Blockchain is a Natural Fit for DAO-like Structures: Unhashed #18

Q1. Welcome to Unhashed. What’s your crypto story? How did you first start out in this space, and what led you to the idea of Ardana?

Answer: In 2015, I learned about blockchain as an alternative way to transfer value. From 2015-2017, I got involved in many early projects building on ETH by helping with community management, marketing, and strategic development. My passion later developed for technical development and front-end development. During 2017, I got involved in Cardano and have been amazed by the growth that the community has seen, from a few scattered group chats to a variety of developers, projects, community members, and investors that are focused on the next leg of DeFi.

I saw that Curve Finance and MakerDAO were both critical in the success of the ETH network but had the potential to expand far beyond crypto. This then led to discussions about the impact that these products could have on Cardano and how they could be expanded to provide improved financial access to a farmer in a developing country and an international conglomerate corporation. This is how the idea of building foreign exchange on the blockchain came to pass. With the support of Cardano, we realized that we could offer this solution at magnitudes better capital efficiency and time savings than existing traditional solutions.

Q2: Stablecoins and regulatory compliance have, till date, had a bitter-sweet association. Please explore how stablecoins can mitigate compliance risks with an emphasis on collateral authenticity.

Answer: As the regulatory landscape around the world evolves, the crypto ecosystem will have to adapt. We are aware that it may get challenging to comply with regulations as regulators tighten the laws around cryptos. This is why we have been very careful while choosing our legal. It is hard to say what comes from the regulatory authorities in the near future, so we have in our team people who have a background in blockchain and compliance.

As for collateral authenticity, Cardano is a highly secure blockchain, and we found it to be the best choice to build the foundation of the Ardana ecosystem on. We will use a system of price oracles to ensure that once a user’s deposit breaches its liquidation ratio, that collateral is not lost due to delayed action of the platform.

Q3: How does Ardana deal with the over-collateralization of DeFi loans? Do share your thoughts on this from a sustainability viewpoint.

Answer: Our loans are collateralized at a certain collateralization ratio, with each ADA or ADA-based asset that is deposited into our vaults resulting in a dUSD mint of a percentage of the value of that deposit. We chose to use an over-collateralization model due to prevent the risk of rapid liquidation of deposited assets. The user also has the option to top up their deposited assets to change the liquidation threshold of their loan. Once the Collateral-to-loan Ratio drops below the Liquidation Ratio, an auction is triggered to auction off the debt with a discount of anywhere from 5% to 20%.

Q4: In growing AMMs, fraud liquidity providers with deep pockets often manipulate the pools and siphon off the funds. How does Ardana manage to resolve this?

Answer: When it comes to the stability of liquidity, we have picked up inspiration from the current “DeFi 2.0” trend when it comes to PCV (Protocol Controlled Value), so DANA tokens will always have a high liquidity floor for all to interact with. The protocol will own a large pool of the DANA-ADA liquidity by itself.

Q5: Supply-side incentivization for stablecoin liquidity mining is nowadays a common sight. With stablecoins being adopted as currencies of DeFi and DAO setup coming to life, how effective will constant supply-side incentivization be?

Answer: The effectiveness of your liquidity mining program depends on a lot of things. Many protocols want to maintain a constant and inflated rate of emissions to make sure that LPs are always incentivized to stay. What is important in liquidity mining programs and inflation, in general, is not the quantitative aspect but rather the qualitative one. It is - to a certain extent - more important where liquidity is incentivized rather than how much. That extent depends a lot on the necessity of capital and how that capital is used to create a more competitive product. This working capital for the protocol and its products is vital to any ecosystem.

So, in general, this makes exchanges cheaper and offers more reliable trade executions. When it comes to stablecoins, it depends on maintaining their peg and making sure they have fungibility (meaning that even large amounts can easily be traded to different assets). To incentivize liquidity to flow in such a manner that it will improve the protocol’s competitive advantage in all of these metrics, it must be the main goal of every successful liquidity mining program.

This is why we have opted out of a set-and-forget rewards distribution schema for our liquidity mining emission. We want to be dynamic. We want to incentivize liquidity when and where it's needed in order to best compliment the DeFi services that Ardana offers.

Next year is a lot less clear than next month, especially in this market. So it's best to make that clear from the get-go that this is the approach we think is optimal for the performance of the protocol & token alike.

Q6: What are your thoughts on traditional and/or Web2 businesses adopting a DAO-like organization structure? How do you think the transition to DAOs start?

Answer: DAO and DAO-like structures enable actors that have the greatest stake in a business or organization to have a proportional impact on the discussions of that entity. Blockchain is a natural fit for DAO-like structures because of the integrity of the votes, determining where those votes come from, and the issuance of governance rights cheaply and efficiently without unnecessary hurdles. In order for traditional and Web2 businesses to transition to a similar model, I view integration with blockchain to some degree as a must. The reliability of blockchain to achieve the goals of DAO-like structures is unmatched.

The transition to DAOs will take some time. With the adoption of DAOs comes the understanding that not all power is centralized anymore. This will also likely be an iterative process, with different sectors of business implementing different DAO models to eventually find the best-suited model for them. Some businesses could even find that DAOs do not suit the needs of their firm. This is why the spread and education of blockchain technology beyond Bitcoin or investment is critical for people to take the technology seriously when perhaps they hadn’t before.

Q7: Considering the present hassles of DeFi, its need for technical knowledge, poor UX, do you think there is enough incentive for people to try DeFi out? If not, what are the core areas for DeFi to focus on to be lucrative even for retail participants?

Answer: DeFi has changed lives around the world already. The technological disruption and innovative models that projects are offering to the public now is just a glimpse into what this ecosystem can do once the average person is educated to leverage these systems. For someone to determine if exploring DeFi, there are two main considerations: their risk tolerance and how they can see the benefit. While there is a great deal of wealth emerging in DeFi, there is also a great deal of risk with any emerging market. Even if someone makes wealth in DeFi, the process of realizing profit is grey in many areas of the world. This can lead to confusion for many people, and in order for Defi to succeed, there must be a clear regulatory framework.

Our vision of building the base financial application layer of Cardano with the foreign exchange will open untold financial access to countless people; this requires being aware of these considerations. We are confident that DeFi will mature to the point that the average person will be able to interact with these ecosystems, and through our legal and development teams, we will be active in the furtherance of the DeFi ecosystem.

Disclaimer: The sole purpose of Unhashed is to unhash (decode) information about projects innovating using blockchain and cryptocurrencies and share it with the community. The writer does not have any vested interest in any of the projects covered herein. Not that this article shares any, but still, taking investment advice from strangers on the internet is not a wise thing to do.