Today, we are proud to announce our investment in Squads Labs, a core contributor to the Squads Protocol, the leading multisig solution on Solana. Their latest $5.7M round brings Squad’s total funding to date to $12.5M.
We first invested in Squads in late 2021, and since then they have grown to become a powerhouse in the Solana ecosystem and, we believe, a best-in-class multisig solution on Solana for institutional traders, crypto-prosumers, and builders.
The Evolution of Financial Custody
Regardless how much technology evolves, the need for custody is constant. Businesses have heavily relied on banks to custody their assets going all the way back to 17th century goldsmith bankers; however, banks, as evidenced by the recent Silicon Valley Bank collapse, are still fraught with inherent insolvency risks, even after centuries of evolution.
Beyond simple custody, Wall Street also depends on a complex web of clearing and settlement layers. And until recently that process was a physical affair which reached its crescendo in the 1960’s with the Wall Street paperwork crisis. In response to that crisis, several entities were created that later evolved into DTCC, which digitized securities and became the central hub for all clearing and settlement services. Yet, while electronic trading collapsed execution times to seconds, settlement is still measured in days.
In the wake of the 2008 global financial crisis, custody evolved. Regulatory oversight led to consolidation of the major custodian banks (which was already an oligopoly to begin with). At the end of June 2022, the four biggest custodian banks had 136.6 trillion dollars in assets under custody. Modern custodian banks provide more services than just plain vanilla custody; they offer fund administration, securities lending services and so forth, often creating internal conflicts of interest. This centralization of assets, combined with emergent conflicts of interest, creates new forms of risk. A practical example is the hidden markup controversies at BNY Mellon and State Street, the world’s top two custodians.
Blockchains represent the next evolution—it’s the best combination of digitization and bearer instruments. They custody digital assets natively, facilitate instant global settlement of payments, allow for real-time settlement of trades, and greatly reduce counterparty risk. Furthermore, smart contacts also have the potential to not only streamline back-office operations but also save the financial industry billions of dollars, as indicated by multiple studies. Hence, we believe real-world assets will be tokenized in the future. We are already seeing a movement in that direction—over a billion dollars in notional private credit and US treasuries is already outstanding onchain.
But being your own custodian is hard and creates a single point of failure. To solve for this, custody must be spread out across an organization, and allow multiple parties to exert authority in a sovereign, yet programmable, manner. Therefore, the end-state of custody evolution we envision is a future where organizations can store and manage their assets through multi-signature wallets.
Squads: The Solana Multisig Standard
As crypto matures, institutional investors and internet-native organizations need a way to manage their assets. This is where multi-signature wallets (aka multisigs) come into play. In contrast to simple cryptocurrency wallets requiring just one party to sign a transaction, multisig wallets require multiple parties to sign a transaction.
Squads launched in February 2022 as one of the first multisigs in the Solana ecosystem. Since then, investors and builders on Solana have quickly converged on it as the universal standard.
Today, more than 100 teams—including prominent teams like Helium, Hivemapper, Jito, Drift, Marginfi, Backpack, Jupiter, Pyth, Tensor and more—rely on Squads (v3) to coordinate team and treasury assets (valued around $500 million at the time of writing). The Squads (v3) codebase has been rigorously battle tested in the market for 13 months, undergone 4 independent audits, and, most importantly, has been formally verified.
Traditional firms have perfected access controls, empowering specific employees to handle fund transfers in a variety of contexts. For internet-native organizations to achieve meaningful scale, they also will require similar controls.
On top of the Squads Protocol, Squads has built a powerful, feature-rich platform that gives teams a suite of program management tools complete with team permissions. Developers can use Squads as its program upgrade authority, eliminating key-man risk and reducing risk of malicious code entering production. It also gives them treasury management controls, which makes it easy to store and distribute grants, manage fundraised assets, revenue streams, liquidity mining rewards, and more.
What’s Coming Next?
Earlier this week Squads debuted a major upgrade to the Squads platform and introduced several new products that makes it even more powerful than before.
In addition to its desktop and mobile interfaces, Squads now has its own web extension wallet —SquadsX. It is Solana's first multisig browser extension wallet!
Designed for teams and institutions, SquadsX makes it possible for teams to interface with decentralized apps and DeFi for the first time, all while still providing enterprise-grade security. SquadsX solves one of the biggest problem with multisigs (the lack of usability with DeFi) and enables new group-management activities like liquidity provisioning, lending, borrowing, and on-chain trading, all directly from a Squads multisig.
