ShapeShift is Decentralizing
“Once we wrapped the globe in endless circles of wires crossing the deserts and beneath the oceans, decentralization was not only possible, but inevitable.” -Kevin Kelly
With an eye toward the future, ShapeShift has begun decentralizing.
- ShapeShift is open-sourcing everything
- ShapeShift’s entire corporate structure will wind down
- Control of ShapeShift will migrate to those holding FOX Tokens
- To facilitate decentralized governance, the largest airdrop in history today distributed FOX to over a million customers and DeFi community members
Decentralization will be a long process over the coming months. This blog explains why we’re doing it and our vision for the future.
If you’ve been watching us closely, this move won’t be a surprise.
Starting last fall, ShapeShift began integrating decentralized exchanges (DEXs) to replace its own trading systems. In January we integrated 0x’s DEX aggregator for decentralized ETH and ERC-20 trading. And on April 15 we enabled THORChain upon its launch for trading Bitcoin and other leading chains in a decentralized model.
That day, native, non-wrapped digital assets (such as Bitcoin and Ether) could be traded at scale, with no intermediary, for the first time in history. Future observers will mark THORChain’s launch as a pivotal moment in crypto’s ascent, though most still remain unaware of its power.
With our integration of these DEXs, ShapeShift no longer provided trading services, and yet users didn’t lose their ability to trade. We outsourced the regulated activity to an immutable decentralized protocol. This was better for our users, better for us, and appropriately in line with the ethos of crypto: privacy, immutability, and self-sovereignty in finance.
Just as it made sense for every company to utilize “the cloud” to avoid infrastructure friction in the 2000s, so too will many utilize “DeFi” to avoid political and economic friction going forward. Buzzwords both, and yet revolutionary.
Faster than most of us recognize, we are moving toward an open, immutable financial system. It started with Bitcoin as immutable base money, but it doesn’t end there.
It ends when we have an entire system of money, credit, and value exchange that is captured by no central entity, and subservient to no flag. A system that empowers all of humanity equitably, just like the mathematics upon which it is built.
ShapeShift is simply perceiving this trend and positioning accordingly.
And with our decentralized structure — adaptable, organic, widely owned, broadly governed, and non-territorial — ShapeShift is positioned as the world’s crypto interface: open-source, multi-chain, non-custodial, and beholden to no central party.
Governed by its users, ShapeShift will integrate with the most desired crypto and DeFi protocols, a neutral interface to the future financial system that everyone can influence, and no one can control.
But How Will It Actually Work?
Fundamentally, ShapeShift is moving from a centralized, closed-source application with bank accounts, governed and owned by shareholders, to a decentralized, open-source application without bank accounts, governed and owned by holders of the FOX Token.
Yes, this means ShapeShift is becoming a DAO.
Again, this is a process unfolding over some months; it is not immediate. Here are the major elements of our plan:
The Core Product
- The ShapeShift.com crypto platform and mobile app, will gradually be open-sourced. This must be done carefully, and we will not rush it. As the project is open-sourced, feature development (and protocol integration) will move to a collaborative, community-driven model. ShapeShift is not trying to compete in any one vertical; rather, it is an explicitly multi-chain, self-custody interface for individuals (not institutions) to interact with digital assets. The community can build onto this open-source platform as they see fit.
Our subsidiary projects all have different paths:
- KeepKey will likely migrate into an independent, open-source hardware wallet project and remain closely integrated with the ShapeShift platform.
- Portis is spinning off as an independent startup, having built a compelling SDK for play-to-earn gaming and NFT users.
- CoinCap has achieved several hundred thousand monthly active users plus millions of downloads, and will be spun off later this year.
The FOX Token
- We love token economic models and see massive potential in their adoption, but like others, we were put off by the excesses of the ICO boom. We’ve thus treaded carefully with our FOX Token, and we’ve never sold any of it to anyone. We’ve integrated FOX slowly into our platform and distributed it out to customers in various promotions over the past two years. There are roughly 21,000 holders of FOX to date, and today it has been airdropped to over a million eligible addresses, consisting of over 900,000 ShapeShift customers and over 160,000 holders of various DeFi tokens. These projects include Uniswap, THORChain, Aave, Gitcoin, and half a dozen others that have inspired us. 340,000,000 FOX Tokens were granted via this airdrop (34% of max total supply). FOX Tokens will ultimately have all governance rights over the economics of the ShapeShift platform (similar to the Uniswap model).
