Decentralized Failsafes

If someone steals your credit card and spends your money, your bank reverses those transactions.

  • When someone steals your crypto, it’s gone forever.

How can we design crypto protocols with failsafes that protect against fraud and theft?

big red button
In crypto, there’s no human with a Big Red Button who can reverse transactions once they’re sent. That’s both a feature and a bug.

A key advantage of centralized banking is the ability to easily reverse transactions.

  • How can we build this feature into decentralized finance (DeFi)?

What do you do if someone hacks your crypto wallet and steals your NFTs?

  • We need a decentralized consensus mechanism to track and reverse theft of digital assets.

We need to move beyond coin voting governance.

  • One Coin = One Vote rules exposes blockchain protocols to the risk of 51% attacks.
    • Example: The Beanstalk protocol was robbed of $182M after an attacker used a ~$1B flash loan to acquire ~67% voting stake in this protocol.
      • The attacker used this supermajority to vote to transfer all assets to their own wallet.
        • This whole hack took less than 13 seconds, using AAVE Lend for the flash loan.

Idea: Make both Voice and Exit easier in blockchain protocols.

  • Make Voice Easier: Connect voting to the value of individuals’ participation in the network.
    • Use proof of personhood, participation, or other proof of useful work to allocate votes.
  • Make Exit Easier: When it’s easier to fork a protocol, it’s less valuable to hack it.
    • The DAO Hack was reversed through the split of Ethereum and Ethereum Classic.

This idea is a work-in-progress. If you’d like to riff on it, hit me up @neilthanedar on Twitter.

Published by Neil Thanedar

Neil Thanedar is an entrepreneur, investor, scientist, altruist, and author. He is the founder & GP of Utopic, a pre-seed biotech VC fund investing in the future of science. He is also the founder & chairman of Air to All, a 501(c)3 nonprofit medical device startup, and Labdoor, a consumer watchdog with $7M+ in funding and 20M+ users. He previously co-founded Avomeen Analytical Services, a product development and testing lab acquired for $30M+ in 2016. He has also served as Executive Director of The Detroit Partnership and Senior Advisor to his father Shri Thanedar in his campaigns for Governor, State Representative, and US Congress in Michigan.