It’s DAO or Never
How ICP Will Change the Financial Landscape Through the SNS
On March 10th, Silicon Valley Bank (SVB), headquartered in Santa Clara, California, announced a staggering $1.8 billion after-tax loss, all but rendering the bank insolvent. By the close of the week, the prospects of SVB securing additional funding had all but evaporated. On Friday, the California Department of Financial Protection and Innovation finally intervened and effectively shuttered the institution, designating the Federal Deposit Insurance Corporation as its receiver.
Shortly before its collapse SVB was the 16th-largest bank in the United States, once again demonstrating that the moniker “too big to fail” will forever ring hollow.
In a cruel twist of fate, the closure of Silicon Valley Bank was swiftly followed by the New York State Department of Financial Services terminating the operations of New York-based financial institution, Signature Bank, on March 12th. Predictably, for the second time in a week, the Federal Deposit Insurance Corporation was summoned to act as a receiver, highlighting the precarious state of the U.S. banking industry.
Silicon Valley Bank and Signature Bank have now earned a dubious distinction: they join Washington Mutual in the record books as the three biggest bank failures in the history of the United States. Behold, the illustrious roll call of impecuniosity:
1. Washington Mutual, Seattle, Washington: nominal assets $307 billion at the time of collapse in 2008
2. Silicon Valley Bank (SVB), Santa Clara, California: nominal assets of $209 billion
3. Signature Bank, New York, New York: nominal assets of $118 billion
Last week’s crisis represents yet another wake-up call for those banking within the confines of the overly fragile traditional finance (TradFI) sector.
Once thought to be bastions of financial stability, the commercial and retail banks of the Americas are increasingly being viewed as potential (and even likely) sources of systemic risk. Mainstream finance’s growing instability has become reminiscent of a game of Jenga gone into hyperdrive — the risks of a complete collapse loom large with every move forward.
The recent turmoil at Silicon Valley Bank and Signature Bank has once more underscored the risks inherent in our systems of banking and finance, where individuals and businesses are routinely at the mercy of predatory C-level executives and boards of directors.
TradFi is wobbling like a bowl of jelly on a trampoline, and it’s making everyone’s stomachs churn. Enter decentralized finance (DeFi), which continues its long and arduous journey to upend the TradFi status quo via blockchain technology, decentralization, and smart contracts.
One of the most exciting aspects of DeFi is the co-emergence of decentralized autonomous organizations (DAOs). These organizations are run by immutable code, rather than a central authority or gatekeeping intermediary, and allow for more democratic and transparent systems of finance.
Transparency and Inclusivity
DAOs are digital entities that operate through a blockchain network, enabling community-driven governance and non-intermediary decision-making. DAOs are increasingly being seen as the future of compliance, risk management, and institutional oversight.
Created and run by its users, DAOs offer a transparent, decentralized, and democratic way of planning and managing financial activities. Members hold voting rights and collectively make decisions related to the organization’s operations, for example, how funds are allocated and invested.
With DAOs, community members directly participate in the decision-making process, creating their own rules and regulations to mutually shape the future of an organization. This framework of transparency and self-governance stands in stark contrast to the closed-door planning sessions of traditional financial institutions such as SVB and Signature Bank. In the chronicles of banking, a recurring lesson is evident: corporate strategy characterized by exclusion and centralization significantly increases the likelihood of financial instability and insolvency.
Traditional financial systems tend to be heavily reliant on slow, expensive, and error-prone intermediaries. One of the most significant advantages of DAOs is their ability to operate “trustlessly”, replacing the function of intermediaries with the immutability of smart contracts — where “code is the law.”
By eliminating middle persons, DAOs gain the power to facilitate new forms of finance in the form of decentralized applications (dApps) running on blockchain technology. DAOs provide a practical operational backbone to DeFi dApps, paving the way for the creation of decentralized investment funds, lending/borrowing platforms, decentralized exchanges (DEXs), payment gateways, etc.
Because DAOs can be used to create investment pools, capital can be fluidly and transparently merged from many sources to support the launching of a wide variety of dApps on major Web3 ecosystems. With DAO-enabled dApps, profits can be distributed equitably and transparently among members based on their contributions to the dApp.
With unparalleled speed, security, and scalability, the Internet Computer Protocol (ICP) has emerged as the ideal blockchain for the development of fully decentralized dApps governed by constituent DAOs. By harnessing the cutting-edge architecture of ICP, a DAO can thrive within a transparent, trustless, and censorship-resistant ecosystem. ICP’s ability to tightly couple smart contracts with seamless on-chain governance ensures that DAO members can propose, vote on, and manage a dApp’s operations with maximum effectiveness.
