Transparency in the Cryptocurrency World with a Focus on the Developers
Ever wondered how much money do Foundations building Cryptocurrency Projects have ? It is always good to know whether a Project is well funded and will be for a long time. It is important to know whether a Cryptocurrency Project will survive in the harsh times of a bear market, because if the developers don’t get paid, nothing will be built. Cryptocurrencies are usually Transparent, meaning you can always check every transaction on the chain ( except for anonymous Cryptocurrencies ) and know exactly when and what is being sent. Usually a Cryptocurrency Project has a Non-Profit Foundation developing the chain and may have other For-Profit companies doing the marketing or selling some sort of service utilizing that chain. Some Non-Profit Foundations are more transparent about their Financials and the Amount of Funds in Their Treasuries, others are less so. Cryptocurrencies are Decentralized, Open-Source, Open for everyone at any time and most importantly Transparent, should the Non-Profit Foundations be too ?
The case for Transparency of Foundations
The fall of Terra ( LUNA ) was a massive event that happened in Crypto in 2022 and may have been the catalyst for the beginning of the bear market. If you do not know what happened you can read about it here : “The Fall of Terra : A Timeline of the Meteoric Rise and crash of UST and LUNA”.
Basically the Cryptocurrency Project of Terra ( Layer 1 Chain ) had an experimental Algorithmic Stablecoin on its chain that was uncollaterized. Something that is uncollaterized is something that has nothing to back it up ( collateral ). Usually Stablecoins have some sort of collateral behind it to make sure that the 1 unit of the Stablecoin is worth 1$USD. Whether in form of actual FIAT $USD, Bonds or even Cryptocurrencies, there is usually some form of collateral that exists in Stablecoins. This was not the case for UST.
I am not going to dive deep into the Crash and how the whole system worked, there is plenty of Information that explains it all better then I could. But two important things happened that need to be remembered and focused on. The first one was that Uncollaterized Algorithmic Stablecoins as an experiment was a failure, and we now have proof of it in the form of a Collapse of an Ecosystem worth more then $60 Billion USD. The second one is that all it took was to have more Money then those backing up the System.
The Luna Foundation Guard
This Non-Profit Foundation was the organisation mandated to build reserves supporting the UST peg ( peg means 1 unit of UST is worth $1 USD ) From their Website :
The Luna Foundation Guard (“LFG”) is a nonprofit organization established in the Republic of Singapore dedicated to creating and providing greater economic sovereignty, security, and sustainability of open-source software and applications that help build and promote a truly decentralized economy. Through community stewardship, fostering innovation, and supporting the research and development of various aspects enveloping open-source software and applications, the LFG serves as a vital nexus of resources and guidance for an emerging DeFi technology stack.
The LFG is primarily focused on Terra. Terra is a decentralized, open-source public blockchain built to support a suite of fiat-pegged, algorithmic stablecoins. Primarily, this includes TerraUSD (“UST”) — the flagship stablecoin of the Terra network and the leading decentralized stablecoin in DeFi by market cap.
Unlike other stablecoins that are backed by fixed deposits of the pegged fiat currency or over-collateralized in another DeFi asset, the value of Terra’s family of stablecoins is maintained through a system of arbitrage incentives, open market operations, and dynamic protocol levers that maintain robust peg stability and scalability of its supply without the centralized control or capital-inefficient designs of incumbents. This is primarily accomplished by the Terra protocol design, which, through its native staking, governance, and reserve asset, LUNA, delivers permissionless arbitrage incentives and counter-cyclical monetary policy levers to maintain the peg during periods of both contractionary and expansionary demand cycles of its stablecoins.
The article Breaking down the events that led to the Terra Luna crash describes the Events that took place and shows a nice summary so that it is easy to understand. Two major things happened.
This excerpt describes one of the things that happened and will be the focus here :
In response, the Luna Foundation Guard (LFG) — the organisation mandated to build reserves supporting the UST peg — sold assets like BTC and depleted all its reserve assets in an effort to further boost the value of UST.
However, the effort ultimately failed, resulting in the whole Terra chain suffering from a liquidity crisis where the entire value of Luna could not balance out the value of UST.
