without free software rights you can’t verify if the code is error-free, run it without the permission of the original author, or release your own improvements. In other words you can’t have effective control of your digital assets when using non-free software. And. By asking you to accept a restrictive license, the publisher is asking you to submit to their centralized legal system. Might as well use a bank then.
Decentralization
Software isn’t free if we are forced to trust your servers. Free software can be run by anyone, and a decentralized network allows anyone to become a validator (subject to reasonable anti-Sybil protections to stop people abusing the network). If only certain privileged nodes controlled by a centralized entity can validate transactions, this isn’t DeFi and it may even be at risk from regulatory intervention (classed as a security).
Technical Quality
Writing secure software is hard and typically requires engineers with many years of experience. The best coders have a talent, the same way a singer or an athlete would. Not everyone will have the ability to design and implement software which can be trusted to control hundreds of millions of dollars worth of client funds. Pair programming is desirable and thorough peer review is essential. We’re particularly skeptical of teams where there is no senior software developer (e.g. 10 years full time professional experience) because no matter how talented, most new coders simply don’t know what they don’t know about security. The DeFi/crypto space is filled with young and highly intelligent developers, but experience takes time and iterations to build up. We look for strong technical backgrounds and evidence of good software development practices. And we dig around to confirm this - reading Github commits and asking questions in Discord, not just taking the audit results at face value.
As a protocol gains some initial traction and acquires resources (treasury) we look to see a commensurate investment in retiring technical debt and implementing best practices. This can be costly - external audits run into six figures. Additional headcount for security professionals can be seen as costly and also (if they are doing their job) distracting to the core dev team. But. Cutting corners is all well and good until your protocol gets hacked for 9 figures, resulting in lawsuits, business failure and loss of customer funds. Losing admin keys or API keys is so 2021.
Technical quality does have to be balanced with pushing for innovation. After all, senior developers were junior developers at one point. But we think it’s fair to say that in general, experienced developers are going to build more secure protocols and should get bonus points for their capabilities.
Gut Feel
Talking about experience is a good segway to this core principle. Sometimes you get a gut feeling after interacting with someone about their motives and capabilities. You can tell just by how someone talks about their project whether or not they are someone who is determined to succeed and willing to do whatever it takes or if they treat it as more of a pet project and are likely to get competed out (or simply take their vested tokens and walk). After having been rugged enough times (quickly or slowly), sometimes you get a gut feeling that tells you something isn’t quite right.
Autist note: Getting rugged quickly is always better. You still lose your money either way but at least in a fast rug you can stop paying attention to the project. You only lose your money, not your time!
And that’s a wrap!
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Disclaimer: None of this is to be deemed legal or financial advice of any kind. These are opinions from an anonymous group of cartoon animals with Wall Street and Software backgrounds.
So so good, as always. Interesting to get a simple, inside look into how you view the space.
If you had to chose 1 principle over all of the others, which would it be?