In addition to SquadsX, Squads is also releasing a major upgrade to the protocol, “Squads v4.” Squads (v4) has been audited by Neodyme, OtterSec and Trail of Bits with formal verifications by OtterSec and Certora currently in progress. Squads expects the formally verified—and heavily audited Squads (v4) codebase—to be made immutable by the end of November 2023.Squads (v4) boasts several new killer enterprise features, a few of which we’ve highlighted below:
- Time Locks – Squads (v4) introduces intervals between program upgrade approvals and on-chain executions. Time locks increase the chances of catching bugs before new code hits production.
- Roles and Permissions – Squads (v4) offers enhanced accounting and expense capabilities across multiple addresses. Permissions include spending limits and enabling withdrawals without threshold passage.
- Fee relayer – Squads (v4) also introduces a “fee relayer,” which enables the multisig wallet to cover all Squads-related gas fees. Once activated, squad members can sign transactions with a zero SOL balance, streamlining operations and allowing dapps to shoulder gas expenses.
- Mass Payouts – Most crypto-native startups have several employees and contractors, just like traditional organizations. Squads (v4) introduces the ability to execute batch payments. This was a highly demanded feature.
- Support for Address Lookup Tables (ALTs) – Each Solana transaction requires a listing of every address that is interacted with as part of the transaction. Before ALTs, this listing was effectively capped at 32 addresses per transaction. In Squads (v4), after ALTs, this number has increased to 256 addresses per transaction, which allows users to make more complex transactions.
With SquadsX and Squads (v4), the Squads team has built out the foundational infrastructure for blockchain-native custody, and now they’re building our new exciting products with compelling revenue lines on top of them.
Running a business spans operations in treasury management, payroll, HR, and engineering. In crypto, operations also include grant permissions, transaction limits, onchain voting, code authority, time-delayed implementations, and much, much more. Normal people don’t interface with protocols, and the reality is that only a subset of people in crypto actually engage with them directly. This means that there is an absolutely massive market to simplify business operations. We believe that Squads opens the door to crypto adoption in a safe and secure way and offers some of the most compelling enterprise- and institutional-grade products on the market today.
Over the past 18 months, despite the bear market, the Squads team has demonstrated relentless focus and execution. We're excited to back Squads and help usher in a new era of internet-native infrastructure for self custody and on-chain capital coordination. If this design space interests you and you are building something interesting, we would love to hear from you. You can reach out to me on Twitter here.
Disclosure: Unless otherwise indicated, the views expressed in this post are solely those of the author(s) in their individual capacity and are not the views of Multicoin Capital Management, LLC or its affiliates (together with its affiliates, “Multicoin”). Certain information contained herein may have been obtained from third-party sources, including from portfolio companies of funds managed by Multicoin. Multicoin believes that the information provided is reliable but has not independently verified the non-material information and makes no representations about the enduring accuracy of the information or its appropriateness for a given situation. This post may contain links to third-party websites (“External Websites”). The existence of any such link does not constitute an endorsement of such websites, the content of the websites, or the operators of the websites. These links are provided solely as a convenience to you and not as an endorsement by us of the content on such External Websites. The content of such External Websites is developed and provided by others and Multicoin takes no responsibility for any content therein. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in this blog are subject to change without notice and may differ or be contrary to opinions expressed by others.
The content is provided for informational purposes only, and should not be relied upon as the basis for an investment decision, and is not, and should not be assumed to be, complete. The contents herein are not to be construed as legal, business, or tax advice. You should consult your own advisors for those matters. References to any securities or digital assets are for illustrative purposes only, and do not constitute an investment recommendation or offer to provide investment advisory services. Any investments or portfolio companies mentioned, referred to, or described are not representative of all investments in vehicles managed by Multicoin, and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results. A list of investments made by funds managed by Multicoin is available here: https://multicoin.capital/portfolio/. Excluded from this list are investments that have not yet been announced (1) for strategic reasons (e.g., undisclosed positions in publicly traded digital assets) or (2) due to coordination with the development team or issuer on the timing and nature of public disclosure. * This blog does not constitute investment advice or an offer to sell or a solicitation of an offer to purchase any limited partner interests in any investment vehicle managed by Multicoin. An offer or solicitation of an investment in any Multicoin investment vehicle will only be made pursuant to an offering memorandum, limited partnership agreement and subscription documents, and only the information in such documents should be relied upon when making a decision to invest.*
Past performance does not guarantee future results. There can be no guarantee that any Multicoin investment vehicle’s investment objectives will be achieved, and the investment results may vary substantially from year to year or even from month to month. As a result, an investor could lose all or a substantial amount of its investment. Investments or products referenced in this blog may not be suitable for you or any other party.