Benzinga - In the wake of the collapse of the world’s third-largest crypto exchange, FTX, the entire centralized crypto finance regime is facing intense scrutiny. Not only the exchanges, but also crypto lending entities, such as Genesis, are being litigated by authorities.
What is particularly alarming is that such heavy handed regulatory scrutiny is likely to be extended to the decentralized finance (DeFi) space, as the official language of “just the beginning” suggests. This has brought renewed debate to the tricky question of how to incorporate stronger regulation into a space built on the concept of decentralization and autonomy.
There are no easy answers just yet but one thing is for sure: the decentralized autonomous organizations (DAOs) in the DeFi space might need to be ready for adaptation to new compliance requirements at a moment’s notice. Ink Finance, an all-in-one DAO toolkit designed with financial DAOs in mind, is here to make that adaptability possible. Here’s a quick overview of some of the Ink Finance features that bring enhanced transparency, traceability, and accountability to financial DAOs facing an uncertain regulatory future.
A Smart Contract Factory with Built-In Security, Compliance, and Risk Management
Ink Finance bills its platform as a smart contract factory where DAOs can choose the most relevant organizational and operational modules on its preferred network.These modules make it possible for a financial DAO to sub task compliance and KYC to a network of regional DAOs, each with its fully autonomous governance schemes and self-regulated policies. Through such an organizational setup, a financial protocol DAO gains scalability when facing regulatory challenges. Since all user DAOs’ operations are fully demonstrable on-chain, regulators can easily trace and verify their individual compliance practice. The protocol can mitigate the risk of shutting down due to unpredictable irregularities arising from bad actors.
Each one of these self-regulated user DAOs can elect and verify their trusted professionals to act as their managers, and choose their trusted KYC facilities. A range of different identity and background verification methods including biometrics and legal identity verification can be imposed upon managers and investors, to meet compliance requirements. The entire process of making such choices and the KYC/KYB “watermarks” will be fully implemented on-chain, and integrated into the DeFi protocol’s transaction framework.
If the financial protocol wants to implement certain risk management rules regarding the traded products, the rules can be proposed and voted into resolution by the entire meta community, once again showing its decentralized nature. Such rules, once enacted, will be imposed on the product issuers, who must make all disclosures according to the rules. In the case of forced liquidation of collaterals, the issuers must allow the protocol’s elected representatives to hold the controlling positions that allows for collateral disposal.
Plug-and-Play Agility
Ink Finance’s modulated platform integrates both governance and financial functions, allowing financial DAOs to build, manage and adapt their structure all in one platform. This all-in-one solution closes a lot of the gaps that leave DAOs exposed to a lot of inevitable risks if they have to integrate multiple different dApps.DAOs can pick and choose different management units, like a treasury committee, investment committee, or funding committee, without worrying about how to piece them together into one governance structure, which itself can be customized to fit their mission and stage of growth.
As the DAO evolves, it can add and remove these components as needed, adapting the structure to keep up with the DAOs dynamic needs. That includes the flexibility to adapt to changing regulatory frameworks without having to completely dismantle the structure. The DAO can simply add or customize the relevant pieces as needed to meet compliance.
A Balance of Power Across Stakeholders
As some of the recent investigations and lawsuits sweeping the DeFi world have shown, the integrity and security of a DAO often hinges on accountability. To address this, Ink Finance delegates voting power using the principle of stake-to-govern. In order to vote, members must stake the DAO’s token so that they are financially invested in the integrity of the DAO. While establishing “having skin in the game”, this mechanism also effectively raises the barrier to Sybil attacks.To further prevent whale attacks, Ink Finance offers the ability for each sub-DAO to set up badges. Badges allow each sub ecosystem to establish its own requirements for who can vote, and the badges are typically earned or assigned according to the sub DAO’s predefined metrics.
The end result is a robust yet agile platform for building and managing a financial DAO that’s capable of addressing a lot of the risks made apparent in the slate of recent investigations and lawsuits. This is meant to empower them to adapt to new regulations quickly.
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