How does Gnosis Safe manage on-chain assets flexibly and reliably?
0xed11
October 18th, 2022

Author: @!0xWang1| @RealResearchDAO

Foreword

As the underlying infrastructure in the development of Web3, the multi-chain ecosystem is constantly moving towards the vision of decentralization. As the most widely used on-chain ecosystem, Ethereum has always been at the forefront of decentralization. Today, the mainstream governance trend of decentralization in the Ethereum ecosystem is becoming more and more obvious:

Progressive Decentralization  

The centralized team in the project will gradually delegate control, and gradually transfer more control to the governance community, token holders, and the genuine participants of the project.

Vote governance

Voting and blockchain technology seems to be a perfect combination, and smart contracts provide perfect technical support for the direct execution of online voting results. Through smart contracts, problems such as voting bribery and black-box operations in the real world can be effectively avoided. This is why more and more countries are incorporating blockchain technology in the voting process. In the development of the Web3 project, community voting is a key link in promoting the entire project and even the entire ecosystem. However, every operation of on-chain voting requires gas fees to support. With the growth of token value, the soaring of gas fees has transformed the on-chain voting of many projects (such as Aragon, DAOStack) into a chain of "off-chain voting and on-chain execution” voting method (such as Snapshot).

The need for on-chain asset security management

With the continuous evolution of the DAO system, DAO has been given more and more functions and expectations. People continue to enter the DAO as a decentralized organization for construction, and even use DAO as a tool for preparing and managing funds. When DAO members manage funds, whether it is cryptocurrencies or NFTs, wallets are indispensable as a carrier of assets. However, for collective asset management, the most widely used EOA, the Externally Owned Accounts wallets such as Metamask, Phantom, etc., does not seem to be able to balance the problem between the use of funds and decentralization very well.

In addition to security, the scalability of asset management is also a key consideration. How to seamlessly link with many other ecological applications determines the upper limit of the achievable paradigm of asset management, which means the realization of the functions of the DAO organizations. 

Gnosis combines the evolving trend of on-chain ecology's demand for decentralization, aiming to create a relatively safe and highly accessible solution for on-chain ecological projects in the process of decentralization. Thus, Gnosis Safe came into being.

Wallet/Safe/Operating Platform? The Magical Gnosis Safe

What is Multi-sig?

Multi-signature means that multiple branch accounts are required to participate in managing the funds of an account. The multi-signature wallet account is based on smart contracts. Before the multi-signature wallet performs any transaction operation, all branch accounts participating in the management of the multi-signature wallet need to jointly confirm the execution. All the branch accounts involved in the management are the owners of the wallet. A transaction will only be executed when a predefined number of owners in the smart contract jointly confirm it. The multi-signature wallet can effectively avoid the malicious behavior of a single node (management, asset management personnel) in the process of public fund management or the risk of asset loss caused by the undeletion of wallet secret key management.

Gnosis Safe's multi-signature feature allows users to define a list of owner accounts and a threshold number of accounts needed to confirm a transaction. Once a transaction is confirmed by the threshold of the owner's account, the transaction can be executed safely. The multi-party co-management of account funds realized by Gnosis Safe coincides with the concept of DAO, a decentralized autonomous organization. Many DAO organizations have successively used Gnosis Safe as a treasury management tool.

The asset management tool of the Multisig (ie multi-signature) mechanism provides an excellent implementation solution for decentralized fund management and is also the core technology of Gnosis Safe. Multi-sig supports Gnosis Safe to provide security for on-chain asset management guarantee.

EOA and SCA - The diversity of on-chain wallets

In addition to the widely used Externally Owned Accounts (EOA) wallets, the ETH ecosystem also supports Smart Contract Account (SCA)

The difference is that EOA controls or retrieves accounts through uniquely generated private keys and mnemonics. Of course, a large number of users currently use such wallets (such as Metamask). SCA, on the other hand, realizes account control and access through smart contracts instead of private keys. With the technical support of smart contracts, SCA seems to have infinite possibilities. Gnosis Safe is an SCA class, which implements a series of operations such as multi-signature confirmation, threshold setting, and protocol expansion based on smart contract code.

What's so good about Gnosis Safe with the support of Smart Contracts?

The chart below compares Gnosis Safe with other crypto wallets

Compared with other storage solutions, Gnosis Safe has the following advantages,

  • Sense of security under the multi-signature mechanism

    Users can freely set the number of wallet controllers based on the M-of-N mechanism according to their own needs, to ensure that multiple members confirm the transaction before the execution of the transaction in the shared account, avoid malicious situations and protect crypto assets.

  • Support the diversity of multiple types of tokens

    Gnosis Safe supports multiple types of assets, such as widely used ERC-20 and ERC-721 token assets, and may provide support for emerging token types in the future. At the same time, users can also view the exchange rate of the crypto assets they hold against the fiat currency on the interface.

  • External ecological compatibility

    Gnosis Safe supports a variety of wallets, whether it is a mobile wallet, a browser extension, or a hardware wallet, it can be easily connected, and the barrier for getting started is not high.

  • Flexible multi-platform operation

    Gnosis Safe supports multi-platform operations on PC, mobile, and web. Users can easily configure and manage assets and conduct transactions in real-time.

