Welcome to Valid Points. In today’s issue, Sam Kessler writes about Gitcoin co-founder Kevin Owocki’s insistence that the crypto-for-good movement is evolving in a positive direction. Read the full article here.
After a year of fraud and catastrophe, ETHDenver, the year’s largest gathering for the Ethereum ecosystem, concluded its four-day run last week in Colorado.
The conference came amid a Securities and Exchange Commission crackdown on crypto companies. Under the leadership of SEC Chair Gary Gensler, regulators have been suggesting more frequently that many cryptocurrencies might be unregistered securities, with bitcoin perhaps as the lone exception.
But according to Kevin Owocki, the Gitcoin co-founder who now helms a newly established Web3 venture studio called supermodular, Gensler’s got it all wrong. Though Owocki’s view on securities law is not based in any formal legal training, it’s born out of a crypto optimism that fits right in at ETHDenver, where other bright-eyed crypto optimists gathered to espouse the virtues of blockchain technology.
Long at the core of Ethereum’s social impact movement has been Gitcoin – a kind of fundraising collective that awards grants to community-oriented projects and infrastructure. Recently, Gitcoin open-sourced its fundraising tools so they can be leveraged by other crypto communities looking to bring in cash.
Owocki is a programmer by trade and training; according to his LinkedIn profile, he got a bachelor’s degree in computer science from the University of Delaware, where his interests included ultimate frisbee. He has been in the Ethereum community since its early days, founding Gitcoin in 2017 as a way to wield blockchain primitives like smart contracts and decentralized autonomous organizations (DAO) to solve what he calls “human coordination failures.”
Owocki says crypto has the potential to solve exactly the problems that securities law was – in his view – made to address.
According to the Gitcoin co-founder, when stripped down to “first principles,” the SEC exists to solve the principal-agent problem.
Without getting too wonky, the principal-agent problem arises when the person at the top of a company, project or organization (the principal) delegates control to someone, such as an employee or customer (the agent). When the incentives between these two parties are misaligned – which Owokcki says happens when there are information asymmetries – you can run into trouble.
To illustrate where this can go wrong, Owocki gave the example of Sam Bankman-Fried. “FTX and Sam Bankman-Fried knew that he could make more money by giving funds to Alameda from customers,” Owocki explained. “If that material, nonpublic information had been distributed to retail, then he wouldn’t have been able to do it.”
According to Owocki, blockchain-based tools like DAOs and transparent, on-chain finance can add a new level of transparency to organizations, thereby solving the principal-agent problem. (Had FTX been organized as a DAO, in other words, Owocki argues it wouldn’t have been able to become insolvent.)
As convinced as Owocki is by his crypto-as-a-commodity thesis, it’s difficult to imagine a software engineer’s arguments on securities law will hold water with regulators intent on taming a fraud-laden crypto industry.
Pulse Check
The following is an overview of network activity on the Ethereum Beacon Chain over the past week. For more information about the metrics featured in this section, check out our 101 explainer on ETH metrics.
Disclaimer: All profits made from CoinDesk’s Eth 2.0 staking venture will be donated to a charity of the company’s choosing once transfers are enabled on the network.
WHY IT MATTERS: The Gitcoin Staked ETH Index is the first on-chain offering where holders can simultaneously support funding of digital public goods like open-source blockchain software and earn rewards from a diverse set of liquid staking tokens. The index is composed of three tokens from top liquid staking protocols on Ethereum: Lido, Rocket Pool and Stakewise. With gtcETH, Gitcoin could have a consistent revenue stream to help fund grants, which would help with the unpredictability related to raising funds for digital public goods. Read more here.
WHY IT MATTERS: Privacy Pools, an open-source research project and forked successor of coin mixer Tornado Cash, was deployed on the testnet of layer 2 scaling system Optimism this past weekend. Like Tornado Cash, Privacy Pools allows users to make anonymous transactions, but the defining difference between the two privacy tools stems from how Privacy Pools uses zero-knowledge proofs to prove that funds in anonymous transactions are not connected to criminal activity. Read more here.
WHY IT MATTERS: Zero-knowledge (ZK) is a type of technology that uses cryptography to help increase the speed of transactions and to reduce gas fees on blockchains. By rolling out its zkEVM public testnet at the end of March, ConsenSys is intensifying the race among top crypto firms to be first to go fully live. Later this month, Polygon will go live with its mainnet beta zkEVM. Scroll and Matter Labs have also announced they’re coming out with ZK rollups, but haven’t set dates.Read more here.
Factoid of the Week
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Open Comms
Valid Points incorporates information and data about CoinDesk’s own Eth 2.0 validator. All profits made from this staking venture will be donated to a charity of our choosing once transfers are enabled on the network. For a full overview of the project, check out our announcement post.
You can verify the activity of the CoinDesk Eth 2.0 validator in real time through our public validator key, which is:
