Squads Protocol: Revolutionizing Multi-Sig Wallets on Solana

In a recent episode of the Solfate Podcast, hosts Nick and James sat down with Stepan, co-founder and CEO of Squads, to discuss the evolution of multi-signature wallets on Solana and the broader implications for blockchain governance. This in-depth conversation shed light on the critical role of multi-sig technology in the cryptocurrency ecosystem and how Squads is pushing the boundaries of what's possible in this space.

The Genesis of Squads

Stepan's journey into the world of blockchain and cryptocurrency is not your typical tech founder story. With a background in corporate restructuring and complex M&A transactions, primarily focusing on English law, Stepan's first significant exposure to crypto came during the 2017 boom. At that time, he was tasked with explaining Bitcoin and blockchain technology to non-technical clients at his law firm.

This initial foray into crypto sparked a curiosity that would later lead Stepan to explore the governance aspects of blockchain technology. He explains, "I was curious specifically around the governance space on ETH, because it was kind of clear what crypto can do for finance and how that could be disrupted. I think for what I was interested in was governance, how it could disrupt what I was doing in terms of formation of legal entities, and potentially ownership on the internet."

The Pivot to Solana

In early 2021, Stepan discovered Solana and was immediately intrigued by its potential. The Solana Season hackathon provided the perfect opportunity for Stepan and his co-founder Danny to dive into the ecosystem. They initially set out to build an all-in-one mobile-first governance platform, but quickly realized they needed to focus on more fundamental primitives.

Stepan recalls, "The first thing we figured out was that, well, before we actually get to building what we want, we need to-- what are the core primitives that need to exist in the ecosystem for that to be a possibility? And so that's kind of how we first got to a governance framework or a governance platform. And then we even stripped it down further to multi-sig primitive."

This pivot from a broad governance platform to a focused multi-sig solution would prove to be a critical turning point for Squads. By September 2021, the team had raised their first pre-seed round and committed to building on Solana full-time.

Multi-Sig: The Foundation of Crypto Security

Multi-signature wallets, often referred to as multi-sigs, are a crucial component of blockchain security and governance. Stepan provides a concise definition: "Multi-sigs are usually called wallets. That's something we call them as well. But I think in reality, they're just a consensus mechanism, right? And it's a consensus mechanism for a bunch of keys on the blockchain to agree whether a transaction should go through or not."

This simple yet powerful concept has far-reaching implications for how assets and authorities are managed on the blockchain. Squads has expanded the traditional notion of multi-sig beyond just managing treasury assets to include program management, validator management, and token authorities.

Stepan elaborates, "Today, we expanded that definition to program management, right? So if you're launching a program on Mainnet, it's a great balance, right? So it has an upgrade authority, which needs to be held somewhere. And potentially, if that's, you know, a protocol that holds a lot of TVL or has a lot of users, it's really valuable. And you don't really want that to be held in a single wallet."

The Importance of Decentralization and Immutability

Throughout the conversation, Stepan emphasizes the critical role of decentralization and immutability in blockchain protocols. He notes that while not every protocol needs to be decentralized, for core infrastructure like Solana, decentralization is paramount.

"I think when it comes to protocols, I also would probably like to say that it's still a divisive topic, but immutability is important for a lot of this stuff. So I'd rather see more protocols immutable than decentralized just because I'm skeptical of the level they can get decentralized," Stepan explains.

This philosophy is reflected in Squads' approach to their own protocol. The current version, V3, has been immutable for about seven months, providing users with a high degree of security and reliability.

Bridging Traditional Finance and Crypto

One of the most intriguing aspects of Squads' journey is how Stepan's background in traditional finance and corporate governance has informed the development of their crypto-native solution. He draws parallels between corporate governance and crypto governance, noting similarities in stakeholder management, value distribution, and decision-making processes.

However, Stepan also highlights key differences: "I think the governance that actually, but that's if we compare the governance we potentially want to see in crypto to the governance outside of it, I think the governance we actually have right now that works is very much limited to these very core functions of the protocol, and even the proof-of-stake systems."

