Open Finance Safe Zones
Creating Decentralized Economies & Smart Contract Workflows
Recent transactions highlight the importance of Open Finance Safe Zones.
The transactions in question are alluding to the transactions underpinned by the AaveflashLoans. Recently a number of hacks occurred because the introduction of flashLoands — a new Open Finance Protocol primitives.
The introduction of a protocol with unforeseen side-effects is the reason why we need Open Finance Safe Zones.
I think Open Finance Safe Zones are a possible solution to this challenge.
The Proposal
Open Finance Safe Zones are an on-chain permissions protocol for composing formally verified Open Finance Protocols smart contracts.
Open Finance Protocols Primitives such as flashLoans by Aave can introduce unforeseen protocol composition side-effects. First order consequences include draining funds from mainnet smart contracts. Second order consequences include the long-tail impact of an unstable Ethereum ecosystems.
Who could benefit the most from Open Finance Safe Zones?
- Enterprises experimenting with Open Finance Protocols.
- Individuals currently leveraging assets in Open Finance Protocols.
Open Finance 🏦 Safe Zones
What is an “Open Finance Safe Zone”?
On-chain open finance protocol registry and transaction relay hub.
How can we create Open Finance Safe Zones?
Open Finance Gateway Registry plus Open Finance Transaction Hubs.
The Gateway Registry will provide the on-chain governance protocol for proposing and approving new Open Finance Protocols to be included in specific Open Finance Safe Zones. The Transaction Hubs will reference the Gateway Registries to enforce cross-protocol transactions using registered address endpoints.
The Open Finance Gateway Registry acts like a public key infrastructure.
The Transaction Hubs will utilize the Gateway Registry to confirm transactions are being routed between approved cross-protocol interactions.
If the Transaction Hub is unable to confirm the transaction permissions through the Gateway Registry, the dispatched transaction will fail.
Why is the important?
By creating on-chain permissions protocol, the risk inherit in an open finance environment can be better managed.
The risk can be managed by enforcing 1-to-1 or 1-to-N relationships between on-chain Open Finance Protocols during the initial deployment phases.
Protecting institutional investors and everyday users from the dangers of untested Open Finance Protocol experiments. By utilizing on-chain safeguards, the risks inherit to experimental protocols can be minimized.
In short, we can continue to experiment with Open Finance Protocols in a public environment (testing the game mechanics and smart contract security) while also protecting the average users via a better permission protocol layer to buffer from bug/exploits available in new Open Finance Protocol primitives.
The Definitions
Open Finance Gateway Registry
A registry of trusted protocol endpoints managed using on-chain governance.
Akin to a decentralized public key infrastructure, the Open Finance Gateway Registry will be responsible for registering and broadcasting verified Open Finance Protocol addresses.
The registry is responsible for curating a network of open finance protocols that have been confirmed suitable for interaction in a public environment.
Open Finance Transaction Hubs
Audited and formally verified Transaction Hub smart contracts to coordinate cross-protocol transactions.
The coordination will be done using smart contracts address endpoints accessible in the Gateway Registry.
Gateway Registry & Transaction Hub Interactions
Gateway Registries and Transaction Hubs can offer more assurances (better handling of unintended side effects) and manage rules for how Ethereum ecosystem protocols interact.
Why do I think this is important? 2 Reasons.
- Securing protocols to minimize chance for catastrophic failure is important from an ecosystem survival.
- I work at ConsenSys and I often think about the long-term strategies required to secure and scale Open Finance Economies.
Providing guarantees for enterprises that have lower risk tolerances is an important focus. It’s how we will grow the Ethereum Ecosystem.
A Basic Technical Overview
Each Open Finance Safe Zone will include:
- Gateway Registry
- Transaction Hubs
The Gateway Registry will contain a list of smart contract address endpoints.
The Smart Contract endpoints will be approved using on-chain governance.
Transaction Hubs will enforce cross-protocol transactions via Gateways.
The Human Coordination of It
An on-chain governance mechanism for approving protocols.
The governance model should include proposal and diligence stages. Allowing anyone (or any DAO) to introduce a new Open Finance Protocol Primitive(s) to a list of approved callable functions.
Incentives should be created for Engineers to participate in the diligence.
Why Open Finance Safe Zones
I am confident Ethereum will power future Open Finance Economies.
To reach that destination though, the Open Finance Protocols we craft and the ecosystems we engineer will require multiple levels of risk management.
Why do we need risk management?
Blockchains are public. Public blockchains means risk.
Risk is bad for enterprise adoption.
Enterprise adoption means mainstream use cases.
Mainstream use cases mean Ethereum adoption.
Risk management on a protocol level creates a space for greater adoption.
Mitigating Risk and Catastrophic Failure
Multiple points of failure can be addressed.
- Allow only audited and formally verified contracts to interact.
- Allow only Open Finance Protocols that have symbiotic relationships to interact.
By introducing an opt-in Open Finance Gateway Registry and Open Finance Transaction Hub, protocols can self-elect to participate in Open Finance Safe Zones.
Those Open Finance Safe Zones will have increased gas costs (minor if dealing with large transactions) but also create a stable value transmutation relationships for emerging digital currency experiments.
Adversarial Entities Exist
Thankfully the “adversaries” are radically transparent. Motivations are relatively understood. And protocol engineers from Open Finance teams can (hopefully) take the appropriate steps address the root problems.
It’s obvious the Ethereum open finance ecosystem is still very much in the early stages. More smart contract bugs need to be fixed. More auditing and formal verification needs to be done. And we need to establish more game theory optimal protocol interactions. Too many unknown unknowns.
We need to secure our Ethereum Ecosystem with niche specific protocols.
Workflows.
TL;DR
A permission primitive for permissionless Ethereum protocols will facilitate Open Finance Safe Zones and create a path towards sustainable adoption of digital currencies.
