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Powering Solana's Onchain Economy | Garrett Harper & Stepan Simkin

By Lightspeed

Published on 2024-06-12

Discover how Squads Protocol is transforming Solana's ecosystem with innovative smart account solutions, enhancing security and user experience for both enterprises and consumers.

The notes below are AI generated and may not be 100% accurate. Watch the video to be sure!

The Squads Origin Story

Squads Protocol, a groundbreaking project in the Solana ecosystem, has its roots in the early summer of 2021. Stepan Simkin and his co-founder Danny, who had known each other for almost a decade, were drawn to Solana's potential during the Solana Season hackathon. Impressed by Solana's speed and low transaction costs, they envisioned creating a "group chat with a bank account" - essentially a Telegram-like application with multi-signature functionality.

As they delved deeper into development, Simkin and his team realized that the necessary primitives for their initial concept were lacking in the Solana ecosystem. This realization prompted a pivot towards building comprehensive DAO infrastructure. By September 2021, they had formed a company, raised their first round of funding, and committed full-time to the project.

Evolution of Squads' Vision

The journey of Squads Protocol is marked by several iterations and pivots, each driven by insights gained from user interactions and market demands. Initially focusing on DAO tools, the team quickly discovered that many of their potential users were not decentralized communities, but rather centralized teams and companies building products on Solana.

This revelation led to a crucial shift in focus towards multi-signature infrastructure. Squads found that due to Solana's low costs and high speed, even centralized teams were opting for on-chain infrastructure for managing their operations, from handling VC funds to managing developer workflows and program upgrades.

Smart Accounts: The Core of Squads Protocol

At the heart of Squads Protocol lies the concept of smart accounts. Garrett Harper, part of the Squads team, explains smart accounts as a revolutionary advancement in blockchain technology. Unlike traditional data accounts on Solana, which are non-programmable and controlled by a private key, smart accounts add a layer of programmability to these accounts.

Harper draws an interesting analogy to illustrate the concept:

"I saw this thing on Steve Jobs back in 2007 when he was releasing the iPhone. He had this picture of a blackberry on a PowerPoint and he said, that's the problem. And he pointed at it and it's like, it's the bottom 40. And it's like, what's the bottom 40? The bottom 40 is the plastic keyboard that's on the iPhone. He's like, the problem is it's plastic. It's always there. No matter what app you're using, it can't adjust the use case. So it's basically non-programmable."

This analogy perfectly encapsulates the limitations of traditional blockchain accounts and the transformative potential of smart accounts. By making accounts programmable, Squads opens up a world of possibilities for customizing user experiences and enhancing security features.

Fuse: Bringing Smart Accounts to Mobile

Recognizing the growing importance of mobile applications in crypto adoption, Squads developed Fuse, a mobile wallet application built on their smart account infrastructure. Fuse represents a significant step towards making blockchain technology more accessible and secure for everyday users.

Simkin describes Fuse as "the most secure place to store sort of your Solana assets." Unlike other wallets that focus on being entry points to the ecosystem, Fuse aims to be a comprehensive solution where users can perform most of their on-chain activities without leaving the app.

Key features of Fuse include:

  1. Two-factor authentication
  2. Multiple recovery keys
  3. Spending limits
  4. Integration with hardware wallets like Ledger

The goal is to provide a secure and user-friendly environment for users to manage their assets, especially for those who have accumulated significant holdings and need a more secure storage solution than a typical hot wallet.

Security First: The Squads Approach

Squads Protocol places a strong emphasis on security, which is evident in their approach to product development. This focus on security has led to several notable achievements:

  1. Formal Verification: Squads V3 is the first and only fully immutable program on Solana to be formally verified. This mathematical proof of the program's properties provides an unprecedented level of security assurance.

  2. Immutability: The core program of Squads is immutable, meaning it cannot be changed once deployed. This feature adds an extra layer of security and trust for users.

  3. Open Source: The protocol is open source, allowing for community review and auditing.

  4. Minimalist Design: The program is intentionally kept small and simple, making it easier for technical teams to review and understand.

These security measures have proven especially valuable in the wake of events like the FTX collapse, which highlighted the risks of centralized custody solutions. As a result, Squads has seen an influx of Solana teams and manufacturing institutions opting for their on-chain solutions.

Powering Solana's On-Chain Economy

Squads Protocol is not just about providing secure multi-signature wallets; it's about enabling and accelerating the transition to a fully on-chain economy. Simkin articulates this vision:

"We're definitely betting on the future where things are happening on chain, where a lot of productive economic activity is happening on chain, where merchants are transacting, where you hold your money, where you pay merchants, you send money between friends, you pay for services."

This vision is already becoming a reality, with many teams on Solana using Squads for managing their on-chain operations, from payroll to paying for audits and other services. The protocol is designed to grow and adapt as more economic activity moves on-chain, positioning Squads as a key player in Solana's evolving ecosystem.

The Enterprise Focus: Squads App

While Fuse caters to individual users, the Squads app is tailored for enterprises and teams operating on Solana. It serves as a comprehensive solution for managing on-chain operations, offering features like:

  1. Multi-signature wallet management
  2. Developer workflow tools
  3. Program upgrade management
  4. Validator and token management

The app is designed to replace traditional financial tools, offering a streamlined, blockchain-native alternative for teams building on Solana. This enterprise focus has allowed Squads to establish itself as a crucial infrastructure provider in the Solana ecosystem.

Monetization Strategy

Squads Protocol has pioneered an on-chain subscription model for its services. About a year ago, they introduced a system where certain features in the app are gated behind a subscription payable in USDC. This approach has been well-received by users, demonstrating a willingness in the crypto community to pay for high-quality, secure infrastructure.

The monetization strategy includes:

  1. Subscription fees for premium features
  2. Small deployment fees for smart accounts
  3. Plans for "smart accounts as a service" for developers

Simkin emphasizes that their current focus is on growth rather than aggressive monetization. They're continually experimenting with the balance between free and paid features to provide value while building a sustainable business model.

The Mobile-First Approach

Recognizing the importance of mobile applications in driving crypto adoption, Squads has made a strategic decision to focus on mobile with Fuse. Harper emphasizes this point:

"Every person under 30 and I'm 31 is on their phone all day and day. So you need security on your phone, for example, not just in your ledger. That's not on your phone and not with you. And I think that's a big thing that Fuse solves."

This mobile-first approach positions Squads to capitalize on the growing trend of mobile payments and crypto interactions. By providing a secure, user-friendly mobile wallet, Fuse aims to be at the forefront of mainstream crypto adoption.

Smart Accounts as a Service

One of the most exciting developments from Squads is their "smart accounts as a service" offering. This service allows developers to integrate Squads' secure smart account infrastructure into their own applications and protocols.

Instead of building and auditing complex security features from scratch, developers can pay a small fee to create a smart account using Squads Protocol. This account comes with the security and reliability that Squads has established, securing over $10 billion in value and being used by major teams in the Solana ecosystem.

This service has the potential to significantly accelerate development in the Solana ecosystem by providing a secure, ready-to-use foundation for applications dealing with user funds.

The Future of Governance on Solana

While Squads initially focused on DAO tooling, they've found that the Solana ecosystem has developed its own unique approach to on-chain governance. Unlike Ethereum, where off-chain voting via Snapshot combined with multi-sig execution is common, Solana has pushed for fully on-chain governance models.

Simkin notes that with the recent increase in token launches on Solana, there's growing demand for governance infrastructure. While Squads is not actively pursuing this direction currently, they're open to exploring governance solutions that align with their product-focused ethos.

Their approach would likely focus on simplifying the governance workflow for teams and making it easier for token holders to participate in decision-making processes.

Challenges and Opportunities in the Solana Ecosystem

Despite Solana's rapid growth and increasing adoption, there are still areas for improvement. Dan, one of the podcast hosts, points out a significant gap in the ecosystem:

"Really simple, usable block explorers for people. I think there's two sets of users. There's one that is the user that will never touch a block explorer. And that is we need to build for that user. But there is like this in between of people who want to understand what's happening with a transaction or an action or their funds that is not a developer."

This observation highlights the need for more user-friendly tools that bridge the gap between casual users and developers, allowing a broader range of participants to engage more deeply with the Solana ecosystem.

Lessons for Founders

As successful founders in the Solana ecosystem, Simkin and Harper offer valuable advice for other entrepreneurs:

  1. Stick to your vision: Simkin emphasizes the importance of having a clear vision while remaining flexible on the details. This allows for adaptation based on user feedback without losing sight of the overall goal.

  2. Talk to users: User feedback is described as more valuable than money in the early stages. Founders should focus on extracting as much information as possible from users rather than rushing to monetize.

  3. Have opinions and offer solutions: Harper advises team members to not just point out problems but to come with potential solutions. This proactive approach is especially valuable in small teams and startups.

  4. Hire "barrels": Simkin references Keith Rabois's concept of hiring "barrels" - people who can take a problem and not just solve the minimum requirements but innovate and take ownership of the solution.

The Impact of Formal Verification

Squads Protocol's commitment to security is exemplified by their achievement of formal verification for their smart contract. This process involves mathematically proving the properties of the code, providing a level of assurance that goes beyond traditional security audits.

Simkin explains the significance:

"Formal verification is very different process. Processes basically, you break down the code base into math and you kind of, you prove it as like, as you prove different properties of that mathematically, right? And so you can mathematically say the program does this or it doesn't do that."

This level of verification is rare in the blockchain space and sets Squads apart as a leader in security within the Solana ecosystem. It provides users with an unprecedented level of confidence in the protocol's integrity and reliability.

Expanding the Solana Ecosystem

While Squads is currently focused solely on Solana, they're open to exploring opportunities on Solana Virtual Machine (SVM) L2s or forks in the future. However, their approach to expansion is user-driven. Simkin explains:

"The change in our approach can happen if our users kind of indicate to us that, you know, we actually want to exist on this SVM L2. Can you come there as well, right? I think that would be the biggest factor that we would consider."

This user-centric approach ensures that Squads remains focused on delivering value where it's most needed, rather than spreading themselves thin across multiple ecosystems.

The Role of Squads in Solana's Growth

As Solana continues to gain traction, with even major figures like John Colson of PayPal discussing its potential, Squads is positioning itself as a crucial infrastructure provider. By focusing on security, user experience, and enterprise needs, Squads is helping to build the foundation for Solana's continued growth and adoption.

Harper notes the rapid change in perception:

"Just a year ago, most people thought Solana was dead. And now you have like John Colson talking about Solana, you know, on one of their biggest meetings of the year. So it's been such a change, but when you think about that, it's only been a year."

This turnaround in Solana's fortunes provides a fertile ground for projects like Squads to innovate and grow alongside the ecosystem.

The Importance of Mobile in Crypto Adoption

A recurring theme throughout the discussion is the critical role of mobile applications in driving crypto adoption. Harper emphasizes this point:

"We probably need mobile applications for that to take off because every person under 30 and I'm 31 is on their phone all day and day. So you need security on your phone, for example, not just in your ledger."

This insight has driven the development of Fuse, Squads' mobile wallet application. By bringing the security and functionality of smart accounts to mobile devices, Squads is working to make crypto more accessible and user-friendly for a broader audience.

The Future of On-Chain Payments

The team at Squads envisions a future where on-chain payments become commonplace. Harper shares an experience that illustrates this potential:

"And that's you use USDC like paying with Solpay or Slanapay the other day at the conference. I thought it was awesome. And that's all through your phone. So simple."

By developing tools that make such transactions secure and straightforward, Squads is helping to pave the way for widespread adoption of on-chain payments in everyday life.

Balancing Security and User Experience

One of the key challenges in crypto wallet design is balancing security with user-friendliness. Squads addresses this through their smart account infrastructure, which allows for features like two-factor authentication, recovery keys, and spending limits without compromising on ease of use.

Simkin explains their approach with Fuse:

"Our idea is that Fuse is here once you've traded and you made a bunch of money, this is where you move like 80% of that that you don't intend to sort of interact with day to day."

This positioning allows Fuse to focus on providing top-tier security for long-term storage while still offering the functionality users need for regular transactions.

The Role of KYC in Crypto Wallets

While maintaining a focus on decentralization and privacy, Squads recognizes that some users might want access to services that require Know Your Customer (KYC) verification. Harper suggests a potential future direction:

"If you could somehow just make that, you do KYC once, you get access to all four, you automatically get an account set up, like that type of thing, I think that would be really cool."

This approach could streamline user experience for those who choose to use KYC-required services while still maintaining options for those who prefer complete anonymity.

Addressing the Need for Better Block Explorers

A significant pain point identified in the Solana ecosystem is the lack of user-friendly block explorers. Unlike Ethereum's Etherscan, which allows users to easily verify and interact with smart contracts, Solana lacks a similarly accessible tool for non-developers.

Dan emphasizes the importance of this:

"I honestly think that is a huge gap in this launch ecosystem today. And I would honestly expand that even one step further into just the data side of Solana today."

Addressing this gap could significantly enhance transparency and user engagement in the Solana ecosystem, potentially driving further adoption and development.

The Potential of Programmable Accounts

The concept of programmable accounts opens up a world of possibilities for customizing user experiences and creating innovative financial products. Simkin provides an example:

"One example could be, for example, where if you send, you know, use DC to your Fuse wallet, you know, you can program that 25% of that with like auto DCA into solve through Jupyter."

This level of automation and customization could revolutionize how users interact with their crypto assets, making complex financial strategies accessible to a broader audience.

Building for the Long Term

Throughout the discussion, it's clear that Squads is focused on building for the long-term success of both their protocol and the Solana ecosystem as a whole. By prioritizing security, user experience, and adaptability, they're creating infrastructure that can evolve alongside the rapidly changing crypto landscape.

Simkin's closing words encapsulate this commitment: "Use Fuse. Stay based." This simple statement reflects their dedication to providing user-friendly, secure tools that empower individuals and enterprises to fully participate in the on-chain economy.

As Solana continues to grow and evolve, Squads Protocol is poised to play a crucial role in shaping the future of on-chain interactions, from simple peer-to-peer transactions to complex enterprise operations. Their focus on security, usability, and innovation positions them as a key player in driving the adoption and success of the Solana ecosystem.

