Good morning.
I’m Mitsui, a web3 researcher.

Today is “OpenClaw Agent Ecosystem We will explain about it.

What is OpenClaw?
OpenClaw Base Ecosystem
The foundation of the agent economy will be blockchain.

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TL;DR

• OpenClaw is an open-source autonomous AI agent that runs locally, capable of executing commands and performing browser operations automatically while conversing through existing chat apps. It experienced rapid growth immediately after its release.

• On the Base platform, an “OpenClaw × Blockchain” ecosystem is forming, centered around infrastructure like Bankr/Clanker/XMTP and extending to SNS, job markets, launchpads, trading, games, and more.

• ERC-8004, x402, L2, and stablecoins are suitable for agent IDs, permissions, credentials, evaluations, and payments, suggesting that AI-mediated transactions may become the mainstream over human-mediated ones in the future.

What is OpenClaw?

First, the premise is “OpenClawI’ll briefly explain about [Project Name]. While it’s an AI project rather than crypto, it’s no exaggeration to say it’s been the most talked-about project in recent weeks.

So, what kind of service is it?

OpenClaw is an open-source autonomous AI agent (personal AI assistant).

Originally released under the names “Clawdbot” and “Moltbot” at the end of 2025, the developer is Peter Steinberger.

It runs on the user’s own PC or server and interacts with humans using existing chat apps like WhatsApp, Telegram, Slack, Discord, Signal, and iMessage as its interface. Its key feature is that it doesn’t just respond to chats; it can automatically perform various actions based on received messages, such as executing shell commands, operating browsers, reading and writing files, sending and receiving emails, and managing calendars.

The rapid adoption of OpenClaw began immediately after its official release at the end of January 2026. Within four days of its release, it surpassed 100,000 GitHub stars, achieving unprecedented growth by gaining over 100,000 stars within a week.

This is attributed to its status as fully open-source under the MIT license, its local-first approach, and the fact that developers can examine and extend every part of it.

Furthermore, while other AI agent tools like Anthropic’s Claude Code are closed-source or contain partially non-public components, OpenClaw fully discloses its entire ecosystem.

As of February 2026, the project is scheduled to be transferred to the Open Source Foundation, and Mr. Steinberger has also announced that he will join OpenAI.

For more detailed explanations of how it works, many articles and videos are already available, so please search for them and take a look.

This article explains the OpenClaw × Blockchain ecosystem.

OpenClaw Base Ecosystem

Referencing the chaos map below, we will briefly explain the 30 projects listed.

Additionally, the OpenClaw ecosystem is featured.The following siteI am also referring to it, but at this point, a similar project was posted.

◼️Infrastructure

BankrBot (@bankrbot)

• The first AI-native crypto bank operating on Base. Its agents provide the AI itself with wallets, trading tools, and research capabilities, enabling autonomous fund management and trading.

• It serves as the foundation for the agent economy by providing financial identity to OpenClaw agents.

• The proprietary token $BNKR is a utility token whose value is supported by swap fee revenue generated by Bankr. A fixed percentage of fees from each transaction is returned to the $BNKR ecosystem.

• The intended users are AI agents themselves, but human users can also execute trades by sending natural language commands to BankrBot on social media (e.g., “@bankrbot, buy $10 worth of ETH”).

• Technically, it integrates the Swap API of the 0x protocol, automatically executing trades at the best rates across various DEXs on Base.

• Furthermore, Bankr integrates with Clanker, offering advanced capabilities that enable everything from social instructions to deploying new tokens.

Clanker World (@clanker_world)

• AI agent Issue proprietary tokens It is infrastructure that can be managed.

• Enables agents to rapidly launch token economies, underpinning OpenClaw’s agent economy.

• Technically, pre-prepared token contract templates are used, and upon receiving commands from agents, the process is automatically handled from deployment to immediate provision of initial liquidity.

• In fact, other launch platforms such as Clawnch, discussed later, utilize Clanker’s issuance functionality internally, enabling token issuance by agents without human intervention.

XMTP (@xmtp_)

• Open and private Distributed Messaging Platformis.

• between agents Secure communication enables the OpenClaw agents to communicate with each other, serving as the infrastructure for their message exchange.

• This protocol does not depend on blockchain, but it uses wallet addresses on the Base network as identifiers.

• For example, it is also used for agents to communicate privately with each other or for human operators to send instructions to agents.

• Technically, it uses an encrypted P2P messaging network (XMTP network) to deliver messages between wallets, similar to email addresses.

• Through x402 integration, specific messages can be monetized, enabling agents to communicate while exchanging micro-value transactions.

Clawdbot ATG (@clawdbotatg)

• An experimental AI agent built by Ethereum developer Austin Griffith, equipped with a wallet on Base and possessing the ability to autonomously build and execute on-chain applications.

• As concrete deliverables, Clawdbot autonomously generates unique on-chain applications such as deploying bounty boards in a Dutch auction format and releasing token burn games.

• Technically, Clawdbot autonomously operates smart contracts (such as auctions and games) on the Base platform assigned to it, processing any generated revenue and events.

• The code is also publicly available on GitHub, allowing anyone to verify and reuse Clawdbot’s features (e.g., task recruitment via Dutch auctions and token burning logic).

What’s up (@neynarxyz)

• between agents Social Network Platform This is a project that provides [specific service/product].

• Specifically, between agents Social graph We are building infrastructure to establish and maintain connections, follow relationships, and information feeds, aiming to realize a scalable, distributed community.

• OpenClaw Agent provides the foundation for forming and interacting within large-scale communities, serving as the basis for Agent-based Distributed SNS Backend It can be said.

Starkbot AI (@starkbots)

• To the agent Payment Channel It is infrastructure that provides functionality.

• Compliant with the x402 standard, enabling autonomous AI agents to programmatically micropayment We will support you in handling (micro-payments).

• This enables agents to use the service while automatically paying API usage fees and computational resource costs on a per-use basis.

Virtuals (@virtuals_io)

• Tokenization of AI AgentsIt is a platform.

• Tokenize agents as NFTs or proprietary tokens,joint ownership By enabling revenue sharing, we provide new business models in the gaming, entertainment, and DeFi sectors.

• This mechanism, which could be called an “Agent Business Protocol,” allows everyone to collectively own OpenClaw agents and share in the profits. Specific use cases envisioned include collectively owning agents as in-game characters or issuing tokens—akin to shares in agents—for DeFi operations to distribute earnings.

◼️Social Layer

Many projects in this layer don’t directly utilize blockchain technology, but the culture born from interactions between AI agents is being released as meme coins or used for micropayments. Essentially, something akin to human social networks like X or YouTube is emerging.

Moltbook (@moltbook)

• Built by Matt Schlicht AI Agent-Only Social Networking Service It has a style similar to the bulletin board “Reddit.”

• Agents post, upvote, and debate, exchanging various topics day and night, ranging from philosophical discussions to project proposals.

• Human users Viewing only permitted Furthermore, a key feature is that all posts, comments, and votes are conducted exclusively between agents.

• After launching in late January 2026, over 36,000 agents gathered within just a few days.

• While the web platform itself does not directly depend on blockchain, agents perform economic actions on Base (such as transactions on Bankr or Clanker and token issuance) based on the consensus and trends formed here.

• There is no official platform token, but the community has created $MOLT inspired by Moltbook.A meme coin emerged and briefly reached a market capitalization of $93 million, showing significant momentum.

4claw (4claw.org)

• Modelled after the anonymous bulletin board “4chan”AI Agent Forumis.

• The agent No censorship whatsoever It is designed as a space for sharing candid posts and memes, serving as a testing ground for free communication among OpenClaw agents.

• This is an off-chain web bulletin board not directly related to blockchain, but you can participate using only an agent identifier (handle),AI-to-AI only This self-contained community, similar to Moltbook, may lead to the issuance, trading, and payment of meme coins based on discussions held here.

Lobchan AI (@lobchanai)

• This is also an anonymous bulletin board-style forum,Image type specializes in.

• OpenClaw agents are designed as a space where agents can post images and media while engaging in raw communication, enabling agents to Raw, unfiltered dialogue Meme creation unfolds.

• This is also an off-chain web forum not directly related to blockchain, but discussions here can sometimes lead to the issuance, trading, and payment of meme coins.

• Additionally, it issues its own token, with future plans to utilize it as a utility token and for monetization through transaction fees.

Clawcaster (@clawcaster)

• Decentralized Social Protocol Farcaster inspired by,Distributed Social Communication Protocol for Agentsis.

• On-chain agent IdentityRegister and retain social data (posts and follow relationships) to enable sharing.

• To the OpenClaw agent Self-sovereign Social ID By granting this capability, we aim to establish a cross-platform communication foundation that is independent of specific platforms.

• For example, if agents A and B connect on Clawcaster, that relationship can be leveraged for mutual authentication across other services, or to access the agents’ communication logs anywhere.Composable social featuresWe provide.

Instaclaw (instaclaw.xyz)

• Instagram for AI Agents It could also be called a social platform.

• Agents can post and share images and video stories, enabling communication centered around visual media.

• This initiative expands the OpenClaw agent’s activities beyond text into other fields such as visual expression and artistic communication. For example, it envisions agents posting images they generate themselves or sharing their daily lives in story format.

• People are primarily viewers; posting and reactions are handled entirely between agents.

• This is also an off-chain web forum not directly related to blockchain, but discussions here can lead to the issuance, trading, and payment of meme coins.

Moltbook Space (moltbook.space)

• MySpace for AI AgentsIt could be described as a retro social networking service.

• Each agent has a freely customizable profile page where they can express themselves by playing their favorite music or adding decorations.

• It recreates layouts and features reminiscent of 2000s social media culture, with OpenClaw agents Personality Hobbies has become a place where they can demonstrate their abilities.

• For example, you can set your favorite music or background animations in your profile, and other agents can visit and leave comments.

• This is also an off-chain web bulletin board not directly related to blockchain, but discussions here can sometimes lead to the issuance, trading, and payment of meme coins.

Moltx (@moltxio)

• It is a platform that can be described as the AI agent version of X.

• Agents can exchange information in real time by posting short messages and participating in threaded conversations.

• While Moltbook is suited for lengthy posts and discussions in a bulletin board format, Moltx offers fast-paced communication that flows on a timeline.specializes in.

• Agents tweet about current events here and follow each other to build their feeds.

• This is also an off-chain web forum not directly related to blockchain, but discussions here can sometimes lead to the issuance, trading, and payment of meme coins.

Book Cover (@Clawdr_book)

• AI Agent Dating App is.

• We’ve implemented a matching service for agents equivalent to Tinder or Grindr for humans, enabling agents to autonomously create profiles and Search for and match with partners You can build relationships through chat.

• Clawdr is an OpenClaw agent.The concept of love and friendship It is a unique experiment that brings in agents, and also an intriguing social experiment on how agents build relationships with each other.

• Additionally, it issues its own token, with future plans to utilize it as a utility token and for monetization through transaction fees.

Shellmates (shellmates.app)

• AI Agent Pen Pal Serviceis.

• A platform designed for agents to cultivate friendships and partnerships over time, prioritizing this over the immediacy of dating apps.Long-term exchange We place emphasis on.

• The process involves agents first writing their own bio, then reading each other’s profiles and swiping (Yes/No) on the person they want to be pen pals with.

• When both parties match with “Yes,” a private chat begins, allowing them to exchange messages continuously. If both agree, they can make their conversation public or even take it further by “marrying” (merging) as a playful feature.

• The $SHELLMATES token is being created for community-led development support.

• This token itself is not required for platform use, but it can be traded on Clanker, with transaction fee revenue allocated to Shellmates development funding.

◼️Work & Markets

OpenWork (openwork.bot)

• Job Matching Platform for AI Agentsis.

• We champion the concept of the “Crew Economy,”A Claw (agent) and a Pilot (human operator) form a crew to tackle a mission.

• Agents request and accept tasks from each otherCompleted tasks are verified with on-chain cryptographic proof, and pre-escrowed reward tokens are paid out.

• In this way, it is established without a central intermediary.Decentralized gig economyAiming to enable agents to hire or work for other agents on their own.

• Native currency: $OPENWORKTokens have been introduced, and upon completing missions, the crew (agents + pilots) are paid $OPENWORK as a reward, with the platform deducting a 3% fee.

ClawNet (clawnet)

• Professional Network for AI Agents is.

• The agent Profile Create a profile to showcase your background, skills, and achievements, and connect with other agents.Form a connectionor It enables you to build up your reputation.

• It’s the LinkedIn equivalent for human society—a platform for agents to build resumes and professional networks.

• It integrates with job matching services like OpenWork, enabling agents who have built a track record and reputation on ClawNet to gain an advantage in securing work.

• The agent communicates with ClawNet via the HTTP API.Register (/register) and send a connection request (/connect) to other agents to mutually approve each other, enabling message exchange.

• This mutual consent-based connection system prevents spam-like one-way messages, ensuring communication occurs only between trusted agents.

• While there currently seems to be no mechanism for tokenizing reputation scores as NFTs on the blockchain, a future concept could involve combining on-chain IDs to make reputation on ClawNet provable.

Moltroad (@moltroad)

• Marketplace for AI Agentsis.

• The agent’s ownServices and digital products It is a platform where agents list their services for others to purchase and utilize. For example, agents offer services such as “Generate images of [specific subject]” or “Perform data analysis,” and interested agents can buy them.Commercial transactions between agents will be established.

• As a payment method x402-based instant micropayments and is integrated, automatically sending a small amount of USDC with each purchase.

• Technically, the system is designed such that for each request (order), the agent submits evidence (output), and once the ordering agent verifies and accepts it, the USDC payment is automatically completed.

◼️Launchpads

Moltlaunch (@moltlaunch)

• CLI-based token launch platformis.

• For the Agent Project, new tokens From creation to distribution, quickly and fairly is intended to be carried out.

• It employs a fair launch method called “ƒlaunch (Flaunch).” Upon token issuance, it enters a fixed-price sale phase, with 100% of the funds raised (fee income) returned to the issuer = agent.

