Blockchains generate a lot of data, transactions, addresses, fees, smart contract state updates, and more. Combine that with market data and trading data from the exchanges, and you have a glut of data sources to analyze and try to generate some insights.
To better analyze data and understand who might find value in blockchain analysis, I categorize it as follows
OnChain Data | Trading Data | Market Data | Metadata
Labeling | Pattern Matching |
OnChain Data – the blockchain, under normal operation generates a lot of data. Each component of the blockchain data can be analyzed separately.
Trading Data – data from exchanges ( centralized, P2P, OTC, Automated ) usually
Market Data – there are a lot of businesses that have come up around blockchains. Things like
Meta Data – One could easily add metadata to each of the data points stated above. This is extremely useful in detecting patterns and regulatory compliance. Things like
Labeling – Address labeling is a very useful tool in ensuring compliance. Usually, labels come from
Pattern Matching – working on the assumption that operating models do not change, analysts can recognize entities based on patterns they see in the data
Buyers of blockchain analysis can be classified as looking for three things
Businesses have come up to fill these needs.
Transparency vs Privacy – Privacy ( at least via pseudo-anonymity and via privacy-preserving blockchain tech ) is a huge reason for people to transact via public permission-less blockchains. Blockchain analysis can reduce the privacy of transactions especially if they are tied back to off-chain entities.
Compliance vs New Business models – the rapid growth of Binance is a testament to how quickly new business models can let companies grow. The same rapid growth could also be explained by Binance operating wholly in crypto and circumventing the need for strict KYC. Would this growth have happened if it was forced to do strict KYC from the start?
Whether this is a good or bad thing depends on your view of the value created by entities like Binance or MakerDAO(which operates onchain).
Decentralized Ideals vs Centralized Reality – Decentralization, for better or worse, has been touted as an aspiration. The real world necessities of co-ordination and task management often require very much centralized entities. These entities then turn around and use this as justification for disproportionate ownership of their native token. Similar things happen in mining, commit access to code, and narrative ownership.
Blcokchain analysis can bring this centralized reality to light.
I wanted to understand the core issues involved in the dispute between Aragon and Autark. I think they give an insight into how decentralization and transparency entangle with current jurisdictions.
Aragon Association has claimed to initiate litigation against Autark for delivering on 1 out of 13 deliverables, “Interpersonal issues (including threats), Underperformance, Lack of code quality, Breach of confidentiality (including defamation) ”
Autark LLC claims this is a ” baseless legal action in Switzerland against Autark LLC “
The central issue is regarding disbursement of grants from Aragon to Autark, what contracts and agreements have been made, who is in breach, and how this process should play out.
In spite of Aragon’s efforts towards a fully transparent system, there are many questions that can’t be answered through publicly available data (at least, not that I could find).
Make governance transparent – Aragon the project has many DAOs and legal entities associated with it. That may be required to comply with local regulations, but it makes governance opaque.
More concretely make clear the relationship between Aragon the project, the Aragon association, Aragon one, Aragon black and other entities. Who is in control at each entity, How are decisions made at each entity and which jurisdictions these entities are subordinate to.
ANT holders should be aware of these ownership patterns.
Outside directors : Have independent “directors” who can act as an ombudsman. The lack of these structures of course is in-line with the grand tradition of blockchain entities re-learning the lessons of legacy fintech.
Make the decision process transparent –
In their blog post , Aragon states “most of the data has always been publicly accessible on GitHub” but only the artifacts of applications are on Github.
To audit a nest payment, one has to look at the application process on github, voting process on the DAO voting app, funding in the DAO financing app with no way to track work done.
Name things appropriately –
Calling features and payments what they are lets people understand what the boundaries are and what recourse they have. So calling the payment of independent software vendors Grants and calling what functionally amounts to support ticket escalation “Court” causes people to misunderstand the process.