Basically the first thing that happened : The Algorithm got attacked and exploited. The second thing was that the Luna Foundation tried to use money in its Treasury to save the Project, it failed catastrophically. The reason why it failed was because a) Luna Foundation did not have enough capital and b) They did not deploy the capital sooner. Whether the Project would be saved if they did deploy it sooner is an irrelevant question at this time. The most important thing to take from it is : The algorithm was a failure and the Foundation had less money then the ones attacking the Project and the subsequent pressure from the “Bank run” ( people wanted to get $1 USD from their UST and it was an exponential pressure on the system ).
So the attackers knew how much money was in the Treasury of the Luna Foundation Guard, since they were so open about it and they used that information along with a carefully created plan to attack the system and won.
But here is the thing, since the Treasury was quite Transparent people pointed out that the system could collapse if somebody with more money would attack. The Luna Foundation simply ignored them.
Transparency in the Cryptocurrency World is important for two reasons. First you have a better Idea whether a Project has enough money to pay its developers. That way you know whether a Project can survive long and in harsh conditions like a Bear Market. And second you can understand just how much money is behind the Project and just how much money is needed for its collapse in the event of an attack.
Keep in mind that a Layer 1 Chain can also be economically attacked. If you buy enough Coins you can halt the chain or even attack it under certain conditions. Some Projects can be halted using 1/3 of the Supply, others can be attacked using 50% of the supply. This is an Issue with the Proof-of-Stake Consensus and the Argument for the Solution is the Idea that once an entity starts acquiring so many Coins / Tokens it would be a) nonviable from the economic perspective to attack the chain because now that entity has a lot of money invested in it that attacking and collapsing the system would mean that the entity looses that money just like everybody else and b) it would be exponentially more difficult to buy a certain amount of Coins / Tokens ( say 50% of the supply ) because such large volumes would prompt the price to guy higher thus making the entity need exponentially higher amounts of money to acquire those tokens.
But take one thing from this : Almost any Cryptocurrency Project can be attacked if you have enough money. It just varies on the amount of damage you would do to the Chains, but at the very least you would be able to halt them.
So then how do you know how much money do the Foundations behind the Cryptocurrency Projects have ?
I created a Website where I would give you that exact Information.
Devfunds is a website dedicated to Foundation Transparency. I search for Financial Reports, Treasury Statements and Dev/Foundation onchain Wallets and bring it all together into a Page that shows you how much Money the Foundation is known to have/control.
Since it all depends on the level of Transparency of a given Foundation, there is no definitive way to know exactly how much money do those Foundations have. Some Foundations release Quarterly Reports, some release Monthly Reports. Some have dedicated websites with that Information, some don’t. Some have live onchain Information ( amount of Crypto under the Foundation control and their respective wallets ) others simply state the amounts in their Annual Reports.
The point is, I try my best to find the most recent Information and put it on the Website so you can have an Idea of just how much money is behind your favorite Project.
Simply scroll down and choose a Project from the “Available Projects” List. At the beginning you will find the Type of the Cryptocurrency, their official Website and their Github/s URLs. Clicking on the “Type” will take you to the “Types” page where you can read more about the particular Type of Cryptocurrency.
It is followed up by the Initial Destribution of Coins/Tokens so you can have a rough Idea how much the Foundation might have received and compare it to how much they have now.
The Contributors Tab shows who is behind the Project and where they are located. Sometimes it is only a Non-Profit Foundation, sometimes For-Profit Companies are also involved.
Then you have the Financials Tab where you see the Amount of Cryptocurrency Coins / Tokens and their respective Value in $USD. Every Information is provided with a Source so you can click the Tabs and see for yourself for additional Information.
At the end is the Grants Program where you as a developer can apply for a Grant if you want to build on that Project or as an Investor see how much money is being given out by the Foundation for the development of the Ecosystem and its growth.
The Website is in a very early stage. If you find Incorrect or Outdated Information or have Feedback and suggestions on how the Website could be improved contact me on the E-Mail : firstname.lastname@example.org
If you want to give me Information or point me in the direction of the dev wallets of your favorite Project Foundation so that it can also be added to the Website do not hesitate and write to me on the E-Mail above. If your favorite Project is not on the Website it is because I either haven’t gotten to searching for it or the Foundation is simply not Transparent enough for me to know how much money they have.
I hope to one day be able to have a strong voice that will be heard by nontransparent Foundations so that they too would start being Transparent, just like Cryptocurrency is, Open-Source and free to everybody at any time.
This content is for Information and educational purposes only and should not be considered investment advice or an investment recommendation.