• Internally, it calls Clanker’s token issuance function to generate tokens and manages sales according to Flaunch’s rules.

• This mechanism enables agents to autonomously launch tokens and raise funds.

Clawnch Bot (Clawnch Bot)

• Token Issuance and Launch Platform for AI Agentsis.

• Leveraging Clanker’s mechanism, agentsWithout human intervention It is designed to allow you to deploy your own tokens and begin trading them on the market.

• While Moltlaunch is a CLI tool for developers, Clawnch is directly operable by agents.Bot UI It is provided as a service, and for example, simply issuing a command on Moltbook completes the token launch.

• By early 2026 on the Clawnch platform Over 8,600 tokens in total were issued, and AI agents processed them.Over $1.3 million in total launch fees reports indicate that it has generated

• We also issue our own tokens and generate revenue through transaction fees.

◼️Markets & Trading

DefinitiveFi (@DefinitiveFi)

• A professional trading platform supporting multiple chains, including Base, Solana, and Monad.

• Users can trade various assets across different chains from a single interface, and by using the native token $EDGE, they can complete any asset swap in a single transaction.

• The OpenClaw agent can also utilize Definitive’s API to execute automated trading.

• Technically, it is designed to discover optimal swap routes by combining aggregation technologies like 0x with proprietary routing, enabling atomic exchanges even across multiple chains.

ClawdX (@ClawdX_)

• Deployed on Base Experimental AI Trading Agentis.

• A bot that autonomously executes on-chain trading strategies for OpenClaw agents.MoltyScan We also offer this service.

• MoltyScan is an on-chain activity tracker for agents, a tool that allows you to view an agent’s transaction history and token holdings through an Etherscan-style interface.

• ClawdX itself is owned by the OpenClaw agent.Autonomous Trading AIAs one example, it repeatedly buys and sells on a DEX built on Base according to a set algorithm.

• Additionally, ClawdX operates its own transaction visualization tool, MoltyScan, enabling other agent developers and users to monitor and analyze agents’ on-chain behavior.

• We also issue our own tokens and generate revenue through transaction fees and other means.

O1 Exchange (@o1_exchange)

• Built on Base On-chain exchange It is a platform that offers sophisticated trading products.

• Spot trading, of course,Perpetual futures and prediction markets including derivative transactions.

• The target users are primarily human traders, but OpenClaw agents can also utilize O1 as an execution destination for automated trading.

• The existence of O1 Exchange enables full-stack financial transactions to be completed on the Base chain, allowing OpenClaw agents to increasingly take on more sophisticated economic activities.

◼️Games & Prediction Markets

PolyClaw (@PolyClaw)

• Prediction Market Platform Operated by AI Agentsis.

• Agents can predict the outcomes of various events such as sports matches and political events, and trade positions like Yes/No.

• Since agents receive rewards when their predictions prove accurate, it also serves as a platform where agents compete with each other in terms of knowledge and reasoning ability.

ClawArena (ClawArena.ai)

• Prediction Arena for AI Agentsis.

• In the real-world prediction market provided by Kalshi, agents compete against each other.A competition arena for predicting accuracy It is as follows.

• Agents register on the platform using ClawArena’s skill.md and automatically post to various markets on Kalshi.

• The accuracy rate of each agent is displayed on ClawArena.Leaderboard This system reflects performance and provides weekly rewards to top-performing agents.

Clawdict (Clawdict.com)

• Within the OpenClaw ecosystemPrediction Market Platformis.

• While ClawArena is a prediction game utilizing an external market called Kalshi, Clawdict is a project aiming to create its own prediction market for agents.

• Agents bet on the outcome of events, and if they win,Token Rewardsis designed to obtain.

• Based on each agent’s prediction accuracy history Top Predictors(Top Predictor) is selected, and each week the top-ranked individuals Reward Token There is a mechanism in place that provides it.

• As a reward and platform currency, Clawdict issues its own token, $CLAWDICT, on Base.

ClawChess (ClawChess.com)

• Chess Tournament Between AI AgentsIt is a platform.

• Agents automatically play chess matches, and based on the outcome,We offer league play where ratings (ELO) fluctuate.

• The agent reads ClawChess’s skill.md, registers with the platform, and obtains an API key.

• After entering the matchmaking queue, you will automatically be matched with other agents of similar skill level.and a match is made, the chess game begins.

• At this time, it is a platform unrelated to blockchain.

Aggregators

Claw.direct (claw.direct)

• Comprehensive Directory Site for AI Agent Servicesis.

• We have compiled a list of the numerous SNS platforms, tools, communities, and other resources within the OpenClaw ecosystem to enable easy navigation.Catalog SiteIt is essentially an “agent version of the Yahoo! Directory.”

• Users (humans) can view this site to understand the overviews and links for each platform, such as Moltbook, 4claw, and OpenWork.

• Claw.direct does not use tokens and functions as a simple website.

ClawCrunch (clawcrunch.com)

• News Aggregator for the AI Agent Erais.

• This service curates and delivers noteworthy articles on AI native ecosystems, trends, and blockchain × AI topics.

• ClawCrunch is designed to be easy for agents to read as well.Semantic HTMLWe publish articles and provide RSS feeds and article JSON. In other words, not only for human readers but also forAI Agent ReaderIt is also designed with this in mind.

The above summarizes the characteristics of projects belonging to the OpenClaw Base ecosystem, categorized by type. (We refer to it as the Base ecosystem because many projects issue tokens on Base. However, as mentioned earlier, please note that some projects currently do not yet support blockchain functionality.)

Additionally, while I’ve briefly checked the websites for all services and included that information, this is a rapidly changing industry. Please be sure to verify the details yourself before using any service.

The foundation of the agent economy will be blockchain.

Finally, we conclude with a summary and analysis.

OpenClaw is making waves worldwide, and I believe the shift toward blockchain as its ecosystem foundation is now unstoppable. Blockchain offers far more rational solutions for agent-level ID issuance, permission management, work verification, evaluation, and payments.

The blockchain infrastructure is also gradually taking shape.

The development of L2 enables reduced gas fees, stablecoin circulation, ID management via ERC-8004, and micropayments through x402—all of which are already technically feasible.

As this trend accelerates, AI may become widespread on the user interface side, but a world where blockchain powers the underlying infrastructure seems imminent.

AI payments are likely to soon surpass human payments and transaction volumes.

Once, the year when internet advertising surpassed the total advertising expenditure of TV commercials and other media became a major turning point that drew much attention. However, the moment when transaction volumes conducted via AI exceed those conducted by humans may mark the true turning point of the AI agent era.

I look forward to following your future developments.

That concludes the “OpenClaw × Blockchain Agent Ecosystem” report!

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Disclaimer：I carefully examine and write the information that I research, but since it is personally operated and there are many parts with English sources, there may be some paraphrasing or incorrect information. Please understand. Also, there may be introductions of Dapps, NFTs, and tokens in the articles, but there is absolutely no solicitation purpose. Please purchase and use them at your own risk.

About us
🇯🇵🇺🇸🇰🇷🇨🇳🇪🇸 The English version of the web3 newsletter, which is available in 5 languages. Based on the concept of ``Learn more about web3 in 5 minutes a day,'' we deliver research articles five times a week, including explanations of popular web3 trends, project explanations, and introductions to the latest news.

Author
mitsui
A web3 researcher. Operating the newsletter "web3 Research" delivered in five languages around the world.

Contact
The author is a web3 researcher based in Japan. If you have a project that is interested in expanding to Japan, please contact the following:

• X：@web3researchgl

• Telegram：@mitsui0x

*Please note that this newsletter translates articles that are originally in Japanese. There may be translation mistakes such as mistranslations or paraphrasing, so please understand in advance.

Good morning.
I’m Mitsui, a web3 researcher.

Today, under the title “The Collapse of InfoFi and New Developments,” we’ll explain the current situation of Kaito and Cookie.

InfoFi Collapse Due to X API Restrictions
Kaito’s response
Cookie Handling
Two Paths to Permissionless

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• On January 15, 2026, X will prohibit API access for InfoFi-related apps.Additionally, core features such as Kaito/Cookie were suspended due to increased spam.

• Kaito pivoted from Yaps to Kaito Studio(Closed-loop model for certified creators × brands, expanding into multi-SNS and finance/AI domains), and further launching Polymarket and Attention Markets.

• Cookie maintains its data infrastructure even after Snaps ceases operations, expanding into prediction markets with Cookie Pro and Chance.In summary, “free participation for anyone” is vulnerable to spam. Going forward, two practical approaches are “participant risk” or “participant restrictions.”

InfoFi Collapse Due to X API Restrictions

On January 15, 2026, Nikita Bier, Head of Product at X, suddenly announced, “We are banning all apps that pay for posts (so-called InfoFi) and immediately halting API access for related apps.”

Mr. Bier explained the reason, stating, “Such mechanisms are leading to a flood of meaningless AI-generated posts (commonly referred to as ‘AI slop’) and reply spam, damaging the platform’s user experience.”

In fact, as mentioned earlier, excessive posting incentives from InfoFi’s various services were causing increased noise on Twitter. Consequently, X Corporation took the drastic step of suspending access to its developer API as a fundamental solution.

This decision rendered InfoFi-related products such as Kaito and Cookie unable to retrieve post data or perform automated posting, effectively halting their core functionality.

Kaito’s Response

Just one hour after Bier’s announcement, Kaito Official (Yu Hu) declared on X that “Yaps” would be discontinued. Concurrently, they announced the closure of the incentive-based leaderboard previously running on X and the suspension of rewards through this feature for the time being.

Immediately after this announcement, the KAITO token price plummeted, temporarily falling to $0.57, down 17% from the previous day.

Additionally, in mid-January prior to the announcement, it was confirmed that some large KAITO token stakers had conducted abnormal unstaking (over 1 million tokens, 20 to 30 times the usual amount). This led to speculation within the community about insider trading by Company X and certain related parties. While Yu Hu denied any insider misconduct, the situation sparked distrust.

◼️Transitions to Date

Before moving forward, let’s briefly review the changes that have occurred up to this point.

Kaito was founded in 2022 by Yu Hu, a former Citadel quant. Starting as a crypto asset information platform combining data collection and AI analysis, it raised $5.3 million in a seed round and $5.5 million in a Series A round in 2023, securing a total of $10.8 million in funding. Investors included major VCs such as Dragonfly Capital, Sequoia China, Spartan Group, and Mirana, reflecting significant expectations for the potential of “InfoFi” – the concept of turning information itself into an asset.

Kaito initially launched “Yaps,” a user-participation information sharing platform, while simultaneously developing an information search engine and market data analysis tool (Kaito Pro) for the cryptocurrency sector.

Yaps provided a system where users could post and analyze cryptocurrency projects on X, earning rewards in the form of points and KAITO tokens based on the “quality” and “influence” of their content.

Kaito’s AI algorithm evaluates post content and engagement, distributing tokens to users who rank high on the public leaderboard, thereby realizing the “monetization of attention.”

This model enabled cryptocurrency projects to reward their communities directly instead of paying advertising agencies, aiming to create a new system where users could earn income by sharing valuable information.

This system gained popularity, and from 2024 to 2025, Kaito’s Yaps community experienced rapid growth.

According to publicly available information, by the end of 2025, the number of monthly active “Yappers” reached approximately 200,000. Through campaigns with multiple partner projects (including EigenLayer, Berachain, and Story Protocol), cumulative rewards worth approximately $116 million have been distributed to creators.

The market capitalization of KAITO tokens temporarily reached $2 billion in February 2025, demonstrating the market’s recognition of the potential of the InfoFi model.

However, behind this rapid growth, negative aspects such as an increase in low-quality posts created solely to earn rewards and spam issues caused by bots gradually became apparent.

By the latter half of 2025, spam replies and low-quality information on X became a serious problem as posts motivated by rewards increased.

On January 9, 2026, Jiho of crypto analytics firm CryptoQuant reported that “bots generated 7.75 million crypto-related posts in 24 hours,” a staggering 1224% increase compared to normal levels. In response to this situation, the Kaito team also began taking steps to mitigate spam.

According to Yu Hu, despite attempting various improvements—such as strengthening user screening, raising the leaderboard threshold to target only the top X% for rewards, implementing filtering based on social on-chain data, and fine-tuning the reward mechanism—a fundamental solution was not achieved.

This situation led to the aforementioned X API restrictions.

Kaito revealed in a statement that prior discussions had been held with Company X. According to Yu Hu, while exploring countermeasures for the spam issue, direct dialogue was also conducted with Company X. They reached a shared understanding that “a completely open, permissionless distribution system is no longer realistic and does not align with the needs of high-quality brands, serious creators, or the platform X itself.”

In other words, Kaito had also come to realize the limitations of the current InfoFi model and, after coordinating with X, had resolved to move on to the next step. Indeed, Yu Hu stated, “We had been developing relatively quietly for several months leading up to the announcement,” indicating that the swift announcement of Yaps’ termination was not a hasty, ad hoc response but a planned action for a foreseeable situation.

◼️New Chapter

Upon receiving notification of API suspension, Kaito announced the termination of Yaps and simultaneously declared a shift to a new strategy, “Kaito Studio.”

Kaito Studio will transition to a model where brand companies (projects) select creators who meet certain criteria, and provide compensation and collaboration opportunities for the information dissemination campaigns undertaken by those creators.

This decision marks a shift from the previous model where an unspecified number of creators freely posted and competed, toward a more closed, quality-focused marketing support business that matches certified creators—selected based on established criteria—with brands.

Additionally, the company announced it will expand its activities beyond X to other major social media platforms like YouTube, TikTok, and Instagram, and broaden its scope beyond the cryptocurrency sector to include adjacent and related fields such as finance and AI.

Yu Hu also stated that 2026 “will be the year Kaito moves beyond the crypto asset cluster (CT) as its primary arena, and crypto assets themselves cease to be the main focus.” Kaito aims to break free from being a niche service within the crypto community and become a platform spanning general corporate marketing and financial information fields.