DAO, Treasury, and Governance
- The ShapeShift DAO treasury has been established, endowed with over 242,000,000 FOX Tokens (24% of max total supply). Any FOX unclaimed from the airdrop after three months will be added to this treasury.
- Governance over important ShapeShift decisions (such as what to do with the ShapeShift DAO treasury) will gradually migrate to the community of FOX Token holders. We’re using a stack consisting of Snapshot, Boardroom, Sablier, Discourse, and other leading decentralized, open-source toolsets. We’ve been impressed by many of the successful DeFi projects that already demonstrate effective decentralized governance. You can get involved here.
- A non-profit foundation (name TBD) will be established and funded with the mandate of facilitating ShapeShift’s transition into a decentralized model. It will employ a small handful of highly dedicated community members. Anything that can’t be immediately decentralized will have the foundation’s structural support. After some number of years, the foundation will ultimately dismantle itself and disappear.
The Corporation and Stakeholders
- Our shareholders will receive all financial assets of the corporation as it unwinds. Further, they have received pro-rata FOX Tokens, which unlock over three years, and with these they can participate in governance going forward. They can be as involved as they wish, but they have no special privileges.
- The members of our team will no longer be formal employees receiving a W2 paycheck. Employees have all received large grants of FOX Tokens, also unlocking over three years. They are free to decide the nature of their involvement in ShapeShift in its decentralized form. The culture, camaraderie, and excitement about this move among this team is exceptional, and I know this energy will seed a global decentralized community of contributors. The team’s knowledge of our software and philosophy will be invaluable.
- Our corporate entities will be dissolved completely toward the end of the process.
- Our bank accounts will be ceremoniously closed later in the process. It is poetic that in ShapeShift’s youth, most banks refused to work with us (like most crypto companies). In our maturity, banks have become unnecessary, bureaucratic vestiges of the state which are impossibly behind the curve. Crypto has become its own financial system, and banks will be Kodak’d — wait until they learn about a self-repaying collateralized loan on Alchemix, which requires no sign-up and can be accessed in 30 seconds by anyone on Earth.
- As for me and my co-founder Jon, we’ll simply become dedicated participants of the decentralized ShapeShift. As the entity winds down, our formal roles are terminated. We will not have formal positions at the foundation (nor will any ShapeShift executives). For transparency, I will be the largest FOX holder, with just over 5% of max total supply, unlocking linearly over three years, all on chain. The next largest holder has roughly 1.6%, and the long tail extends from there. Like all former employees and shareholders, our incentives are strongly aligned with the long-term success of the project. We’re thrilled to help cultivate ShapeShift in this decentralized model; it’s hard not to feel that our 7+ year history is but a prologue for what comes next…
Our Story and the Next Chapter
When ShapeShift began, our vision was simple: create a useful tool for the frictionless trading of digital assets, without custody, done in a manner that protected users. Consumer protection, by design.
As we grew, and the regulatory climate evolved, it became seemingly impossible to achieve this vision.
To enable swaps in a frictionless way, ShapeShift was the market maker and counterparty to user trades. According to some, this pulled us into categorization as a “financial institution,” and arguably subjected us to regulations that are incompatible with protecting users’ privacy and security interests; in my view clearly constituting an unreasonable search without probable cause.
And yet, life finds a way. The innovations of brilliant minds brought salvation.
Digital asset technology advanced rapidly, and by 2020, decentralized exchanges had become demonstrably successful at scale. Further, the decentralized finance ecosystem developed a cottage industry of open-source governance tools.
There was a path out of the darkness: by embracing open, decentralized protocols and thinking about how digital economic organization can happen in the 21st century, it became clear that ShapeShift could choose a path that re-enabled the very vision we first set out to achieve.
The frictionless trading of digital assets across chains, without custody, done in a manner that respects and protects users is once again possible.
This can only be built upon a foundation of open-source software, decentralized protocols, and economics that revolve around a borderless, liquid token rather than a traditional equity structure bound by jurisdiction.
A year ago, this seemed fanciful. Today, it is imperative; both market competition and ethics require it. The trade of digital assets shall not be relegated to custodians and intermediaries.
Decentralization has become not only a viable organizational strategy, but the essential model for enabling the borderless, immutable financial system for which so many of us passionately advocate.
This decision is our way of renewing first principles and acting in the best interests of our stakeholders, our team, and our treasured users.
ShapeShift is decentralizing to build an open-source crypto platform for all people.
We welcome you to join us in this next chapter.