Building Enduring Web3 Communities & Future of Crypto
Forefront Newsletter Issue 115. This week's top signal, Financial Times Spicy Take on Crypto, Vitalik on Proof of Solvency, The Web3 Ownership Report by Protein, Rafa & Steph on Web3 Communities <> Intimacy, and much more.
Welcome to Issue 115:
▹ Week's Top Signal
▹ Financial Times Spicy Take on Crypto
▹ Vitalik latest on Proof of Solvency
▹ The Web3 Ownership Report by Protein
▹ Rafa & Steph on Web3 Communities <> Intimacy
▹ Party Protocol by PartyDAO
▹ ... much more
--- Let's get into it!
Week's Top Signal
With all of the conversation around the FTX fallout, we've been thinking a lot at Forefront about what comes next.
First, some updates! FTX's new CEO John Ray, who specializes in bankruptcy oversight, is scathing about Sam Bankman-Fried's management. He said, "never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information." That is a wild statement, but not surprising at this point.
Next, Genesis Trading has halted withdrawals at its lending unit as the crypto financial services group blamed the "unprecedented market turmoil" sparked by the collapse of Sam Bankman-Fried's FTX. And so the contagion continues...
It obviously remains to be seen just how much of an impact the FTX fallout will have on individual institutions in crypto, but the fallout is already beginning.
At Forefront, these developments have led us to double down on some of our core principles, including decentralization and renewed belief in the power of community-owned networks. While major CEXs are crumbling and token prices are falling, tokenized communities are continuing to build, grow, and propagate their collective ideas.
Forefront itself is heading into the new year focused on building great product and media for the communities and builders who are still passionate about the opportunity of collectively owned networks.
For a peak at what's next for Forefront (and hopefully the industry at large), check out our new Manifesto highlighting the principles and work we're pushing forward. Crypto prices might be falling, but the opportunity to build new economic models for communities and creators is just getting started.
Let Crypto Burn. Stephen Ceccheti and Kim Schoenholtzis are professors at NYU Stern School of Business. Their message? Let crypto burn. In the aftermath of the FTX collapse, the authors of this piece believe that authorities should resist the urge to create a parallel legal and regulatory framework for the crypto industry. It is far better to do nothing, they say, and just let crypto burn. They believe that actively intervening would convey undeserved legitimacy upon a system that does little to support real economic activity. Gabriel Shapiro replied to the piece on Twitter, arguing that "this is one of the most insightful (yet hostile) articles ever published on crypto in the mainstream press." The perspective of this FT piece is not new, and it will likely be increasingly common in coming months. If crypto burns, regulators still have a responsibility to protect users from fraudulent activity from centralized exchanges.
Having a Safe CEX: Proof of Solvency and Beyond. Vitalik says that every time a major centralized exchange blows up, a common question that comes up is whether or not we can use cryptographic techniques to solve the problem. He posits that an exchange could build a system where it can't withdraw a depositor's funds at all without their consent. He explores a way to do this using merkle trees, ZK SNARKS, and balance lists, but the important note here is that centralized exchanges are not truly accurate representations of the crypto industry. They're places to transact crypto, but aren't built on crypto principles (with few exceptions). In the short term, there are two clear "classes" of exchanges: custodial exchanges and non-custodial exchanges. Today, the latter category is just DEXes such as Uniswap, and in the future we may also see cryptographically "constrained" CEXes where user funds are held in something like a validium smart contract. We may also see half-custodial exchanges where we trust them with fiat but not cryptocurrency.
Achieving Crypto Privacy and Regulatory Compliance. Members of the a16z Crypto team published this summary of their paper, "Privacy-Protecting Regulatory Solutions Using Zero-Knowledge Proofs." In brief, the development and regulation of web3 -- an evolution of the internet powered by crypto -- must achieve two goals that are often in tension. First, development must preserve consumer privacy, despite the default transparent nature of blockchains. Second, it must reduce the risk of illicit finance in the interest of national security. According to the authors, these ends are simultaneously achievable through zero-knowledge proofs. First, deposit screening, or checking wallets that are attempting to deposit funds against blocklists and allowlists. Next, withdrawal screening, or checking wallets that are attempting to withdraw funds against blocklists and allowlists. Finally, selective de-anonymization, a feature that would provide federal regulators or law enforcement access to transaction details.
Party Protocol. The team from PartyDAO, creators of NFT group-buying tool PartyBid, are back with a groundbreaking release: Party Protocol. The Party Protocol aims to enable a multiplayer future, providing functionality for core group behaviors: capital formation, coordination, and distribution. The Party Protocol provides crowdfund contracts that let groups combine ETH with the goal of purchasing an NFT. The protocol provides specific crowdfund types for bidding in an auction, buying a specific item at a fixed price, or purchasing any item in a collection. When a Party successfully purchases an NFT, it becomes something like an on-chain multiplayer wallet with voting and a proposal engine. Finally, when a Party accumulates ETH or ERC-20 tokens, it has the ability to make them available for members to claim.
Dirty Words. The "Web3 Ownership" Report. This report from our friends at Protein takes a look at "Ownership" and investigates a contemporary crisis of faith in traditional ownership models. The authors took a look at how web3 tools and groups could truly extend community ownership, and avoid repeating the harmful impact of the technologies they were designed to replace. The report included responses from 550 people across 41 countries. The report covers some awesome insights from rooted in data on alternative ownership models alongside anecdotes and deeper stories from interviewees with rich perspectives on various aspects of ownership across the global economy. This is a must-read for anyone working in web3 or generally interested in the intersection of ownership, tech, and economics.
DAOs After Lifestyle --- Toby Shorin. Toby Shorin is the co-founder of Other Internet, and author of the recent essay Life After Lifestyle. The essay made its rounds through web3 circles and beyond, opening many eyes to the importance of morality in worldbuilding and the responsibility of the work many of us are doing in the DAO space. In this interview with Steph from Seed Club, the duo explores DAOs as subcultures within a post-lifestyle zeitgeist, the evergreen moral impulse of world building, and the hubris of brands attempting to supplant meaningful community connection. For those who have read the essay, this is an incredible conversation tackling many of the ideas in the context of DAOs alongside Toby's own influences and work at Other Internet. For those who haven't read the essay, this is a great primer before diving into the meat of it all.
A Culture of Intimacy: a Thesis for Building Enduring Web3 Communities. In DAOs, we take the concept of product-market-fit and recast it as community-market-fit. Community --- the DAO --- is the product. A worthwhile starting place for community-market-fit is the creation of intimacy between genesis members. Rafa of Mirror and Folklore and Steph of Seed Club cover the important of intimacy in building web3 communities. Especially in times of market volatility, it's more important than ever to create spaces of togetherness built on true, everlasting values. The duo outlines some core principles and best practices to embed in your own community alongside some key insights. This is a must-read for community members and builders of all different types of organizations.
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What's on Signal
▹ Read - Reasonable FOMO
▹ Mainstream - Wired on MarkerDAO
▹ Opinion - Building for Believers
▹ Deep Dives - From Fibonacci to Fidenza
▹ Fresh Take - Future History of the Open Internet
▹ Watch - FWB Case Study
▹ Interesting - Web3: An Evolutionary Perspective
▹ Cool - Impact Evaluators Protocol
▹ Tooling - Permit2 & Universal Router
▹ Thread - Equity Companies And DAO FUDers
◎ Check out Signal for daily top web3 social headlines
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The information in this newsletter is not intended to constitute legal, financial or investment advice and should not be construed or relied upon as such. Any opinions reflected are the opinion of the author(s) of the newsletter only and not necessarily of Forefront. Please DYOR.