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 financing brings Squads' total funding to $12.5 million to date.
Our initial investment in Squads was at the end of 2021, and since then, they have grown to become a cornerstone of the Solana ecosystem. We believe that they offer the best multi-signature solution for institutional traders, cryptocurrency consumers, and builders on Solana.
Evolution of Financial Custody
Regardless of technological advancements, the need for custody has remained constant. 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, even after centuries of evolution, banks still carry inherent bankruptcy risks.
In addition to simple custody, Wall Street also relies on a complex network of clearing and settlement layers. Until recently, this process was still a physical transaction, reaching its peak during the paperwork crisis on Wall Street in the 1960s. To address this crisis, entities were created that later evolved into the DTCC, which digitized securities and became the central hub for all clearing and settlement services. However, despite electronic trading shortening execution times to seconds, settlement still took days.
After the global financial crisis of 2008, the custody industry underwent a transformation. Regulatory scrutiny led to the consolidation of major custodian banks (which were already an oligopoly). As of the end of June 2022, the total assets under custody of the four major custodian banks amounted to $136.6 trillion. Modern custodian banks not only provide simple custody services; they also offer fund management, securities lending services, and often give rise to internal conflicts of interest. The concentration of assets and the emergence of conflicts of interest have brought about new forms of risk. A practical example is the implicit pricing dispute 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 digital and credential tools. They custody digital assets natively, enable instant global payment settlement, allow for real-time transaction settlement, and significantly reduce counterparty risk. Furthermore, 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 the future of real-world assets will be tokenized. We have already seen this trend—over $1 billion in nominal private credit and US Treasury bonds are already circulating on-chain.
However, being one's own custodian is difficult and can lead to single points of failure. To address this issue, custody must be decentralized within organizations and allow multiple parties to exercise sovereignty in a programmable manner. Therefore, the ultimate state of custody evolution that we envision is one where organizations can store and manage their assets through multi-signature wallets.
Squads: Solana Multi-Signature Standard
As cryptocurrencies mature, institutional investors and internet-native organizations need a way to manage assets. This is where multi-signature wallets come into play. Unlike simple cryptocurrency wallets that only require one party to sign a transaction, multi-signature wallets require multiple parties to sign transactions.
Squads was launched in February 2022 as one of the first multi-signature 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 such as Helium, Hivemapper, Jito, Drift, Marginfi, Backpack, Jupiter, Pyth, and Tensor) 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 in the market, has undergone four independent audits, and most importantly, has been formally verified.
Traditional enterprises have perfected access control, allowing specific employees to handle fund transfers in various contexts. To achieve meaningful scale, internet-native organizations also need similar controls.
Built on the Squads protocol, Squads has constructed a powerful, feature-rich platform that provides teams with a full suite of project management tools, including team permissions. Developers can use Squads to upgrade their program permissions, eliminate key person risk, and reduce the risk of malicious code entering production. It also provides them with financial management control, facilitating the storage and distribution of funding, management of fundraising assets, income streams, and liquidity mining rewards.
What’s Coming Next?
Earlier this week, Squads launched a major upgrade to the Squads platform and introduced some new products, making it more powerful than before.
SquadsX
In addition to desktop and mobile interfaces, Squads now has its own web extension wallet—SquadsX. It is the first multi-signature browser extension wallet for Solana.
SquadsX is designed for teams and institutions, allowing teams to interact with decentralized applications and DeFi for the first time while still providing enterprise-grade security. SquadsX addresses the biggest issue with multi-signature (lack of availability in DeFi) and enables new group management activities, such as liquidity provision, borrowing, lending, and on-chain transactions, all directly from Squads multi-signature.
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, and formal verification by OtterSec and Certora is currently underway. By the end of November 2023, the rigorously audited Squads (v4) codebase will be set as immutable. Squads (v4) boasts some new enterprise features, a few of which we highlight below:
Time Lock: Squads (v4) introduces a time interval between program upgrade approval and on-chain execution. The time lock increases the likelihood of discovering errors before new code goes live.
Roles and Permissions: Squads (v4) provides enhanced accounting and spending capabilities across multiple addresses. Permissions include spending limits and enabling withdrawals below a threshold.
Gas Relay: Squads (v4) also introduces a "gas relay," allowing multi-signature wallets to pay all gas fees related to Squads. Once activated, team members can sign transactions with zero SOL balance, streamlining operations and allowing decentralized applications to cover gas fees.
Batch Payments: Most crypto-native startups have a few employees and contractors, just like traditional organizations. Squads (v4) introduces the ability to execute batch payments, a highly sought-after feature.
Address Lookup Tables (ALTs): Every Solana transaction requires listing every interacting address as part of the transaction. Before the introduction of ALTs, the address limit per transaction was effectively 32. With the introduction of ALTs in Squads (v4), the number of addresses per transaction has increased to 256, allowing users to conduct more complex transactions.
Through SquadsX and Squads (v4), the Squads team has built the infrastructure for blockchain-native custody and is now building new exciting products on top of this infrastructure, bringing attractive revenue streams.
Operating a business involves financial management, compensation, human resources, and engineering operations. In the crypto space, operations also include authorization licensing, 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 people in the crypto space directly engage with these protocols. This means that there is enormous potential to simplify enterprise operations in the market. We believe that Squads is opening the doors to the crypto space in a secure and reliable manner, offering some of the most attractive enterprise and institutional products in the market today.
Over the past 18 months, despite being in a bear market, the Squads team has demonstrated strong focus and execution. We are excited to support Squads and help lead the new era of internet-native infrastructure, enabling self-custody and on-chain capital coordination.
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