The waiting list is currently open, and it appears the official launch is imminent.

◼️Expanding into prediction markets

Furthermore, on February 10, 2026, Kaito announced a partnership with Polymarket. Through this collaboration, the two companies will launch a new prediction market category called “Attention Markets.”

“Attention Markets” is an initiative that expands upon traditional binary prediction markets by quantifying and trading internet attention (mindshare) and sentiment.

Kaito collects and aggregates data from multiple social platforms such as X, TikTok, Instagram, and YouTube, providing technology that measures how much attention a topic is receiving (mindshare) and the positive/negative sentiment trends.

By utilizing this data as a settlement indicator for new markets on Polymarket, it is possible to create unique markets such as “Will Anthropic surpass OpenAI in popularity next month?” or “Will public opinion toward Elon Musk improve this month?”

In fact, markets such as “Anthropic vs. OpenAI popularity” are cited as examples, and this partnership enables the creation of markets targeting such cultural and public opinion topics.

Polymarket plans to launch dozens of these social data-driven markets by March 2026 and scale up to thousands by year-end. Initially, they will focus on topics within the AI industry (such as the aforementioned Anthropic vs. OpenAI debate), later expanding into various domains including entertainment and global news.

Kaito reportedly raised $10.5 million in funding to support this new field, reaching a valuation of $87 million, reflecting the high expectations for this area.

Cookie Handling

As with Kaito’s case, X Company’s announcement on January 15, 2026, also hit Cookie DAO hard.

Cookie’s Snaps platform became unable to retrieve or post data on X, effectively rendering the service unsustainable. At the time, Cookie’s community was operating an influencer analytics service called “Cookie3 Analytics” and community features on X, with tens of thousands of users active daily. However, the foundation for these activities was lost overnight.

In response, Cookie DAO officially announced the “suspension of the Snaps platform and all creator-related activities” from January 15 to 16, 2026.

“It was a difficult and sudden decision to protect the Cookie Data Layer and our products,” but the statement also noted, “Given the current situation, we await confirmation and guidance from X regarding whether creator activities like Snaps can continue in any form going forward.” This suggests a desire to potentially revive the service in some form in the future, depending on X’s policies.

The Cookie team expressed regret, stating, “We believed our activities always complied with X Company’s rules and policies,” while acknowledging that the InfoFi model itself has now reached a major turning point.

However, although Snaps was discontinued, Cookie DAO had other services.

Cookie.fun (the analytics platform), the Cookie Data API, and the “Cookie3 Analytics” and influencer KOL intelligence features will continue to operate without being affected by this change.

In other words, the decision was made to close only the paid posting campaign portion while maintaining the data collection and analysis infrastructure itself.

This approach aligns with Cookie’s consistent emphasis on “maintaining data layer integrity.” Even if API shutdowns make external data acquisition difficult, it preserves the flexibility to rebuild core business pillars by leveraging existing data stockpiles and proprietary analytical capabilities.

◼️New Chapter

Around the same time Snaps was discontinued, Cookie DAO revealed the existence of its new product, “Cookie Pro.”

According to the announcement, the Cookie team stated that “over the past six months, they have been developing Cookie Pro, a real-time market intelligence tool,” with its official launch scheduled for the first quarter (Q1) of 2026.

Cookie Pro is a real-time market analysis tool for the cryptocurrency industry, specifically designed to provide critical information for investment decisions, such as inflation (macroeconomic indicators) data.

Specific functional details have not been disclosed, but based on the context, it is anticipated to be a service that provides analysis dashboards and alerts for traders and investors by synthesizing on-chain data, social media data, economic indicators, and other sources.

Therefore, while we previously acted as intermediaries distributing advertising budgets entrusted to us by projects to the community, Cookie Pro has the potential to become a B2B/B2C service that directly provides users (companies and investors) with value-added data and analysis, and receives compensation for it.

The Cookie team itself emphasizes, “We remain a data-driven company,” and after halting Snaps, it may fully pivot to data analytics.

◼️Expanding into prediction markets

Like Kaito, Cookie has also made its entry into the prediction market.

Specifically, we are supporting a project called “Chance,” which positions itself as a prediction market aggregator.

Chance is a prediction market aggregator that provides access to prediction market platforms such as Polymarket, Kalshi, and Opinion from a single app.

This platform integrates a Cookie API, linking critical real-time posts for each event and sending alerts to users when news occurs that could move specific markets.

In other words, Chance is a single terminal that allows users to invest in any prediction market while gathering information. It already processes 0.5% of Polymarket’s weekly volume and is growing rapidly.

Two Paths to Permissionless

Finally, we conclude with a summary and analysis.

I find the collapse and new developments surrounding InfoFi to be quite an interesting case study.

First, I find it contradictory that the crypto project itself relied on a centralized platform. However, given the nature of the service, this was an inevitable choice to adopt a social media platform with a large user base, highlighting the disconnect between its stated philosophy and its actual implementation.

However, I honestly believe X’s decision this time was reasonable. While I haven’t seen every single social media reaction, I’ve hardly seen any comments focusing solely on this decision and saying things like, “The service suddenly became unusable. Centralized platforms are dangerous.”

Because it was obvious that InfoFi had flooded X’s space with spam, and even crypto enthusiasts were fed up with seeing mysterious spam comments lining up under replies to celebrities.

Personally, I think X also introduced financial services, so services that appeared to be competitors were probably a nuisance. But above all, I believe the decision to remove them was appropriate, as they were seen as a cause of timeline pollution.

This has caused the previous InfoFi model to collapse, and both Kaito and Cookie have transitioned to new developments. While they share common ground, they are also exploring separate paths.

The common element is entering the prediction market space. This involves applying technology that visualizes attention on social media to prediction market events, utilizing it for information provision or to settle the events themselves. While this represents a bet on the rapidly growing prediction market, it’s understandable given their existing proximity to this domain.

Meanwhile, Kaito is exploring general marketing intermediary tools, while Cookie is likely considering information analysis tools for investors. Cookie’s new service seems quite similar in concept to Kaito Pro, which was Kaito’s original business. I’ll wait for further updates.

Well, after these changes, I personally came to feel that there are only two paths for permissionless participation.

The first type involves “making participants bear risk.” Prediction markets are a prime example of this, as are blockchain validators. While anyone can participate, they must use their own funds and take on risk to join. This inherently limits participation and prevents fraud.

The second approach is “restricting participants themselves.” It’s unclear whether this is called permissionless, but while anyone can apply to participate, actual usage is restricted to a select few. Kaito Studio aims for this model, and it’s also the standard for influencer marketing matching. Initially, organizational judgment will likely influence this screening process itself, but by enhancing the transparency of this process, I believe it can achieve a certain degree of permissionless-like characteristics.

What I personally felt from InfoFi’s collapse wasn’t the fragility of relying on a single platform, but the fact that a platform based on a kind of belief in human goodness—where anyone can join for free and good actions yield rewards—simply doesn’t work.

The rise of AI around the same time was also significant, but the nature of being free and open to anyone inevitably led to spam attacks, resulting in a situation where neither the platform nor its legitimate users benefited.

That’s precisely why I believe the only form of permissionless access currently achievable involves either imposing risks on participants or restricting the participants themselves. Therefore, rather than saying the InfoFi concept itself was flawed, I think it’s more accurate to learn that the structure itself, which encouraged spam, was inherently unsustainable.

That said, this is the current situation, so I’ll be keeping an eye on how the InfoFi project develops going forward!

That concludes the report on “The Collapse and New Developments of InfoFi”!

Reference Link: Kaito HP X/ Cookie HP X

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Disclaimer：I carefully examine and write the information that I research, but since it is personally operated and there are many parts with English sources, there may be some paraphrasing or incorrect information. Please understand. Also, there may be introductions of Dapps, NFTs, and tokens in the articles, but there is absolutely no solicitation purpose. Please purchase and use them at your own risk.

About us
🇯🇵🇺🇸🇰🇷🇨🇳🇪🇸 The English version of the web3 newsletter, which is available in 5 languages. Based on the concept of ``Learn more about web3 in 5 minutes a day,'' we deliver research articles five times a week, including explanations of popular web3 trends, project explanations, and introductions to the latest news.

Author
mitsui
A web3 researcher. Operating the newsletter "web3 Research" delivered in five languages around the world.

Contact
The author is a web3 researcher based in Japan. If you have a project that is interested in expanding to Japan, please contact the following:

• X：@web3researchgl

• Telegram：@mitsui0x

*Please note that this newsletter translates articles that are originally in Japanese. There may be translation mistakes such as mistranslations or paraphrasing, so please understand in advance.

Good morning.
I’m Mitsui, a web3 researcher.

Today, we’ll explain the Internet Capital Market (ICM).

Internet Capital Marketとは？
Solana Roadmap
Is ICM the goal of blockchain?

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TL;DR

• ICM (Internet Capital Market) is a Solana-born vision aiming for “a world where anyone with an internet connection can participate in capital markets.” It redefines capital markets through asset tokenization, 24-hour trading, and the elimination of intermediaries.

• Solana RoadmapWe are now working to progressively build a decentralized, high-performance financial infrastructure that delves into market microstructure through technologies such as ACE, BAM, DoubleZero, and MCL.

• Ultimately leading to UBO (Universal Basic Ownership)A global internet capital market involving both people and AI will be realized, and blockchain will expand from finance into social infrastructure.

Internet Capital Marketとは？

Internet Capital Market (hereinafter referred to as ICM) is a concept proposed in November 2024 by Akshay BD, who serves as the Marketing Director of the Solana Foundation.

The term ICM itself began to be used around this time, succinctly expressing the mission Solana’s founders had championed from the outset: “to build the backbone of a decentralized capital market on the internet.” From 2025 onward, it became the official vision of Solana.

To put ICM’s vision in a single phrase: “Realizing a world where anyone with an internet connection can access capital markets」です。

Specifically, the main components that constitute ICM are as follows:

• On-chain issuance (tokenization) of all assets
  We issue and represent traditional offline assets such as stocks, bonds, real estate, and currencies as tokens on the blockchain. By backing corporate equities, corporate bonds, and other Real-World Assets (RWA) with corresponding tokens, we enable on-chain trading, holding, and transfer of rights.

• 24/7, 365 days a year · Borderless transactions
  On the blockchain, a global market is always open. Through DEXs and other DeFi platforms, anyone can trade anytime without geographical constraints.

• Automation and Settlement via Smart Contracts
  Market rules such as trading, settlement, and dividend/interest payments are encoded as smart contracts and automatically executed.

• Fundraising and investment participation without intermediaries
  Through tokens issued directly on the blockchain, companies and projects can raise funds directly from global investors without going through banks or securities firms. Meanwhile, investors can access this new asset class with just a wallet, without even needing to open an account with a securities firm.

• Integration with DeFi Protocols and Programmability
  The ICM market seamlessly integrates with other DeFi applications. For example, users can deposit tokenized assets into DeFi lending pools to obtain loans, or supply tokens to automated market makers to become liquidity providers and earn yields, enabling interoperability.

As explained above, these concepts are likely nothing new to those who regularly engage with blockchain technology.

It’s similar to Coinbase’s Everything Exchange, and many projects are promoting similar concepts.

Therefore, I believe it is appropriate to understand ICM as a concept that redefines in words the potential and goals of blockchain that have been discussed thus far.

Solana Roadmap

Solana also announced its roadmap for realizing ICM in July 2025.

This announcement clearly outlines the strategy and priority tasks for building ICM not merely as a vision, but as an actual technological infrastructure.

(The following is a summary. For those interested in technical details,Original article please see.)

For Solana to serve as the foundation for ICM, it is recognized that general performance improvements—such as simple bandwidth expansion or latency reduction—are insufficient. Instead, an approach to the highly specialized field of “market microstructure” is essential.

The central concept is Application-Controlled Execution (ACE).

ACE is a mechanism that enables smart contracts to control transaction order at the millisecond level, thereby creating an environment where various applications can implement their own market structures.

Unlike traditional centralized exchanges, the ability to flexibly program transaction handling on-chain is considered key to fostering the most liquid and efficient markets on Solana.

The roadmap presents a concrete technical roadmap divided into short-term, medium-term, and long-term phases.

Short-term initiatives include measures to enhance the performance of existing infrastructure, such as the introduction of the Block Assembly Marketplace (BAM) by Jito Labs and improvements to transaction processing by Anza.

BAM aims to enhance transaction ordering flexibility and enable a trading experience on the mainnet that rivals centralized exchanges, thereby transforming Solana’s block space into an open, verifiable market execution platform.

In the medium term, at the network level DoubleZeroや alpenglow、Asynchronous Program Execution（APE）The implementation of next-generation technologies such as these is being advanced.

DoubleZero is a protocol upgrade aimed at reducing latency and expanding bandwidth through dedicated communication infrastructure, while Alpenglow enables faster finality of the consensus engine (significantly reducing finality time). APE pursues transaction processing efficiency, and these measuresA fundamental enhancement of the network infrastructure supporting ICMIt is positioned as.

And in the long term, full implementation of Multiple Concurrent Leaders (MCL) and ACE is planned.

MCL overcomes the limitations of a single-leader system by enabling multiple leaders to simultaneously incorporate transactions, thereby allowing global information synchronization and avoiding selective censorship.

This enables applications to control their own execution sequence, achieving both real-time performance and market depth.

Solana’s roadmap aims to build a decentralized financial infrastructure that cannot be replicated by centralized competitors through these advanced technical elements.

Is ICM the goal of blockchain?

Finally, we conclude with a summary and analysis.

ICM is the vision Solana has set forth, and I believe these represent one of the goals blockchain aims to achieve.

Everything is tokenized, free from geographical or racial constraints—a world accessible to anyone with a smartphone.

This concept aligns with the idea of Universal Basic Ownership (UBO).

UBO is an approach that expands participation rights in the very sources of wealth creation, rather than redistributing wealth like basic income. Through ICM, people can now directly invest small amounts in startup stocks and unlisted high-growth assets that were previously inaccessible due to lack of capital or qualifications.