In essence, the operation logic of Gnosis Safe is to combine multiple clients, and multiple users simultaneously to perform signature verification on a transaction. After the verification is successful, the transaction is executed and the corresponding gas fee is deducted. In addition, users can load multiple modules to limit the behavior of multi-signature wallets through different modules.

Various functions beyond safety

In addition to multi-signature confirmation, Gnosis Safe provides interesting features for the needs that may arise in collective asset management:

  • Transaction builder

    The transaction builder function allows users to freely combine multiple different transactions and finally collect them into a single transaction. It may be a bit abstract to say this, but using this function to pay salaries to members in the DAO organization can reduce dozens of transactions of different amounts corresponding to dozens of addresses to only one operation. It greatly improves efficiency and saves time.

  • Transaction Guard

    This function provides further protection for users' transactions. Transaction Guard provides a check before and after each transaction occurs, and the specific requirements of the check can be customized. For example, limit the amount of transactions, or collect fraudulent addresses to prevent funds from being defrauded and ensure the security of account funds to the greatest extent.

Gnosis’ Distinctive smooth experience for interactions 

Gnosis Safe not only acts as an asset management tool, but also provides support for the convenience of user interactions. The wallet interface (Gnosis App) developed by Gnosis gives people a fresh feeling, similar to the product interaction experience of Web2.

Through Safe's interactive interface, users can easily access Dapps

Gnosis Safe's development of the APP allows users to freely interact on the Dapps linked by Safe, so that the user's funds are secured while the utilization efficiency is also improved.

SafeSnap, a voting system connecting on-chain and off-chain

The growing gas fee makes many project parties more inclined to choose the form of "off-chain voting, on-chain execution" when conducting community voting. Community members vote on the proposal on the Snapshot, and the community implements the final result. However, this form has the characteristics of non-mandatory, that is, the community cannot guarantee that the proposal is "wholeheartedly" in the process of implementation. Based on this, Gnosis combined Gnosis Safe with the voting system Snapshot to develop the SafeSnap module. SafeSnap can be regarded as a functional suite that integrates voting behavior and execution behavior. As a decentralized governance tool based on Gnosis Safe, SafeSnap can ensure the consistency of off-chain voting and on-chain execution content.

Currently, Yearn, SushiSwap, Synthetix, Balancer, mStable, PoolTogether, dHedge, BrightID, Stakewise, EPNS, Gnosis DAO all plan to use SafeSnap in the next phase of progressive decentralized governance.

Gnosis Safe takes on-chain actions based on the results of off-chain votes, which are usually done on Snapshots. The use of off-chain voting instead of on-chain voting is based on a trade-off between two dilemmas: either using low-cost, high-participation, but relatively centralized off-chain voting, or using expensive but secure on-chain voting. Neither option is ideal, but with high gas fees, in order to improve capital efficiency and accommodate token holders with fewer assets, off-chain voting is preferable - at least in the short term.

SafeSnap suite is designed to better combine Snapshot and Gnosis Safe, by connecting Gnosis Safe with Reality.eth oracles, to ensure that off-chain voting results are correctly fed back to on-chain execution. In this way, the team can use Gnosis Safe to ensure the security of assets, while avoiding high gas fees in on-chain voting, and easily achieve decentralized governance by simply adding the SafeSnap suite to the team's Gnosis Safe. Additionally, teams can also choose to keep the Gnosis Safe multi-signature group while using SafeSnap as an extra layer of protection. Of course, the community can also delete it according to its own choice.

With Gnosis Safe and Snapshot as the core structure, there are roughly three ways of progressive decentralization as follows:

1/ Executed by multi-signature as proxy

Gnosis Safe + Snapshot

The multi-signature group promises to the community that it will be executed on-chain in strict accordance with off-chain voting results. This is the current status quo.

2/ Guaranteed by multi-signature execution

Gnosis Safe + Snapshot + SafeSnap

The on-chain execution of off-chain voting results is handled by SafeSnap, and the multi-signature group serves as a guarantee mechanism, which can sanction and veto malicious acts or conduct crisis handling in emergency situations.

3/ Directly revoke multi-signature

Gnosis Safe + Snapshot + SafeSnap

Multi-signature groups are removed and transactions are only executed through SafeSnap.

SafeSnap's working mechanism can be simply summarized through the above figure - an oracle-based solution, the operation is as follows,

In the Gnosis Safe component, anyone can create new proposals by themselves, generating multisend transaction payloads. Each proposal generates a Reality.eth question asking the following three "yes or no":

  1. Whether the corresponding Snapshot proposal is approved;

  2. Does the proposal contain a payload;

  3. Whether the payload matches the proposal content.

If it is verified that the corresponding Snapshot proposal has passed, then Reality.eth will output the same result as in the Snapshot. After a 24-hour Cooldown Period, proposed transactions can be executed by anyone.
When using Reality.eth, you need to provide an ERC-20 token as collateral. The minimum bond amount can be voted on as a proposal within the DAO.
The yellow box represents a Snapshot plugin. If the proposal passes, users can enter a set of tx-payloads in it, which will be executed sequentially by Gnosis Safe. Once the proposal is passed, the Reality.eth issue is resolved, and the cooling-off period is over, an option will appear in the Snapshot interface that allows triggering every multisend transaction in the proposal.

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