There are three main actors here
Aragon would like to decentralize (read outsource) as much of product development and Governance (read project management and capital allocation) as possible. This is primarily done by incentivizing various software developers via their Grants program.
Token holders also vote on things like which vendors should be given grants via an aptly named Aragon Grants Process AGP(link to AGP) and funds are then granted via a sub-organization (read business unit) that is managed via a DAO.
For each grant (read payment) the assumption is all three parties (token holders, aragon and the grantee) are aware of this transaction, having voted for it, and are aware of the recourse each party has if there are any issues. So far so good.
Now, there is a dispute, (the issue stated in aragon’s blog post). Autark claims they have not been compensated for work done, Aragon claims breach of contract and other issues.
So What ? Why is this a question, use the resolution system agreed upon that all three parties are aware of. Here is the rub, that dispute resolution system called Aragon Court is still apparently not ready to handle an issue of this magnitude. There is also this pesky detail of no-one knowing that such a dispute had started and both sides were thinking about starting legal actions
What happens next, internal talks break down, Autark apparently threatens to sue the Aragon association (as they are the purveyor of grant funds) firstly in the Swiss courts then later to sue in American courts. The association then initiates legal action against Autark in Swiss courts. Luis cuende co-founder of Aragon project, explains in this youtube video the reason behind doing this was to “establish jurisdiction”.
He further goes on to say Aragon Court is not recognized as a jurisdiction worldwide, and the need to establish jurisdiction first was so that they(Autark) couldn’t sue us in another jurisdiction. (I am not a lawyer but I would think that Autark can sue in the US even after there is a legal action in Switzerland.)
What this angling over jurisdictions makes clear is that the Aragon association doesn’t want this case to be tried in US courts but Autark believes they will have an advantage there.
Why is there not a pre-defined dispute resolution process, where is the need to create and sign an agreement for use of funds, that was then kept secret from the rest of the community?Another reason for going to the courts directly could be that legal action could go against whatever decision reached in the Aragon court. That would be a blow to Aragon Court’s credibility for its users
Aragon is one of the most transparent projects in the blockchain space. Most of the investigation that I did here was directly on applications built for Aragon like Apiary, the Aragon App, and their Github account. They are a private legal entity and certainly do not have to do anything mentioned here.
What bothers me is that Power is still centralized and decisions are made that are fine in any other capacity but look ridiculous when you also say you want to decentralize the project. Asking the community to vote on name changes, while making a significant legal decision on your own is not what decentralization should be about.
Similarly, making some parts of decision making transparent is detrimental to the goal of being a transparent entity. Either make major decisions in public or say that during this phase of development this entity will take charge. Having transactions be public but having confidential Grant agreements just confuses people.
Current regulations may not allow DAOs or Aragon to be as transparent or decentralized as they would want, but that is where they need to innovate. This is the exact problem they are solving.No regulation has stopped DAOs from paying software vendors, but calling them Grants might be an issue. No regulation has stopped DAOs from having an internal ticketing system but calling it a court and applying jurisdiction is an issue.
DAOs were supposed to disrupt organizations by reducing transaction costs, with decentralized decision making, programmatic payments, and a tamper-proof chain of evidence. What we have now are glorified project management systems that are deployed onto ethereum, which is great but is a long way from disrupting the company structure.
Auditing the Grants
Miners are critical infrastructure for blockchain networks. I am going to model a minimum viable miner to understand this process better. For this exercise , I will be using a proof of work chain (like bitcoin) for simplicity.
Goal : Generate and Maximize profits
The business of running a miner
The majority of expenses are in fiat, generally stable.
Revenue Sources : Sell or rent each of the following
Miner can choose how much of the output they need to convert to revenue.
Smoothing the Revenue Curve
How miners can play offense
Playing with the variables
There is still a lot of ground to be covered here, like Modelling miners for non Proof-of-Work networks, Generalized Mining, Participation in Forks and Implementing updates. However this model can act as a base that can be expanded as needed.