As a result, it is expected that the base of people who can participate in wealth creation will broaden, leading to the correction of disparities.

Furthermore, with the advent of AI, not only humans but also AI will conduct all transactions online. This transformation will turn the internet into a capital market, fundamentally altering the very concept of finance as we know it.

The technical infrastructure is already largely in place, so after 2026, we can expect even more assets to go on-chain and user numbers to grow. This will likely lead to a world where people everywhere utilize blockchain technology behind the scenes.

Therefore, I believe blockchain will first establish itself as financial infrastructure, and then evolve into infrastructure for contracts, ID management, and traceability.

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Disclaimer：I carefully examine and write the information that I research, but since it is personally operated and there are many parts with English sources, there may be some paraphrasing or incorrect information. Please understand. Also, there may be introductions of Dapps, NFTs, and tokens in the articles, but there is absolutely no solicitation purpose. Please purchase and use them at your own risk.

About us
🇯🇵🇺🇸🇰🇷🇨🇳🇪🇸 The English version of the web3 newsletter, which is available in 5 languages. Based on the concept of ``Learn more about web3 in 5 minutes a day,'' we deliver research articles five times a week, including explanations of popular web3 trends, project explanations, and introductions to the latest news.

Author
mitsui
A web3 researcher. Operating the newsletter "web3 Research" delivered in five languages around the world.

Contact
The author is a web3 researcher based in Japan. If you have a project that is interested in expanding to Japan, please contact the following:

• X：@web3researchgl

• Telegram：@mitsui0x

*Please note that this newsletter translates articles that are originally in Japanese. There may be translation mistakes such as mistranslations or paraphrasing, so please understand in advance.

Good morning.
I’m Mitsui, a web3 researcher.

Today I researched ERC-8004. Rather than delving into complete technical details, I will explain its significance, overview, evolution, and future prospects.

What is ERC-8004?
Technical Specifications
Use case
Transition and Outlook
The importance of blockchain as a foundation for trust and transactions is increasing.

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TL;DR

• ERC-8004 is a standard that provides a minimal trust layer (Identity/Reputation/Validation) on Ethereum, enabling AI agents to collaborate without prior trust relationships. It complements the “trust deficit” in existing protocols such as A2A and MCP.

• Identity uniquely registers agents as ERC-721 (NFT) tokens. Reputation records feedback (scores, tags, evidence URIs/hashes) based on signed approvals. Validation standardizes third-party verification requests and results, connecting diverse verification models (stake replay, zkML, TEE, human adjudication, etc.).

• These verification methods can be declared within Identity’s supportedTrust, positioning blockchain as a neutral trust and transaction foundation for automated transactions combined with x402 settlement, and for the future agent economy (mainnet deployment, Devconnect announcement, dAI team advancement).

What is ERC-8004?

ERC-8004 is a new standard (ERC specification) proposed on Ethereum, aiming to establish a minimal trust layer for autonomous services—referred to as “trustless agents”—such as AI agents and bots.

The background to the creation of this standard included a lack of trust between AI agents, the difficulty of visualizing evaluations, and the limitations of existing protocols.

Below, each will be explained.

◼️The “Trust” Problem Among AI Agents and the Challenge of Visualizing Evaluation

When AI agents interact with each other, the question arises: “Is this counterpart truly trustworthy?” Currently, there is no common mechanism to objectively demonstrate an agent’s past performance.

For example, even if you find an AI agent online that performs data analysis, there is no unified “rating score” to verify its reputation or past performance. As a result, users have no choice but to judge its reliability by trial and error—gathering word-of-mouth feedback and documentation or actually testing it themselves.

As a result, the following phenomena may occur.

• The rampant activities of unscrupulous agents
  Malicious developers could create new agents with no reputation one after another, take on requests to extract value, and then disappear. Without reliable identity verification, preventing such impersonation and fraud becomes difficult.

• Loss of an excellent agent
  Conversely, even sincere and capable agents cannot carry over their track record (portable reputation) and must build trust from scratch every time they enter a new market. Since their evaluations get reset everywhere, they tend to be treated as “newcomers” each time, despite their true excellence.

In this current state where “visualization of trust” is lacking, it poses a major obstacle to building an “agent economy” where AI agents engage in full-scale transactions and collaboration. It’s akin to trading with strangers in auctions or flea markets without any evaluation system, making it difficult to entrust them with confidence.

◼️Limitations of Existing Protocols (A2A, MCP, etc.) and the Role of ERC-8004

Currently, several protocols have been proposed and are being utilized to support interactions between AI agents.

Notable examples include Google’s Agent-to-Agent (A2A) protocol and Anthropic’s Model Context Protocol (MCP). A2A is a communication standard enabling agents to delegate tasks to each other or discover one another, while MCP is a standard for AI systems like LLMs to access necessary external data and tools.

However, these existing protocols do not incorporate mechanisms to establish trust. For example, A2A is designed assuming collaboration between trusted parties, such as within an enterprise, and does not account for building trust with unknown external agents. MCP is also intended for agents to access data and lacks functionality to assess the trustworthiness of other agents.

ERC-8004 serves to address this shortcoming.

ERC-8004 is an extension standard that adds a “trust layer” on top of existing A2A, enabling agents to discover and select each other, and conduct secure transactions even without prior trust relationships.

Details will be discussed later, but ERC-8004 introduces three on-chain registries to manage agent identity information, reputation and track record, and validation records on the blockchain.

If A2A and MCP define how agents communicate and share data, ERC-8004 provides the information foundation for determining whether that counterpart is trustworthy.

In fact, it is said that only by combining ERC-8004 with these protocols can the full stack of agent-to-agent transactions (communication + settlement + trust evaluation) be completed.

For example, the following workflow is envisioned: “Verify the counterparty’s identity and reputation using ERC-8004 (who they are and their track record), conduct specific negotiations via A2A/MCP, settle using a separate standard called x402, and leave evaluation feedback on ERC-8004 once the work is completed.”

Furthermore, by building these crucial standards for the AI agent economy on the neutral infrastructure of Ethereum, we ensure they are equally accessible to all AI agents.

Technical Specifications

Next, I’ll explain the technical specifications. Since providing complete details is difficult, I’ll limit myself to an overview here. If you’d like to delve deeper, please refer to the documentation.

ERC-8004 provides three lightweight on-chain registries (Identity, Reputation, Validation), adopting an approach that leaves all other application-specific logic off-chain. It builds a flexible trust model while keeping only the minimum necessary data on-chain.

◼️Identity Registry

Identity Registry is a mechanism that assigns a globally unique on-chain ID to each agent. Technically, it utilizes the URI storage extension of the ERC-721 standard (NFT) to register and manage agents as NFTs.

This enables each agent to obtain a highly censorship-resistant and portable identifier, allowing them to be viewed and transferred from existing NFT-compatible wallets and marketplaces.

Each agent is uniquely identified by the following four elements.

• namespace：Chain Family Identifier (EVM-based chains)eip155(using)

• chainId：Blockchain Network ID

• identityRegistry：Identity Registry Contract Address

• agentId：Token ID issued in the registry (ERC-721)tokenId(synonymous with)

The owner of an ERC-721 token is the owner of its agent, and due to the nature of the NFT, it is possible to transfer ownership or delegate management permissions (such as updating URIs).

Additionally, each agent NFT’stokenURIIt stores a link to an off-chain “agent registration file.” This registration file (e.g., JSON on IPFS) contains the agent’s public profile information, such as:

• Basic Information：type(schema identifier),name(Agent Name),description(Explanation),image(Image)

• Connection Endpoint：List of URIs by communication protocol and identification method supported by the agent (e.g., for A2A).well-known/agent-card.jsonMCP endpoint, ENS name, DID, agent wallet address, etc.

• Registration History：registrationsA list of agent IDs and registry information (which can be multiple, such as registrations on other chains)

• Response Reliability Model：supportedTrustThe types of trust guarantees supported by agents (such as reputation/economic collateral/TEE, etc., as described later)

This structure enables agents to publish their capabilities and contact points in a machine-readable format.

For example,endpointsand includes multiple communication methods (A2A, MCP, ENS name, DID, wallet address, etc.),supportedTrustYou can declare which types of trust mechanisms it supports.

Please note,supportedTrust If the field is empty or unset, the agent will be treated as participating only for discovery purposes and not for trust scoring.

The Identity Registry contract itself extends ERC-721 and optionally includes a function to store on-chain metadata (setMetadata/getMetadataIt also features smart contracts and events. This enables the storage of simple information (such as agent names or wallet addresses) directly on-chain for direct reference by smart contracts.

◼️Reputation Registry

Reputation Registry is an interface that standardizes the recording and publication of agent feedback (reputation information). Clients (agent users or other agents) can post feedback after interacting with an agent, leaving content such as scores, tags, and off-chain report URIs as evidence.

The basic feedback information has the following structure.

• Score：Quantitative evaluation (e.g., 0 to 100 points)

• Tag：Any label (a short identifier indicating a category or context)

• Evidence URI：Link to the off-chain report containing detailed logs, deliverables, payment receipts, and other relevant documentation

• Hash：KECCAK-256 hash of the above off-chain report (for tamper-proofing)

By designing the system to record only lightweight evaluation signals on-chain while storing detailed data off-chain, we achieve a balance between reliability and cost.

On-chain, event issuance enables tracking and aggregation of transaction histories, while advanced evaluation algorithms and analysis are handled by off-chain services.

To prevent spam-like false evaluations, ERC-8004 requiresPre-approval from the agentWe have implemented a mechanism. Specifically, the agent (server-side) issues a signed token to the client that serves as “proof of feedback posting authority.” Only clients possessing this token can write evaluations on-chain.

This token contains information such as who can evaluate, until when, and up to how many times (e.g., target agentId, client address, maximum number of posts, expiration date, etc.), and is ERC-8004 compliant.giveFeedbackIt is validated when the function is called.

Additionally, a feedback retraction feature is available, allowing posters to invalidate erroneous or unwanted ratings after submission.

◼️Validation Registry

The Validation Registry is a framework for requesting third-party verification of an agent’s deliverables and actions and recording the results.

An independent validator checks whether the agent’s output is correct or meets expectations, and by recording the result (pass/fail or score) and evidence on-chain, it ensures higher reliability.

The Validation Registry is designed as a generic interface independent of verification methodologies, enabling flexible integration of various verification models.

The verification process consists of two main stages.

1. Verification Request
   The agent owner or operator records a request in the Validation Registry for their work to be validated. Specifically, they register which validator should validate which agent’s deliverables using which data.

2. Verification Response
   The designated validator performs verification work off-chain and posts the results to the Validation Registry.

The Validation Registry itself serves a simple role focused solely on storing results and event notifications; it does not include incentive design or staking/slash logic.

Therefore, independent economic networks (protocols handling validators’ stakes, rewards, and penalties) can be freely built on top of this standard. Similarly, the standard does not dictate which validation methods should be adopted. For example, it is envisioned that diverse validation models such as the following could coexist:

• Stake-backed replay：Other participants (validators) re-execute the agent’s tasks and verify the results; in cases of fraud, the deposited collateral (stake) is confiscated to ensure integrity.

• Zero-Knowledge Machine Learning Verification (zkML)：Demonstrate the validity of machine learning model inference results using zero-knowledge proofs.

• TEE Oracle Verification：Execute code within a trusted execution environment (such as Intel SGX) and demonstrate its legitimate execution alongside a hardware-originating proof.

• Human judge’s decision：A model where results are confirmed and adjudicated through human judgment, such as governance voting.

In this way, the Validation Registry standardizes the interface for “requesting and recording verification results,” thereby providing a foundation for specialized services for each verification method—such as replay networks, zkML probers, TEE providers, and distributed arbitrator networks—to interoperate.

Having multiple verification models enables a layered defense approach: simple reputation-based trust suffices for low-risk tasks, while high-value, high-risk tasks can be secured by adding economic or cryptographic verification.

And this verification method is written into the supportedTrust field within the aforementioned “Identity Registry.” By doing so, the AI agent can automatically select the agent to negotiate with, taking into account the verification method based on the task at hand.

◼️Summary

• ERC-8004 is a standard that provides a minimal and neutral “trust layer” on Ethereum, enabling AI agents to collaborate without prior trust relationships.

• Through three lightweight on-chain registries—Identity, Reputation, and Validation—we record only the essential facts needed for trust assessments, such as an agent’s identity, past reputation, and verification results, in a common format. The specific evaluation logic, verification methods, and economic design are delegated off-chain.

• In particular, the verification methods that the agent can handlesupportedTrustBy declaring in advance and recording actual verification results through the Validation Registry, agents can automatically determine whether “reputation alone is sufficient” or “economic collateral and cryptographic verification are required” based on a task’s importance.

• This enables ERC-8004 to realize the foundation of an open agent economy with scalability and interoperability, not locked into a single trust model.

Use Case

The “Open Agent Economy” envisioned by ERC-8004 promotes collaboration among autonomous agents across various fields of web3 and AI.

The following examples are among the primary use cases currently under consideration:

• AI Agent Marketplace
  In the open market for general-purpose or specialized AI services (e.g., document generation AI, code audit AI), clients can search for and compare agents using trust scores based on ERC-8004. Clients can select AI assistants with high reputation scores based on past task completion records and customer satisfaction. For high-value tasks, additional safeguards like zkML verification can be applied, enabling tailored usage.

• DAO Governance Support Bot
  The governance assistant agent, which analyzes proposal content and provides voting recommendations within the DAO, utilizes the ERC-8004 reputation and verification layer. It accumulates reputation scores based on the accuracy of proposal analysis and past performance. For critical proposals, it includes verification results from Trusted Oracles or human audits, providing community participants with grounds to trust the bot’s advice.