Unlocking the Potential of DAOs with the SNS
The growing demand for organizations to function with enhanced transparency and democratic principles will increasingly lead them to build on the Internet Computer Protocol (ICP) and utilize its fully decentralized Service Nervous System (SNS) technology. In contrast to many blockchains that are controlled by a select group of miners or validators, ICP is explicitly engineered to be 100% decentralized, devoid of a central authority or a concentrated locus of control. This characteristic significantly elevates the utility of its SNS, making it the foremost choice among available DAO creation frameworks.
Deriving its functionality from the Network Nervous System (NNS) — the autonomous tokenized system that governs the Internet Computer blockchain in a completely open, permissionless, and decentralized manner — the SNS provides token-based governance solutions (i.e.digital democracies) to dApps. The NNS holds the distinction of being one of the largest DAOs in the world.
The Service Nervous System operates in a manner that closely resembles the functionality of ICP’s Network Nervous System (NNS), where token holders participate in NNS governance by staking their ICP tokens in voting neurons.
Applications and services handed over to an SNS DAO or transformed into an SNS DAO achieve a holistic platform for public participation in their daily operations and decision-making processes. By acquiring SNS tokens, individuals can actively partake in the governance of dApps. Additionally, the SNS gives developers the ability to tokenize their dApps, helping them raise capital and gain overall adoption. (Note: dApps are considered fully decentralized only after they are under the control of an SNS DAO.)
Each SNS “instance” controls a single dApp or “service.” This differs from the NNS where those who stake ICP tokens are permitted to submit and vote on proposals that drive the real-time evolution of the ICP network on the protocol level. Also, in the NNS, users need $ICP tokens to participate in governance and contribute to the community fund, whereas, in the SNS model, each dApp can issue its own governance tokens.
As stated by Dominic Williams, the Founder and Chief Scientist at DFINITY, “The SNS framework will enable developers who have built a Web3 service using smart contracts on the Internet Computer, and/or other blockchains combined via Chain Key TX functionality, to fully decentralize operations by assigning control to a DAO, so that their service can truly transition to running in the mode of a decentralized autonomous protocol. SNS DAOs change the relationship between users and services — users essentially become founders.”
The Future of Finance Belongs to ICP
We anticipate a significant transformation in the computing landscape, as decentralized applications governed by smart contract-based DAOs begin to challenge the dominance of established Web2 platforms. As a result, the decision-making processes by the businesses and individuals who hold great sway over our lives will become more transparent and equitable.
By eliminating intermediaries, facilitating new forms of investment opportunities, and creating self-regulatory mechanisms, DAOs are well-positioned to drive the future of finance. As the crypto industry continues to grow, DAOs will play an increasingly important role in shaping the decentralized application landscape by bringing trust, ethics, and legitimacy to the Web3 space.
DAOs built on the Internet Computer’s SNS are poised to become the future of decentralized applications and services. With their ability to provide a transparent and democratic alternative to traditional financial systems, they offer an unprecedented opportunity for individuals and organizations to participate in a new paradigm of governance and decision-making.
About the Internet Computer
The Internet Computer, developed by the DFINITY Foundation, is the world’s first truly decentralized and infinitely scalable public blockchain. Operating at web speed, the Internet Computer (ICP) blockchain runs end-to-end on a sovereign network of dedicated machines, hosted by independent node providers around the globe, making ICP the only blockchain that does not rely on centralized cloud nodes. The Internet Computer blockchain is governed by the Network Nervous System, a protocol-integrated DAO where token holders have the power to vote on the future of the network.
Hundreds of dApps now host Web2-style applications (websites, mobile apps, etc.) entirely on chain at web speed, as ICP increasingly becomes a decentralized alternative to the current public internet. Presently, the Internet Computer processes upwards of a half billion transactions per day — with significantly reduced energy consumption and costs — making ICP the world’s most productive blockchain.
With the Internet Computer, the promise of a 100% decentralized internet — a trustless “World Computer” upon which the broadest possible range of internet services can exist amongst massively distributed computers — has come to fruition.
About the DFINITY Foundation
The Switzerland-based DFINITY Foundation, a not-for-profit organization dedicated to developing the Internet Computer blockchain, was founded in 2016 by its Chief Scientist Dominic Williams. DFINITY’s Zurich headquarters contains the largest blockchain R&D center in the region and boasts one of the most extensive R&D teams in the industry, with many world-renowned cryptographers, researchers, and engineers. Including its research center in San Francisco, California, DFINITY employs over 200 people globally.