Facts + Figures

  • Squads Protocol originated from a Solana hackathon project in early summer 2021.
  • The company was formed and raised its first round of funding by September 2021.
  • Squads V3 is the first and only fully immutable program on Solana to be formally verified.
  • Fuse, Squads' mobile wallet application, offers features like two-factor authentication, multiple recovery keys, and spending limits.
  • Squads Protocol secures over $10 billion in value and is used by major teams in the Solana ecosystem.
  • The protocol introduced an on-chain subscription model for its services about a year ago.
  • Squads made only one upgrade to their on-chain code since going into production in September 2023.
  • The team consists of three founders, each bringing unique strengths in CEO leadership, product focus, and technical expertise.
  • Squads is currently focused solely on the Solana ecosystem but is open to exploring SVM L2s or forks in the future based on user demand.
  • The perception of Solana has dramatically changed in the past year, with major figures like John Colson of PayPal now discussing its potential.
  • Squads aims to solve the problem of needing multiple wallets by providing a comprehensive solution within Fuse.
  • The team emphasizes the importance of mobile applications in driving crypto adoption.
  • Squads Protocol offers "smart accounts as a service" for developers to integrate secure account infrastructure into their applications.
  • The protocol is designed to be flexible, allowing for features like automated DCA (Dollar Cost Averaging) directly within the wallet.
  • Squads identifies a significant gap in the Solana ecosystem for user-friendly block explorers, similar to Ethereum's Etherscan.

Questions Answered

What is Squads Protocol?

Squads Protocol is a comprehensive blockchain infrastructure project built on Solana. It provides secure multi-signature wallets, smart account solutions, and tools for managing on-chain operations. The protocol aims to power Solana's on-chain economy by offering enterprise-grade security and user-friendly interfaces for both businesses and individual users.

How does Fuse differ from other crypto wallets?

Fuse is Squads' mobile wallet application that focuses on providing maximum security for storing Solana assets. Unlike other wallets that primarily serve as entry points to the ecosystem, Fuse aims to be a comprehensive solution where users can perform most of their on-chain activities without leaving the app. It offers features like two-factor authentication, multiple recovery keys, and spending limits, making it ideal for users looking to secure larger amounts of crypto assets.

What are smart accounts and why are they important?

Smart accounts are programmable blockchain accounts that allow for customized user experiences and enhanced security features. They differ from traditional blockchain accounts by adding a layer of programmability, enabling features like spending limits, two-factor authentication, and recovery options. This programmability opens up new possibilities for how users can interact with their crypto assets and how developers can create secure, user-friendly applications.

How does Squads ensure the security of its protocol?

Squads ensures security through multiple measures. Their core program is immutable and has undergone formal verification, a process that mathematically proves the properties of the code. The protocol is open source, allowing for community review, and is intentionally kept small and simple for easier auditing. These measures provide users with a high level of confidence in the protocol's integrity and reliability.

What is Squads' approach to monetization?

Squads has pioneered an on-chain subscription model where certain features in their app are gated behind a subscription payable in USDC. They also charge small deployment fees for smart accounts. While currently focusing on growth over aggressive monetization, they are exploring various models to balance providing value with building a sustainable business. Future plans include offering "smart accounts as a service" to developers.

How is Squads contributing to the growth of the Solana ecosystem?

Squads is contributing to Solana's growth by providing essential infrastructure for secure on-chain operations. Their tools enable businesses and individuals to manage assets, conduct transactions, and build applications with enhanced security. By focusing on user experience and mobile accessibility, Squads is helping to make Solana more accessible to a broader audience, potentially accelerating adoption and ecosystem growth.

What future developments can we expect from Squads?

While specific roadmap details weren't provided, Squads hinted at several potential developments. These include expanding their "smart accounts as a service" offering, potentially exploring governance solutions, and continuing to innovate in mobile crypto applications. They're also open to expanding to Solana Virtual Machine (SVM) L2s or forks if there's significant user demand.

How does Squads view the importance of mobile in crypto adoption?

Squads places a strong emphasis on mobile applications as crucial for driving crypto adoption. They believe that as most people, especially younger generations, primarily use their phones for daily activities, having secure and user-friendly mobile crypto solutions is essential. This belief has driven the development of Fuse, their mobile wallet application, which aims to bring the security and functionality of smart accounts to mobile devices.

What advice does the Squads team have for other founders in the crypto space?

The Squads team advises founders to maintain a clear vision while remaining flexible on details, prioritize user feedback over early monetization, and encourage team members to not just identify problems but also propose solutions. They also emphasize the importance of hiring proactive individuals who can take ownership of problems and innovate beyond basic requirements. Lastly, they stress the value of focusing deeply on a specific ecosystem or problem rather than trying to solve everything at once.

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