This nuanced understanding of both traditional and crypto governance models positions Squads to create solutions that bridge the gap between these two worlds.

The Evolution of Squads' Product Offering

As Squads has grown and evolved, so too has their product offering. While they initially set out to build a broad governance platform, they've since focused on perfecting their multi-sig solution for teams building on Solana.

Stepan outlines their current focus: "The key focus for us in the coming months, at least, will be around just the product offering on Solana specifically, what you can actually... How can we enhance the experience for teams and their workflows when it comes to managing the treasury, their programs, and a bunch of other developers."

Looking to the future, Squads is exploring ways to leverage Solana's speed and scalability to create a "UX consensus layer" that could manage assets across multiple blockchains. This ambitious vision could potentially revolutionize how teams and individuals manage their crypto assets.

Security: A Never-Ending Quest

One of the most striking aspects of the conversation is the team's relentless focus on security. Stepan describes their approach to securing the Squads protocol as a continuous process of improvement and verification.

"We had to figure out a formula internally, even before we even think about, you know, the user base, you know, what's this security formula that we want to satisfy to be ourselves, you know, confident in the program," Stepan explains.

This quest for security has led Squads to push the boundaries of what's possible in terms of smart contract auditing and verification. They've collaborated with security firms to develop new frameworks for formal verification, a process that had never been done before for Solana programs.

Stepan's commitment to security is evident in his ongoing quest for certainty: "My question is like, it's kind of identifying the, you know, the open-time movie. It's kind of like, I want 100% certainty that nothing's going to happen. And there's still like, you know, at least 1%, I guess, chance that or more that something can happen, right? And so my kind of job is like constantly thinking, what else can we do to make sure that, you know, we kind of lower that, you know, potential percentages."

The Future of Crypto Governance

While Squads has moved away from its initial focus on broad governance solutions, the conversation touches on the future of crypto governance and its potential to disrupt traditional corporate structures.

Stepan envisions a future where tokens could function as a more efficient form of equity: "I think the way I kind of see it is that maybe there is a world where in the future, we wouldn't have to pretend. And actually, tokens are just a much better technical implementation of equity and shares. And some of them should be securities, but they're just securities on much better technical rails, which are not sort of encumbered by old infrastructure."

This perspective highlights the potential for blockchain technology to revolutionize not just finance, but also how we structure and manage organizations.

The Role of Non-Technical Founders in Crypto

One of the most inspiring aspects of Stepan's story is his success as a non-developer founder in a highly technical field. He emphasizes that being non-technical can actually be an advantage in some ways, particularly when it comes to security and user experience.

"I think there's an argument to be made that the fact that someone's not technical doesn't have the background can potentially be actually really helpful in navigating something, building these complex things on blockchains just from a standpoint that I worry a lot more," Stepan explains.

This perspective serves as an encouragement for non-technical individuals looking to make their mark in the crypto space. Stepan's success with Squads demonstrates that with the right team and mindset, it's possible to build influential products in blockchain without a traditional coding background.

Conclusion: The Future of Multi-Sig on Solana

As the conversation wraps up, it's clear that Squads is at the forefront of multi-sig technology on Solana. Their focus on security, usability, and extensibility positions them to play a crucial role in the ecosystem's growth and maturation.

Stepan's vision for the future of Squads and multi-sig technology is ambitious yet grounded in practical needs. By focusing on enhancing the experience for teams building on Solana and exploring cross-chain asset management, Squads is paving the way for more secure and efficient crypto operations.

As the Solana ecosystem continues to grow and evolve, tools like Squads will be essential in providing the security and governance structures needed for mainstream adoption. With their relentless focus on security and user experience, Squads is well-positioned to be a key player in this exciting future.