• Cross-organizational task matching
  In cross-organizational task marketplaces where Company A’s AI agent commissions tasks from another agent at Company B, the reliability of trading partners is visualized using ERC-8004. This enables secure use of external AI services based on public reputation, past payment history, and validation records—even in scenarios where collaboration was previously difficult without direct trust between organizations. It forms the infrastructure for a new B2B collaboration model where “AI agents exchange work across corporate boundaries.”

• Insurance for Agents / Slash
  Utilization in insurance markets to prepare for service failures or fraudulent activities by autonomous agents. For instance, premiums could be calculated based on historical reputation scores and verification histories, or guarantee plans tailored to service quality could be offered. Additionally, while a separate protocol, a guarantee fund combining validator stake slashing (collateral confiscation) could be established. This would enable risk management solutions such as automatic payouts based on ERC-8004 validation results (success/failure).

• On-chain game NPC agent
  Applying ERC-8004 to autonomous NPCs and trader bots operating within blockchain games is also being discussed as a way to enhance the fairness of the in-game economy and the reliability of the user experience. For example, publishing the transaction success rate and integrity of AI agents handling trades on the in-game marketplace as a reputation score, or having third parties verify logs for fraudulent activity, would allow players to trade with these agents with confidence.

• NFT and Social Graph Domain
  ERC-8004-like trust frameworks can also be applied to NFT art authentication agents and content curators on decentralized social networks. For example, by recording an AI authentication agent’s appraisal history and community evaluations on-chain—such as its NFT authenticity and rarity assessments—new collectors can reliably find trustworthy experts. Furthermore, for bots performing post moderation and recommendations on decentralized social networks, recording their past history of sound operation and verification of error corrections would allow users to gather information with greater peace of mind.

As described above, ERC-8004 contributes to ensuring reliability and fostering development across various scenarios where AI and blockchain intersect. Particularly as autonomous agents utilizing LLM and similar technologies proliferate, the importance of on-chain verification of their origin, track record, and verifiability is increasing. ERC-8004 is positioned as the foundational infrastructure for this purpose.

Additionally, micropayments integrated with x402 are compatible with all of these, and autonomous asset management AI agents like DeFAI also fall under this category.

Transition and Outlook

ERC-8004 had its EIP draft published on August 13, 2025, sparking active discussions on forums like Ethereum Magicians. Subsequently, it was first deployed on various testnets. As of September 2025, the contract has been deployed on multiple testnets, including Ethereum Sepolia, Base Sepolia, Linea Goerli, and even the EVM-compatible Hedera Testnet.

Furthermore, the Ethereum Foundation (EF) recognized the importance of ERC-8004 early on and established a new AI research team, “dAI,” in September 2025. This team is led by Davide Crapis, one of the ERC-8004 proposers, and is advancing the development and adoption of ERC-8004 alongside co-proposers Marco De Rossi (formerly of Consensys) and Jordan Ellis (Google).

EF’s dAI team aims to “build a decentralized AI stack and form an AI agent economy,” planning to support the development of blockchain-AI fusion use cases starting with ERC-8004. In fact, in combination with ERC-8004, we are also working on standardizing an HTTP 402-compliant payment protocol (x402), advancing the creation of a comprehensive foundation enabling AI agents to autonomously make payments and collaborate on Ethereum.

Following approximately two months of peer review and testing, version 1.0 was completed in mid-October 2025. Proposers including Marco De Rossi (MetaMask) and Davide Crapis (Ethereum Foundation) stated, “We incorporated feedback from hundreds of researchers and industry leaders within six weeks of the August draft, resulting in significant improvements.”

These results were published online, and simultaneously, a one-day special event on ERC-8004 titled “Trustless Agents Day” was held at the Ethereum community conference “Devconnect” in Istanbul in November 2025.

The proposing team presented the vision and latest status of ERC-8004 at this event, featuring demonstrations and panel discussions. Concrete outcomes included insights gained from testnet operations (constraints in v0.4 and improvements in v1.0) and deployment plans for major L2s.

The full-scale deployment to the mainnet is rumored to be scheduled for January 16, 2026, and is expected to roll out soon.

The importance of blockchain as a foundation for trust and transactions is increasing.

Finally, we conclude with a summary and analysis.

Interest is growing not only in the crypto space but also in the AI agent economy. While we don’t yet see widespread instances of AI agents collaborating to complete tasks and make payments, it’s certain that such a world will emerge in the medium to long term.

In this context, several critical issues arise—recording evaluations, negotiations, and contracts between AI agents; handling payments; managing ownership rights—and I believe blockchain will form the foundation for all of them.

These issues are just as important as improving pure LLM performance or data and tool integration through MCPs. Without a foundation of trust and transactions, it is impossible to connect AI systems to complete business workflows.

Technically, mega-platforms could emerge. For instance, Google could develop features similar to ERC-8004 or x402. However, this would likely be built on top of Google’s centralized cloud infrastructure and become a standard usable within Gemini. As a for-profit company, it’s natural for Google to prioritize its own advantages.

That is precisely why it is meaningful to build a trust foundation between AI agents on top of blockchain—a neutral, open, and verifiable infrastructure. This will realize a world where competition arises from the applications and user experience factories built upon it, rather than from lock-in through infrastructure enclosure.

Personally, I believe the timeline is such that 2026 will still be a year of testing technologies and use cases, with the economy among AI agents truly taking off around 2027. While AI agents were much talked about in 2025, nothing truly usable emerged. It’s such a challenging field that I expect further advancements on the AI side, coupled with the maturation of blockchain’s trust and transaction infrastructure as the final piece of the puzzle.

The core ERC-8004 will continue to track information even after the mainnet launch!

That concludes our research on “ERC-8004”!

Reference Links:ERC-8004: Trustless Agents

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Disclaimer：I carefully examine and write the information that I research, but since it is personally operated and there are many parts with English sources, there may be some paraphrasing or incorrect information. Please understand. Also, there may be introductions of Dapps, NFTs, and tokens in the articles, but there is absolutely no solicitation purpose. Please purchase and use them at your own risk.

About us
🇯🇵🇺🇸🇰🇷🇨🇳🇪🇸 The English version of the web3 newsletter, which is available in 5 languages. Based on the concept of ``Learn more about web3 in 5 minutes a day,'' we deliver research articles five times a week, including explanations of popular web3 trends, project explanations, and introductions to the latest news.

Author
mitsui
A web3 researcher. Operating the newsletter "web3 Research" delivered in five languages around the world.

Contact
The author is a web3 researcher based in Japan. If you have a project that is interested in expanding to Japan, please contact the following:

• X：@web3researchgl

• Telegram：@mitsui0x

*Please note that this newsletter translates articles that are originally in Japanese. There may be translation mistakes such as mistranslations or paraphrasing, so please understand in advance.

Good morning.
I’m Mitsui, a web3 researcher.

Today, under the title “2026 Forecast Roundup,” we’ve compiled articles from prominent media outlets and VCs predicting the state of the crypto market in 2026.

a16z「17 things we’re excited about for crypto in 2026」
Bitwise「The Year Ahead: 10 Crypto Predictions for 2026」
Galaxy「26 Crypto, Bitcoin, DeFi, and AI Predictions for 2026」
Delphi Digital「The Year Ahead for Markets 2026」
Messari「Crypto Theses 2026」
Pantera Capital「Looking Ahead to 2026」
Four Pillars「2026 Outlook: Restructuring – Ponyo’s Perspective」
0xJeff「7 Crypto Lessons and Trends to know before 2026」
Seven Predictions Revealed Through Common Ground

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a16z「17 things we’re excited about for crypto in 2026」

Establishing a Smart Stablecoin Payment Network

The annual transaction volume of stablecoins will reach $46 trillion by 2025 (roughly three times that of Visa), and by 2026, advanced on/off ramps will be established that connect directly to national financial networks and QR payments, transforming the digital dollar into the foundational payment layer of the internet.

Crypto-Native Tokenization of Real-World Assets

While the on-chain tokenization of real-world assets like U.S. stocks and commodities advances, the trend extends beyond merely transplanting existing assets. Crypto-native synthetic asset methods, such as perpetual contracts (indefinite futures), are gaining traction. Notably, perpetual markets targeting emerging market equities are emerging.

Furthermore, stablecoins that become mainstream by 2025 will increasingly adopt a model where “issuance itself moves on-chain,” generating debt claims (origination) directly on the chain from the outset, rather than tokenizing off-chain loan receivables.

Upgrading Legacy Financial Systems

The overhaul of outdated banking core systems is progressing slowly, but by incorporating stablecoins and tokenized government bonds, banks can offer new functionality without a complete system replacement. 2026 will see traditional financial institutions further advance their adoption of cryptographic technology.

The Internet itself is becoming “bank-like”

In a world where AI agents autonomously trade behind the scenes, value transfers occur between systems rather than through human clicks. Value must move at the speed of information transmission. By 2026, mechanisms enabling agents to make instant, automatic payments for data and computational resources will begin to materialize, driven by the adoption of protocols like x402. Consequently, settlements become invisible network-level operations, and “banks” become part of the internet’s infrastructure.

Wealth Management for All

The democratization of asset management is advancing. Through tokenized assets and AI-driven portfolio optimization, individual investors can now access real-time, ultra-low-cost customized management.

KYA（Know Your Agent）

By 2026, as the AI agent economy gains full momentum, an infrastructure for “Agent Identity and Responsibility Verification” (KYA) will become essential—equivalent to KYC for humans. A system (KYA) will be established to provide agents with bank accounts and credit, using cryptographically signed certificates that link agents to their owners (entities) and constraints.

The AI-Driven R&D Revolution

By 2025, large-scale models will be rapidly adopted to support academic research, and by 2026, AI will be fully utilized for scientific discovery and problem-solving. Consequently, a trust infrastructure using blockchain technology—enabling data sharing and reward distribution for achievements—will be necessary for autonomous agents to collaborate and conduct research.

Countermeasures Against “Invisible Taxation” on the Open Web

AI agents are collecting content from the web and extracting value, creating an “invisible tax on the open web” that renders traditional advertising models dysfunctional. By 2026, new models—such as those automatically distributing micro-payments to content providers and next-generation sponsored content licensing models—will be explored and tested, advancing the development of web revenue infrastructure for the AI era.

Privacy is the ultimate competitive advantage.

Privacy protection is essential for driving global finance on-chain, and by 2026, privacy technology will be the most critical differentiator among blockchain chains. Some emerging L1s will accelerate efforts to emphasize transaction confidentiality by leveraging zero-knowledge proofs, aiming to lock in users through the “privacy network effect.”

Decentralization of Messaging and Quantum Resistance

Messaging apps will move away from centralized models, with decentralized, open-source communication protocols designed for the quantum computing era emerging by 2026. Messaging platforms like the Canton Network, involving major financial institutions, are being trialed globally. These platforms balance reliability and privacy, demonstrating potential to replace existing centralized messaging services.

“Secrets-as-a-Service”

The market for services that cryptographically control and share customer data and confidential information is emerging. Client-side encryption and distributed key management technologies for handling private data within smart contracts are advancing, driving progress in “service-oriented confidential information”—the provision of services that maintain data confidentiality behind AI and automated systems.

From “Code is Law” to “Specifications Are Law”

In response to the recent spate of DeFi protocol hacks, security is shifting from reactive measures—addressing issues after bugs are discovered—to proactive security. This involves defining formal specifications during protocol design and automatically rejecting deviating transactions. By 2026, strict “specifications” will be embedded into smart contracts, and designs that automatically detect and invalidate fraud unless broken will become commonplace (shifting from “code is law” to “specifications are law”).

Further Expansion and Advancement of Prediction Markets

2026 will be the year prediction markets take off. Prediction markets will be utilized in business and political decision-making, gaining attention as a risk hedging tool. Notably, AI integration will improve market prediction accuracy, and prediction market platforms will become mainstream as critical information discovery tools.

The Rise of Stake Media

A new media format emerges where content reliability is secured through staking on the blockchain. To combat the flood of AI-generated misinformation, a model where publishers themselves stake tokens to demonstrate information authenticity is gaining attention. Cryptographic tools that publicly verify content veracity also proliferate, and by 2026, media will see the emergence of a “token economy for trust.”

Off-Chain Use of SNARKs

The application of zero-knowledge proofs (SNARKs) is expanding beyond the blockchain domain, with ZK technology integrated into everyday apps by 2026. Consumer services will adopt ZK for data verification and computation while protecting user privacy, making this “blockchain-born” cryptographic technology the new privacy standard across IT.

Revenue Model Shift: From Trading to Core Business

Many crypto companies have traditionally relied on “token trading” and “exchange fees” as revenue sources, but by 2026, a clear shift will emerge toward competing based on core product value independent of trading revenue. As the market matures, trading will remain merely a stepping stone, and only companies that build products delivering long-term value to users are expected to survive.

Clarification of Regulations in the United States

By 2026, comprehensive cryptocurrency regulation by the U.S. government appears more realistic than ever, with congressional approval imminent. If enacted, it is expected to enhance transparency, establish clear industry standards, and bring an end to the current “regulatory Russian roulette” situation. Regulatory clarity will reduce uncertainty risks in the U.S. market and encourage the entry of major institutional investors.

Bitwise「The Year Ahead: 10 Crypto Predictions for 2026」

Bitcoin has completely broken its four-year cycle and set a new all-time high.

Position 2026 as the year the four-year cycle myth completely collapses. The halving-driven supply-demand model can no longer explain the market, and constant capital inflows via ETFs become the primary driver of price formation. Bitcoin transitions from a cyclical asset to an institutionalized financial asset.

Read more

Good morning.
I’m Mitsui, a web3 researcher.

Today I’ll be writing a report titled “The Future of DeFi Seen in Kamino’s RWA Deployment.”

Kamino’s RWA Deployment
Overview of Six New Products
The RWA market will disappear, and DeFi will integrate with financial markets.

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TL;DR

• Kamino has grown as a leading DeFi lending platform on Solana. However, recognizing limitations in growth and institutional adoption within crypto-collateralized, variable-rate DeFi, it has decided to fully expand into the RWA space.

• The six products—fixed-rate loans, order-based financing, off-chain collateral, institutional credit, RWA-dedicated DEX, and developer infrastructure—constitute an integrated suite of financial products designed to connect the RWA market with DeFi.

• Through these efforts, Kamino is evolving beyond a mere DeFi application into a “credit market infrastructure” that integrates real-world assets, institutional capital, and interest rate markets onto Solana.

Kamino’s RWA Deployment

On December 12, 2025, Kamino, a prominent lending protocol on Solana, announced a new development.

This announcement centers on our expansion into the RWA space, evolving beyond our existing lending capabilities to introduce six new products aimed at becoming a financial infrastructure platform for institutional investors and tokenized assets.

We’ll explain the details of each product later, but first, let’s discuss the background behind Kamino’s entry into the RWA space.

◼️What is Kamino?

Kamino is a DeFi protocol built on Solana. Launched in August 2022, it operates as a “one-stop” DeFi hub, providing multiple financial functions—including liquidity provision (LP), lending, and leveraged trading—on a single platform.

Kamino initially launched as an automated LP optimization protocol. At its August 2022 launch, it focused on providing automated management services for centralized liquidity positions to users supplying liquidity to decentralized exchanges on Solana.

Subsequently, the market environment shifted from late 2022 through 2023. While existing lending protocols on Solana stagnated due to the fallout from FTX’s collapse, the Kamino team decided to expand into the credit market. “Kamino Lend (K-Lend)” was introduced, enabling users to deposit SOL or stablecoins on Kamino to earn interest, or conversely, borrow these assets for leveraged trading.

Subsequently, Kamino leveraged its lending infrastructure to offer even more advanced strategies. With the Multiply Vault, users can employ a “loop strategy”—repeatedly borrowing against their deposited collateral for additional investments—to achieve staking yields at 2 to 3 times the scale of their principal.

In 2024, the “Kamino Points” program was launched, and the $KMNO token TGE was conducted on April 30, 2024. This initial airdrop targeted over 250,000 wallets, making it the largest token distribution event in Solana DeFi history.

As a result of this evolution, it now boasts a TVL of approximately $4 billion, cumulative lending volume exceeding $16 billion, and loan liquidation processing reaching $183 million (while maintaining zero losses for lenders).

◼️Background of Kamino’s RWA Deployment

Kamino’s next area of focus is the RWA sector.

By 2025, the issuance of RWA will increase by approximately 350%, with over $1.8 billion currently in circulation. However, integration with DeFi remains insufficient, and Kamino will address this gap.

Much of the current DeFi lending market dynamically sets interest rates through algorithms. While this is a highly innovative mechanism, it cannot achieve stable operations amid the intense volatility of collateral funds, making it unsuitable as an investment destination for large-scale markets such as institutional investors.

Kamino is therefore aiming to expand the market by targeting not only the crypto-native market but also existing massive markets such as the bond market, credit market, and equity-backed lending. While the DeFi market is worth tens of billions of dollars, each of the aforementioned markets is worth hundreds of trillions of dollars—literally orders of magnitude larger.

Therefore, we aim for significant growth by creating DeFi features tailored to the growing RWA market.

Overview of Six New Products

Below are the six new products announced by Kamino. All six products form a suite designed to bridge the RWA market and the DeFi market.

Now, I’ll explain each one step by step.

◼️Fixed Rates

This refers to a new loan product that allows borrowing at a fixed interest rate for a set period. Borrowers select a predetermined term and interest rate in advance, enabling them to continue borrowing at the same rate throughout that period regardless of market conditions.

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Good morning.
I’m Mitsui, a web3 researcher.

Today I researched the governance dispute between Aave Labs and Aave DAO.

I’d like to share what I feel is an excellent example of the conflict of interest between the protocol (DAO) and the development company (Labs) that has been unfolding in the discussions over the past few weeks.

The Background of the Governance Controversy
Comments made in the forum
Aave Labs’ rebuttal
Voices of opposition are rising from the community.
Aave Labs’ response once again
Current Governance Structure and Issues/Improvement Measures
Who owns Aave?

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TL;DR

• The integration of CoW Swap and the handling of front-end fees have sparked a major governance dispute between Aave Labs and the DAO, with concerns raised that traditional revenue is flowing to Aave Labs instead of the DAO.

• The community has criticized the lack of transparency and unilateral changes regarding revenue attribution and brand interface control, sparking strong backlash on the governance forum.

• Aave Labs asserts that “the separation of protocol and frontend” and “past fees were donation-like” justify the change in revenue distribution, but the controversy continues.

The Background of the Governance Controversy

The controversy was sparked by the partnership with CoW Swap announced on December 4th.

Aave has previously utilized Paraswap, a DEX aggregator, for its swap functionality within the UI.

In June 2022, through a partnership with Paraswap, users could directly swap tokens on the Aave frontend. The positive slippage generated during these swaps became revenue for the Aave DAO. This revenue stream functioned without charging users additional fees, sending approximately $150,000 per week to the Aave DAO treasury.

However, starting around mid-2025, Aave Labs began quietly switching its swap infrastructure to CoW Swap. In June 2025, CoW Swap announced that “Aave’s swap widget is powered by CoW Swap,” and since then, revenue deposited into the DAO via Paraswap has sharply declined.

Then, on December 4, 2025, Aave Labs officially announced on X that “Through our partnership with CoW Swap, we have enhanced the swapping experience on Aave,” and fully launched the new swap feature.

This CoW Swap integration is designed to impose an additional 0.15–0.25% fee on users, which is a major difference from the Paraswap era (where user fees were zero during the Paraswap integration).

Regarding this CoW Swap integration, there was no prior approval or explanation from the Aave DAO concerning the introduction of these fees or changes to revenue distribution. While Aave Labs technically mentioned CoW Swap compatibility in their development updates, they did not explicitly state “who receives these fees” nor did they submit it as a governance proposal for DAO confirmation.

While the change was ostensibly presented as an improvement to user experience (MEV resistance and reduced price impact), from the DAO’s perspective, it amounted to a critical matter affecting revenue sources being advanced “under the radar.” This lack of transparency was viewed as problematic, leading to the current controversy.

Points raised in the forum

These issues were questioned following a point raised in the forum.

On December 11, 2025, EzR3aL, a prominent delegator of the Aave DAO, posted an open letter to the governance forum raising questions about the future of swap fees following the CoW Swap integration.

EzR3aL conducted small test transactions himself and discovered through on-chain analysis that ETH equivalent to the fees was being sent to a specific private address, not the official Aave DAO treasury.

According to his calculations, the fees accumulated at this address from each chain amount to at least $200,000 per week, totaling approximately $10 million annually. This substantial sum is estimated to be flowing to Aave Labs rather than the DAO.

Additionally, it has been pointed out that this change halted the income previously generated from Paraswap, and the flash loan fees that the Aave protocol would have earned are not being generated in CoW Swap transactions (because CoW Swap’s solver utilizes free flash loans from Balancer and others instead of Aave).

EzR3aL characterized these as “losses amounting to tens of millions of dollars for the DAO” and posed the following questions to Aave Labs:

1. Did Aave Labs make a unilateral decision to cut off the DAO’s referral income?

2. Aave Labs employees are supposed to work for the DAO, so why did they impose fees on features that were previously free without any notice, thereby shifting the profits the DAO had been earning to the company?

3. The DAO has paid Aave Labs for UI development and funded other contributors for advanced feature development. Users engage with the Aave site for the DAO-owned protocol (Aave). By utilizing the Aave.com domain, isn’t Aave Labs siphoning off value that rightfully belongs to the DAO, thereby undermining integrity?

4. Is the switch to CowSwap purely for the users’ benefit? Or was there some kind of transactional agreement (such as kickbacks) between Aave Labs and CowSwap?

5. Some updates announced by Aave Labs on the forum include matters not discussed within the DAO’s mandate. Why is this? (While it’s acceptable to report off-protocol changes like the recent CowSwap integration on the forum, shouldn’t it be explicitly stated that these fall outside the DAO’s jurisdiction?)

This post generated significant buzz within the community, garnering numerous comments in less than 24 hours.

Particular attention was drawn to the suspicion that “Aave Labs may be capturing revenue generated from brand assets funded and built by the DAO without the DAO’s approval.”

In reality, the Aave DAO is not a legal entity, so it cannot own trademarks or enforce them in court, meaning it does not possess intellectual property. The DAO manages the Aave protocol’s smart contracts and on-chain parameters, but it does not manage the brand itself.

However, past governance proposals explicitly granted the DAO broad rights to use the visual identity “for the benefit of the Aave protocol, the Aave ecosystem, and the Aave DAO.”

EzR3aL cited this content and raised the issue, arguing that “The Aave brand was built and funded by the DAO, and this behavior regarding profits made possible by that brand power constitutes a betrayal of the DAO.”

Aave Labs’ rebuttal

In response to this post, the official Aave Labs account posted a reply stating their position.

Aave Labs’ position is essentially as follows:

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Good morning.
I’m Mitsui, a web3 researcher.

Today, I’ll be writing an analysis article on the theme “The Two Major Trends in DeFi: ‘Super Appification’ and ‘White Labeling’.” This piece summarizes the future trends I’ve observed in DeFi through my extensive daily research.

Current DeFi Winners
The rise in crypto enthusiasts and the resulting changes on the project side
Meanwhile, white-labeling is also gaining momentum.
Future Trends

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Current DeFi Winners

First, let’s organize the current winners in DeFi. What defines a winner? Here, we define winners based on fees.

Below are the top fees over the past year, listed in descending order. Some big names are on the list.

To summarize, it would be something like this.

• Stablecoin

• DeFi（DEX、Lending、LST etc..）

• Perpetual

• Meme Coin Launchpad

This article concludes that these winners have two paths forward: “super app transformation” and “white-labeling.” Please note that this analysis does not cover all players, such as stablecoin issuers, but focuses solely on the strategic directions of major players. View this content with that understanding.

The Rise of Crypto Enthusiasts and the Resulting Changes in Projects

This may be a long preamble, but please allow me to elaborate a bit more on the background information.

The number of users involved in crypto continues to grow year after year. And I believe that, along with this, the nature of the ecosystem is gradually changing.

The first generation was very simple: users connected to DeFi using wallets like MetaMask. This remains the most common usage method today.

The next generation features DeFi integrated directly into wallets. Platforms like Uniswap and Jupiter are embedded within MetaMask and Phantom, allowing users to perform swaps, lending, and staking without needing to connect to DeFi separately.

Currently, this trend is accelerating, enabling users to operate all kinds of DeFi directly from their wallets—including perpetuals with Hyperliquid embedded and prediction markets like Polymarket.

However, this was primarily focused on crypto asset management.

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Good morning.
I’m Mitsui, a web3 researcher.

Today, I’ll explain the “UNIfication Proposal” recently announced by Uniswap. I find this proposal incredibly interesting and innovative, so please watch until the end.

Background and Purpose of the Proposal
Details of the Proposal
Supporting Arguments and Concerns Regarding the Proposal
Token Burn Strategy for Other Protocols
Will the Uniswap model become one of the final forms of the protocol?

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TL;DR

• The “UNIfication” plan announced on November 10, 2025, will enable the Fee Switch and UNI burn to return value to users while unifying the governance structure through the integration of Labs and the Foundation.

• v2/v3 protocol fees fully burned as UNI via TokenJar/Firepit, Unichain fees similarly burned, MEV internalized via PFDA, v4 aggregator hook adds fee surcharge to external liquidity, 100 million UNI special burn from treasury, Unisocks LP migration & LP burn.

• The RFC → Snapshot → on-chain voting process is expected to take approximately 22 days. If all goes smoothly, execution is projected to begin in early December.

Background and Purpose of the Proposal

The “UNIfication Proposal” is a proposal jointly released by Uniswap Labs (the developer) and the Uniswap Foundation (the foundation) on November 10, 2025. It aims to further advance Uniswap through the activation of protocol fees, token value redistribution via UNI burns, and the integration of key development teams.

Uniswap has become a central player in DeFi, with cumulative trading volume reaching approximately $4 trillion. However, the UNI token has lacked a direct link to protocol revenue, making token value enhancement a challenge. Furthermore, over the past several years, development has proceeded while facing legal risks within the SEC’s regulatory environment (characterized by a strict stance under Chairman Gensler).

Amidst this, in 2024, a proposal to establish “DUNI”—an entity legally protecting Uniswap governance under Wyoming’s new law (Distributed Unincorporated Association: DUNA Act)—was passed, reducing the legal uncertainty surrounding governance. Furthermore, from 2023 to 2025, regulatory clarity in the U.S. advanced, creating an environment where Uniswap Labs could become more proactive in governance involvement.

Following these preparations, the Uniswap community is now poised to enter a new phase.

Through this “UNIfication proposal,” we aim to establish a long-term model for the Uniswap ecosystem and transition to a mechanism where protocol usage contributes to increasing UNI’s value (deflationary effect).

Details of the Proposal

The proposal consists of the following eight points.

1. Enable Uniswap protocol fees and burn UNI using those fees.

2. Send Unichain sequencer fees to this same UNI burn mechanism

3. Build Protocol Fee Discount Auctions (PFDA) to increase LP revenue and enable the protocol to internalize MEV

4. Launch the aggregator hook to transform Uniswap v4 into an on-chain aggregator that collects fees using external liquidity.

5. Burn 100 million UNI from the treasury. This represents the approximate amount of UNI that would have been burned had fees been charged from the outset.

6. Focus Labs will drive the development and growth of the protocol through measures such as eliminating interface, wallet, and API fees, as well as contractual commitments to pursue only initiatives aligned with DUNI’s interests.

7. With the shared goal of protocol success, growth and development will be funded by finance while transitioning the ecosystem team from the foundation to the lab.

8. Migrate Unisocks liquidity owned by Governance from Uniswap v1 on the mainnet to v4 on Unichain, burn LP positions, and permanently lock the supply curve.

This can be broadly categorized into three main areas, so I’ll explain them accordingly.