Facts + Figures

• Stepan, co-founder of Squads, comes from a background in corporate restructuring and complex M&A transactions, primarily focusing on English law.
• Squads was initially conceptualized during the Solana Season hackathon in early 2021.
• The team pivoted from building a broad governance platform to focusing on multi-sig technology.
• Squads raised their first pre-seed round in September 2021 and committed to building on Solana full-time.
• The current version of Squads (V3) has been immutable for about seven months.
• Squads collaborated with security firms to develop new frameworks for formal verification of Solana programs.
• Squads has expanded the traditional notion of multi-sig beyond treasury management to include program management, validator management, and token authorities.
• The team is focusing on enhancing their product offering specifically for Solana in the coming months.
• Squads is exploring the possibility of creating a "UX consensus layer" that could manage assets across multiple blockchains.
• Stepan envisions a future where tokens could function as a more efficient form of equity on better technical rails.

Questions Answered

What is a multi-sig wallet?

A multi-sig wallet is a consensus mechanism for multiple keys on the blockchain to agree whether a transaction should go through or not. It functions as a shared wallet managed by a group of people, typically ranging from two to twenty individuals. Multi-sig wallets provide enhanced security and control over crypto assets by requiring multiple approvals for transactions, making them ideal for team treasuries, program management, and other scenarios where distributed control is beneficial.

How does Squads differ from traditional multi-sig solutions?

Squads differentiates itself by expanding the traditional notion of multi-sig beyond just managing treasury assets. The protocol supports program management, validator management, and token authorities on Solana. Squads also focuses heavily on security, having undergone multiple formal verifications and security audits. Additionally, Squads is working on creating a more user-friendly, SaaS-like experience for crypto teams, bridging the gap between traditional financial management and blockchain-based solutions.

Why is immutability important for blockchain protocols?

Immutability is crucial for blockchain protocols because it ensures that once deployed, the code cannot be altered, providing a high degree of security and reliability. Stepan emphasizes that for many protocols, immutability is more important than decentralization. An immutable protocol gives users confidence that the rules won't change unexpectedly and that their assets are secure. In the case of Squads, their V3 protocol has been immutable for about seven months, contributing to its trustworthiness and stability.

How can non-technical founders contribute to blockchain projects?

Non-technical founders can bring valuable perspectives to blockchain projects, especially in areas like security and user experience. Stepan's experience shows that a non-technical background can lead to more cautious and thorough approaches to security. Non-technical founders often ask important questions that technical team members might overlook, leading to more robust and user-friendly solutions. They can also bridge the gap between complex technical concepts and practical business applications, making blockchain technology more accessible to a wider audience.

What is the future vision for Squads?

The future vision for Squads involves enhancing their product offering specifically for teams building on Solana, focusing on improving workflows for managing treasuries, programs, and other blockchain assets. Long-term, Squads is exploring the possibility of creating a "UX consensus layer" that could manage assets across multiple blockchains, using Solana's speed and scalability as a foundation. This ambitious goal could revolutionize how teams and individuals manage their crypto assets across different blockchain ecosystems.

How does Squads approach security for their protocol?

Squads takes a comprehensive and ongoing approach to security. They've developed an internal "security formula" that includes multiple formal verifications, security audits, and collaborations with top security firms. Squads even worked with security experts to develop new frameworks for formal verification of Solana programs, pushing the boundaries of what's possible in smart contract security. The team continually seeks ways to improve security, aiming to minimize potential risks as much as possible.

How does crypto governance compare to traditional corporate governance?

Crypto governance and traditional corporate governance share similarities in stakeholder management, value distribution, and decision-making processes. However, crypto governance in its current form is often limited to core protocol functions and proof-of-stake systems. Stepan suggests that in the future, tokens could potentially function as a more efficient form of equity, offering better technical implementation than traditional shares. The key difference lies in the potential for more direct and decentralized decision-making in crypto governance compared to traditional corporate structures.

What role does decentralization play in blockchain protocols?

Decentralization plays a crucial role in blockchain protocols, especially for core infrastructure like Solana. It ensures that no single entity has complete control over the network, enhancing security and resistance to censorship. However, Stepan notes that not every protocol needs to be fully decentralized. The level of decentralization should be determined by the specific use case and goals of the protocol. For some applications, other factors like immutability or performance might be more important than achieving maximum decentralization.