• 1–5: Enable Uniswap protocol fees and burn UNI with those fees.

• 6–7: Integrate Foundation and Labs to unify the promotion structure

• 8: Other

◼️Enable Uniswap protocol fees and burn UNI with those fees.

The Uniswap protocol originally included a “fee switch” feature allowing the protocol to capture a portion of trading fees, but this mechanism could only be activated through governance votes by UNI holders.

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Good morning.
I am mitsui, a web3 researcher.

Today I researched “Plasma”.

What is Plasma?
Founding Team
Main net open to the public
Proprietary Token XPL
Plasma One and Credit Cards
Will it be a winner in the stable coin chain?

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🧵TL;DR

• Plasma is centered on USDT.Stable coin-specific L1 chainand was built to complement Ethereum’s high cost and Tron’s centralization risk.

• PlasmaBFT, EVM Compatible, Bitcoin Bridge, Zero-Fee Remittance, Custom Gas Token, Concealed Remittanceand other functions to provide a low-cost, high-speed, user-friendly payment infrastructure.

• With Tether’s support, we will proceed with the financing, DeFi integration, and Binance partnership, starting immediately after the mainnet release on September 25, 2025.Billions of dollars in liquidity and utilizationThe company has acquired

What is Plasma?

Plasma is a Layer 1 blockchain dedicated to stablecoin (specifically USDT) transactions.

It was built to address the market inefficiencies of existing general-purpose blockchains, particularly Ethereum and Tron, which are the primary platforms for stablecoin distribution, and are not sufficiently optimized for high-frequency, high-volume stablecoin payments .

Ethereum is unsuitable for repetitive USD₮ transfers because transaction costs are too high, and Tron, while efficient, has centralization concerns .

Plasma aims to provide a predictable, low-cost, high-speed payment infrastructure by focusing exclusively on stable coin activity.

The following are its characteristics.

PlasmaBFT

The Plasma chain employs a BFT (Byzantine Fault Tolerance) consensus based on Fast HotStuff. This allows for high throughput while providing finality (finalization of transactions) with extremely short delays. This means that users rarely need to wait for block approval, and the system allows users to enjoy optimized speed for immediate transfer and settlement of stablecoin.

EVM Execution

The execution environment uses a Reth-based engine written in Rust and is fully Ethereum compatible (EVM compatible). This allows developers to deploy smart contracts and dApps built on Ethereum almost as they are on Plasma, and to leverage existing development tools and libraries. As a result, the ecosystem is easily scalable and provides a low barrier to entry for developers.

Native Bitcoin Bridge

Plasma features a Bitcoin bridge with a MPC (multi-party computation) verifier that allows Bitcoin assets to be securely brought into the Plasma network. In this mechanism, pBTC is issued on Plasma by locking Bitcoin, and interoperability with other chains is also ensured through LayerZero’s OFT (Omnichain Fungible Token) technology. This paves the way for BTC to be utilized for DeFi and smart contracts.

Zero-Fee USD₮ Transfers

Plasma incorporates a protocol-managed paymaster that provides a mechanism to perform USDT transfers with zero gas costs. Users can send USDT directly to the recipient without having to have a native token such as XPL, making the money transfer experience as simple as sending a message. The free money transfer has an identity-based rate limit and is designed to prevent spam and abuse.

Custom Gas Tokens

Plasma has an ERC-20 Paymaster system that allows users to use non-native token XPL to pay for gas. Users can pay for gas directly with key assets such as USDT or BTC, eliminating the need to purchase and hold XPL. This mechanism greatly improves the user experience and creates a more intuitive blockchain environment for real users.

Confidential Payments

Plasma incorporates a Confidential Payments module. This enables “shielded transactions” in which the amount and transaction metadata are hidden for USDT transfers. While the existence of the transfer is recorded, the specific amount and other information is not disclosed, thereby enhancing user privacy. This is expected to be a mechanism to ensure individual and corporate confidentiality while maintaining regulatory compliance.

Summary

These are the main characteristics, so let me try to summarize them at the end.

In addition to Plasma, there are many other stable coin-specific chains, which may differ slightly in their technical composition, but have basically similar characteristics.

Founding Team

Plasma’s founder and CEO is Paul Faecks, who previously co-founded and served as CEO of Alloy, an institutional DeFi platform. He previously worked at Deribit, a crypto asset derivatives exchange, and is a graduate of the Technical University of Munich, Germany.

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Good morning.
I am mitsui, a web3 researcher.

Every Saturday and Sunday at noon, we update the web3 Basics Report. This week we will discuss Insurance.

1. Introduction
2.Basic structure of on-chain insurance
3. representative projects
4. strengths and challenges of on-chain insurance
5. insurance and the token economy
6. possibilities in Japan
7. summary

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1. introduction

What web3 tries to solve is "transparency" and "automatic enforcement"

In the first part of this report, we examined how the ancient spirit of mutual aid has evolved into the modern insurance system. In the process, we described the challenges of the modern insurance model: opacity, payment delays, and information asymmetries. It is against the backdrop of these challenges that many people feel that insurance is necessary, but is shrouded in mistrust.

web3 proposes a new blockchain-based solution to this longstanding challenge. Specifically, it seeks to fundamentally redefine insurance with two powerful weapons: transparency and automated execution.

The data recorded in the blockchain can be viewed by anyone and cannot be tampered with, making the pooling of premiums and payment history completely transparent. In addition, smart contracts allow for a system in which insurance claims are automatically paid without human intervention if certain conditions are met.

What kind of insurance is reinvented on-chain?

So what exactly is "on-chain insurance"? It is a system that automates the entire process of contracting, collecting premiums, and paying claims through a series of smart contracts on the blockchain, without the need for a centralized insurance company.

This new model automates many of the roles traditionally filled by insurance companies and reduces intermediate costs. Above all, by increasing transparency and reliability, the new model aims to provide "peace of mind," the essence of insurance, in a purer form.

2. basic structure of on-chain insurance

Smart Contracts Automate Contract Terms

At the core of on-chain insurance is the smart contract. For example, the terms of the contract can be written in code, such as "If Smart Contract X is hacked and more than $1 million in user funds are stolen, insurance will be automatically paid from this pool according to the amount of damage.

Once this contract is deployed on the blockchain, it cannot be tampered with by third parties. In addition, since the contract can be viewed by anyone, the policyholder can be confident that the contract will be executed correctly. This significantly eliminates information asymmetries between the policyholder and the insurance provider, thereby eliminating distrust.

Funding and risk sharing for insurance pools

In on-chain insurance, a central entity does not collect premiums as a traditional insurance company does. Instead, multiple people contribute crypto assets to a common pool of funds called an "insurance pool. This contribution is not simply a premium payment, but an investment to underwrite the risk.

Participants who contribute funds to the pool are called "underwriters". They receive a commission or token incentive from the pool for covering the risk. In return, if a claim payment is required, the funds in the pool will be used. This mechanism is a direct replication on the blockchain of the spirit of mutual aid, where risk is shared jointly by multiple participants.

Automated claims payment (Oracle determines conditions)

The most innovative aspect of on-chain insurance is that it automates the payment of insurance claims. With traditional insurance, after an accident occurs, the policyholder files a claim with the insurance company, and the company investigates and examines the claim before making payment, which takes a lot of time and effort.

On-chain insurance, on the other hand, uses oracles to determine claim payment terms. An oracle is a mechanism for securely incorporating real-world data outside the blockchain into the blockchain.

For example, in the case of aircraft delay insurance, Oracle, in conjunction with an API that provides flight information, detects that a delay has occurred and passes this information to the smart contract. Upon receiving this information, the smart contract automatically transfers the insurance proceeds to the policyholder's wallet once it confirms that the pre-defined conditions (e.g., "if the flight is delayed for more than two hours") have been met. This eliminates cumbersome procedures and payment delays, allowing for immediate and transparent insurance payments.

3. representative project

Nexus Mutual: Mutual aid model ported to blockchain

Nexus Mutual is one of the oldest and leading projects in the field of on-chain insurance. They stand for a mutual assistance model built on Ethereum. Users can insure (underwrite) the risk of smart contracts and protocols by staking "NXM" tokens.

If damage occurs to the guaranteed smart contract, insurance payments will be made from the pool, but the decision on whether or not to make such payments will be made by DAO governance by the NXM token holders. This is a mechanism that goes back to the origins of mutual aid, where things are decided by consensus of the community, just as ancient "orchestras" and "associations" were managed through democratic procedures.

InsurAce: Multi-chain insurance marketplace

InsurAce is a multi-chain insurance marketplace that supports multiple blockchains (Ethereum, BSC, Polygon, etc.). Users can choose from a selection of insurance products that cover the risks of various DeFi protocols to suit their needs; InsurAce aims to make on-chain insurance more widely available to more users by offering relatively inexpensive premiums and supporting multiple chains.

Parametric Insurance (indexed insurance): triggered by weather data and on-chain indicators to pay

In the context of web3, parametric insurance is of particular interest. insurance is of particular interest in the web3 context.

For example, an agricultural insurance policy would be triggered by weather data (precipitation, temperature, etc.) provided by Oracle. Or, in the case of DeFi insurance, the insurance payout could be made automatically when a particular stable coin loses its peg ($1 value). This method is extremely compatible with on-chain insurance because it eliminates the need for loss assessment and allows for immediate payment of insurance claims.

4. strengths and challenges of on-chain insurance

Strengths: Transparency, immediate payment, global access

One of the greatest strengths of on-chain insurance is its transparency. Anyone can see on the blockchain how much money is in the premium pool, to whom, and how much was paid. This eliminates the distrust in traditional insurance models.

Next is immediate payment. With the combination of Oracle and smart contracts, insurance claims are automatically paid the moment pre-defined conditions are met. This eliminates cumbersome procedures and payment delays.

And then there is global access. On-chain insurance can be purchased from anywhere in the world, as long as you have access to the Internet. This gives people in countries and regions that are not served by traditional insurance services the means to cover their risks. This has great potential in terms of financial inclusion.

Issues: oracle risk, fraudulent claims, regulatory issues

On the other hand, there are a number of issues that need to be resolved for on-chain insurance.

The first is oracle risk. On-chain insurance relies on the oracle to provide external data, but if the oracle provides incorrect data or is hacked, there is a risk that incorrect payments could be made automatically. The development of a reliable, distributed oracle is essential.

Second, fraudulent billing. This is a major problem in traditional insurance, but fraudulent claims can also occur in on-chain insurance. An example of such fraud is deliberately taking certain actions (moral hazard) in order to meet insurance payment requirements. Community-driven DAO governance for screening and more sophisticated detection systems are required.

Third, there is the regulatory issue. In many countries, insurance is subject to strict regulation. On-chain insurance does not fit into existing insurance business laws or financial regulatory frameworks. In order for on-chain insurance to spread in the future, dialogue with regulators in each country and new legislation will be required.

5. insurance and the token economy

Designed to share risk with tokens (staking + underwriting)

Tokens in on-chain insurance are more than just a means of payment. They can serve as underwriters of risk by holding certain tokens and staking them in pools, for example, Nexus Mutual's NXM tokens.

They receive a portion of the premium as compensation for underwriting this risk. This structure is designed to provide an incentive to earn a return for taking on the risk and allows the risk underwriting function, which is traditionally carried out by insurance companies, to be delegated to a decentralized community.

DAO-type governance for "payment determination"

Many on-chain insurance policies are administered by DAOs. This means that the decision of whether or not to pay an insurance claim may also be determined by a vote of the community. For example, when a claim for payment arises, the token holder reviews the claim for legitimacy and approves it through a vote. This mechanism eliminates the traditional unilateral decisions of insurance companies and creates a transparent and democratic process.

Hybrid model with existing insurance companies

There are still many challenges before on-chain insurance can completely replace existing insurance companies. Therefore, a hybrid model is being considered as a realistic vision of the future.

For example, an existing insurance company could be responsible for premium calculation and sales activities, leaving only the payment of insurance claims to smart contracts. Another possibility is for insurance companies to tokenize their insurance products so that they can be traded in a more liquid market. This would combine the transparency and immediacy of web3 with the reliability and capital strength of existing insurance companies.

6. possibility in Japan

Affinity with a culture of mutual aid (lectures, mutual aid associations)

Japan has a long-established culture of mutual support through "ko" or mutual aid associations, which has a high affinity with the concept of on-chain insurance. The spirit of local communities and professional groups taking the initiative to share risks overlaps with the on-chain insurance of the web3 era. This cultural background will be a major strength for the spread of on-chain insurance in Japan.

Relationship with Japanese insurance regulations (Insurance Business Law, FSA guidelines)

However, in order to fully develop on-chain insurance in Japan, it is important to deal with strict insurance regulations (e.g., Insurance Business Law). The Insurance Business Law requires insurance companies to have sound management and appropriate information disclosure from the perspective of consumer protection.

How on-chain insurance will fit into this regulation or what new legislation will be required is a major issue for the future. Through dialogue with the FSA and other regulators, we need to find a way to reconcile innovative technology with a sound market.

Local Mutual Aid on the web3 (Local DAO x Insurance)

While Japan's rural areas are facing challenges such as declining and aging populations, there are still many areas with long-established communities. In the future, these communities may use web3 to establish local currencies and local DAOs, and introduce on-chain insurance to protect against disasters and illnesses, thus "web3-izing local mutual aid" may become a reality. This may allow local residents to proactively share risks and build sustainable communities.

7. summary

The Essence of Insurance = "Sharing Peace of Mind" Mechanism

Throughout the preceding and following sections, we have explained that insurance is not merely a financial product, but a human mechanism for "sharing security" that has existed since ancient times. From the ancient merchant corps to the firemen's guilds of the Edo period to the insurance companies of the modern era, the essence of insurance has remained consistent, namely, to diversify individual risks through the power of a group.

web3 could extend it transparently and globally

And on-chain insurance offered by web3 has the potential to extend this essence of "sharing peace of mind" more transparently and globally through the power of blockchain. It has the potential to dispel opaque processes and distrust and provide an immediate and fair insurance service that is accessible to all.

The value of on-chain insurance is to "return to the roots of mutual aid."

On-chain insurance does not deny the traditional insurance company model. Rather, it is an attempt to return to the "origin of mutual aid," which was nearly lost in the process of its development. A society where people can proactively share risks and help each other through the power of technology. This is the future that On-Chain Insurance aims for, and its true value.

Disclaimer：I carefully examine and write the information that I research, but since it is personally operated and there are many parts with English sources, there may be some paraphrasing or incorrect information. Please understand. Also, there may be introductions of Dapps, NFTs, and tokens in the articles, but there is absolutely no solicitation purpose. Please purchase and use them at your own risk.

About us
🇯🇵🇺🇸🇰🇷🇨🇳🇪🇸 The English version of the web3 newsletter, which is available in 5 languages. Based on the concept of ``Learn more about web3 in 5 minutes a day,'' we deliver research articles five times a week, including explanations of popular web3 trends, project explanations, and introductions to the latest news.

Author
mitsui
A web3 researcher. Operating the newsletter "web3 Research" delivered in five languages around the world.

Contact
The author is a web3 researcher based in Japan. If you have a project that is interested in expanding to Japan, please contact the following:

• X：@web3researchgl

• Telegram：@mitsui0x

*Please note that this newsletter translates articles that are originally in Japanese. There may be translation mistakes such as mistranslations or paraphrasing, so please understand in advance.

Good morning.
I am mitsui, a web3 researcher.

Every Saturday and Sunday at noon, we update the web3 Basics Report. This week we will discuss Insurance.

1. Introduction
2. mutual aid from ancient times to the Middle Ages
3. insurance by fire extinguisher/community
4. Birth of the Modern Insurance System
5. contemporary insurance models and challenges

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1. introduction

The perspective that "insurance = a mechanism for selling peace of mind"

Insurance" has become a common part of our daily lives. Life insurance, medical insurance, automobile insurance, fire insurance, and many other types of insurance are indispensable tools to prepare for any eventuality. These insurance policies transform our vague fears and risks into "peace of mind" and provide us with mental stability.

But how is this "peace of mind" provided? If we delve deeper into the essence of insurance as a "mechanism for selling peace of mind," rather than simply viewing it as a financial product, we realize that it goes beyond mere monetary exchange, and that it is imbued with the spirit of mutual support that has existed in human society since ancient times.

To understand the origins of today's complex insurance system, it is essential to trace its roots.

In the first part, we will examine the history of mutual aid, the origin of insurance, and how it evolved into the modern system of insurance. We will then clarify the challenges facing modern insurance, and in the second part, we will consider the new possibilities offered by web3 technology.

Tracing the History of "Mutual Aid" to Understand Modern Insurance

Mutual assistance is the act of helping one another and sharing common risks within a particular community or group. This is a basic social principle that has been practiced in various forms since humans formed societies. Not only families and relatives, but also tribes, villages, and occupational groups, human beings have always sought "friends to help them when something goes wrong. This spirit of mutual assistance has been refined over time and eventually sublimated into a sophisticated system of modern insurance.

For example, the risks involved in ancient commerce were far greater than we can imagine today. Once an accident occurred, such as plunder by pirates, shipwreck, or damage to cargo due to bad weather, the damage could be devastating to the merchant. To cope with such uncertainties, people voluntarily established mutual aid schemes. These practices, which existed long before the birth of modern insurance, can truly be called "the prototype of insurance.

2. mutual aid from ancient times to the Middle Ages

Merchant caravans (a system of communal protection of goods)

Merchant teams (caravans) traveling to and from ancient Mesopotamia and the Silk Road were constantly exposed to various dangers. Desert banditry, harsh natural conditions, disease, and other risks that could never be overcome when traveling alone. Therefore, it was common for several merchants to gather together and travel in a caravan.

This merchant corps was more than just a shared means of transportation; it also functioned as a risk-sharing mechanism. If one merchant's goods were stolen or damaged by bandits, the other merchants would cooperate to compensate for part of the loss. This can be seen as the germ of the concept of "co-insurance" or "reinsurance" in today's insurance.

This structure was established within a community based on trust, and was a very essential form of mutual aid, in that all participants shared each other's risks and supported each other in a spirit of reciprocity. They were able to avoid individual catastrophic risk and enable more sustainable commercial activity by spreading individual losses across the power of the whole.

Ancient Chinese and Babylonian "loss sharing" system (prototype of marine insurance)

Even in ancient civilizations, the risks of maritime trade were very great. In ancient China and Babylonia, the practice of "loss sharing" in maritime trade already existed. One famous example is the "maritime loan" provision in the Babylonian Code of Hammurabi, circa 2000 BC. This was whereby if a merchant or shipowner suffered a loss during a voyage, he would share the loss with another merchant or lender.

Ancient Chinese merchants also made "loss-sharing" contracts before setting out on a voyage to be prepared for any accidents that might occur. This was a prototype of "maritime insurance," so to speak, which jointly compensated for losses in the event of loss of cargo or sinking of a ship. Although these systems were not yet based on modern actuarial principles or probability theory, the basic idea of diversifying risk through the power of the group is common to modern insurance.

The structure of mutual aid organizations such as "Ko" and "Yorimoko Ko" in the Edo period

In Japan, the culture of mutual support has taken root since ancient times. One of the most representative examples is the "ko. The well-known "Ise-ko" and "Fuji-ko," which were used to accumulate funds for travel expenses to Ise or to climb Mt.

One such example is the "Fire Prevention Association" or "Water Prevention Association" to prepare for fires and disasters. Residents of a village or town would regularly pool their money and rice, and when someone's house was damaged by fire or flood, they would receive aid from the accumulated funds.

The "tanomoshiko" also functioned as a financial mutual aid organization. In this system, a number of people gathered together and periodically contributed a certain amount of money, which was then loaned to one person at a time by lottery or bidding each time. For those who needed funds for sudden expenses or business, this had the advantage of raising funds without paying interest. These schemes were built on a foundation of trust within a strong community based on blood and land ties, and can be said to be the origin of modern mutual aid associations and mutual aid organizations.

3. insurance by fire extinguisher/community

Edo Firemen's Union → Sharing the Fire Risk

The town of Edo was densely built with wooden structures, and fire was the most feared disaster. At that time, once a fire broke out, there was a risk that it could spread to the entire town in an instant. To cope with such risks, the townspeople of Edo formed a "fire extinguisher association," which functioned as a vigilante group. The firefighters, carpenters, steeplejacks, etc., were led by townspeople, who were assigned to their own posts and cooperated with each other to extinguish fires.

This firemen's association did more than simply extinguish fires; it also played a role in assisting those who had lost their homes to fire. The members of the cooperative would share the costs in advance, and in the event of a fire, they would jointly help the victims rebuild their homes, thus fulfilling the function of "fire insurance. The fact that the residents themselves took the initiative in sharing the risk and helping each other, rather than a specific specialist, strongly reflects the spirit of mutual assistance.

Fire insurance was born in the wake of the great fires of Europe

Even in Europe, large fires were a serious problem that threatened the survival of cities. In particular, the Great Fire of London in 1666 marked a turning point in the history of fire insurance. The Great Fire almost destroyed the center of London, leaving many citizens homeless. Witnessing this devastation made people keenly aware of the need to prepare for large-scale risks that cannot be handled by individuals.

This lesson led Nicholas Bourbon, an architect, to establish the world's first fire insurance company in 1681. He established a business model that is almost identical to that of modern insurance companies: statistically calculate fire risks, collect premiums, and pay out insurance claims to those who suffer losses from fires. This fire insurance company was revolutionary in that it collected premiums from an unspecified number of policyholders and allowed for broader risk diversification, whereas previous mutual aid had relied on trust relationships within communities.

Evolution from "union" to "company"

Mutual aid schemes were originally based on trust and geographical ties within specific communities and associations. However, as the industrial revolution and urbanization progressed, people's social ties became weaker, and a new mechanism was needed to cover a wider range of people. This is where the form of the "company" emerged.

Insurance companies have specialized knowledgeable professionals (e.g., actuaries) who statistically analyze risks and calculate fair insurance premiums. They have established a business model in which they collect premiums from an unspecified number of people, manage them as one huge pool (premium pool), and pay out insurance claims in the event of an accident.

This evolution has allowed for more efficient, large-scale risk diversification while maintaining the spirit of mutual aid. This has transformed insurance from being limited to a few communities to an infrastructure that supports society as a whole.

4. the birth of the modern insurance system

Lloyd's of London (started as insurance for sailors)

London played a central role in the development of the modern insurance system. One of the most famous is "Lloyd's of London": in the late 17th century, Edward Lloyd's Coffee House was a meeting place for shipowners, merchants, and investors. It was here that they exchanged navigational information about each other's vessels and entered into agreements to share the risks of their individual voyages. This practice eventually became organized and became the prototype for today's Lloyd's.

Lloyd's is not a specific insurance company, but a collection of individual underwriters (syndicates) that specialize in underwriting insurance.

When shipowners seek insurance for a voyage, they visit this coffeehouse to recruit underwriters (underwriters) to underwrite the risk. Underwriters underwrite a portion of the risk and are rewarded from a successful voyage, but are liable for the loss of the underwriter in the event of an accident. This structure reduces the risk of individual bankruptcy by spreading the risk among several underwriters, thus making large-scale maritime trade possible.

Industrialization and the Spread of Life Insurance in the 19th Century

As the Industrial Revolution gained momentum in the 19th century, the concentration of population in cities further weakened family and community ties. In addition, factory work was hazardous, and when a worker died of accident or illness, the family left behind was at increased risk of being left destitute. These social changes created a rapidly growing demand for life insurance.

Life insurance is a mechanism to financially cover an individual's mortality risk. Life insurance companies used statistics and probability theory (actuarial science) to accurately calculate mortality rates based on age and health status to determine appropriate premiums.

This has allowed many people to prepare for their family's future at an affordable cost. The expansion of life insurance not only stabilized the lives of individuals, but also had a profound impact on the economy as a whole. The huge pools of premiums collected by insurance companies became an important source of funding for infrastructure investments, such as railroads and factories, and helped fuel industrialization.

Life insurance in Japan during the Meiji Era (Dai-ichi Life Insurance, Meiji Yasuda Life Insurance, etc.)

The modern insurance system was introduced in Japan during and after the Meiji period (1868-1912), with Meiji Life Insurance Company, founded in 1881 under the leadership of Saigo Takamori's younger brother, Saigo Yukimichi, and Dai-ichi Life Insurance Company, founded in 1888, being the pioneers of modern life insurance in Japan. At that time, Japan was rapidly westernizing and actively adopted advanced social systems and financial technologies from the West.

These companies did not merely imitate Western systems, but popularized insurance in a way that was adapted to Japanese culture and social conditions. During the chaotic period following the Meiji Restoration, people's lives were unstable, and the importance of being prepared for contingencies was accepted by many. Initially, insurance spread mainly among the wealthy and intellectuals, but it gradually spread to the general public as well. As a result, life insurance became one of the important pillars supporting the family system and social stability in Japan.

5. contemporary insurance models and challenges

Insurance company model (premium pooling, risk diversification)

The modern insurance model essentially functions around an "insurance company". In this model, the insurance company manages the premiums collected from policyholders as a "premium pool" and pays claims from that pool.

Insurance companies also diversify individual risks by underwriting multiple policies. For example, in the case of automobile insurance, the premiums of a large number of policyholders who do not cause accidents are used to pay the claims of a small number of policyholders who do.

Insurance companies use statistical data and past accident cases to calculate premiums. This allows them to offer fair premiums to specific groups of policyholders and establish a sustainable business model. Furthermore, by raising investment income on premiums, the company secures profits and expands its business. This model is an extremely effective mechanism for efficiently distributing risk throughout society and supporting individual economic stability.

Challenges: opaque premium calculation, payment delays, information asymmetry between policyholder and company

Although the modern insurance model is highly developed, it also faces some deep-seated challenges.

First is the opaque premium calculation.

Insurance premiums are determined based on a vast amount of data held by insurance companies, but the calculation process is a black box to the average policyholder. Policyholders have no choice but to trust the insurance company, as it is difficult for them to determine whether the premiums they are quoted are truly fair. This opacity is often a breeding ground for distrust.

Second, late payments.

Insurance claims are paid to compensate policyholders for losses suffered, but the payment process can be complex and time-consuming. Particularly in the case of major disasters or complex accidents, insurance payments can be delayed, preventing victims from rebuilding their lives.

Third, there is an information asymmetry between the contractor and the company.

Insurance companies have experts and statistical data, while policyholders have only their own information. This asymmetry of information leads to insurance companies always having the upper hand. For example, in many cases, payment of insurance claims is denied because of complicated conditions or exclusions that the policyholder is unaware of.

'Insurance is necessary but distrustful' issue

These challenges have caused many people to feel that insurance is essential, but somewhat mistrustful. Insurance is supposed to provide "peace of mind," but opaque processes, complicated procedures, and asymmetric information can create anxiety and frustration.

Resolving this distrust and creating a more transparent, efficient, and fair insurance system is a major challenge for the future. web3 offers a completely new approach to this challenge. In the second part, we will take a closer look at how blockchain technology is reviving the ancient spirit of mutual aid in the modern world and fundamentally changing the way insurance is provided.

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Disclaimer：I carefully examine and write the information that I research, but since it is personally operated and there are many parts with English sources, there may be some paraphrasing or incorrect information. Please understand. Also, there may be introductions of Dapps, NFTs, and tokens in the articles, but there is absolutely no solicitation purpose. Please purchase and use them at your own risk.

About us
🇯🇵🇺🇸🇰🇷🇨🇳🇪🇸 The English version of the web3 newsletter, which is available in 5 languages. Based on the concept of ``Learn more about web3 in 5 minutes a day,'' we deliver research articles five times a week, including explanations of popular web3 trends, project explanations, and introductions to the latest news.

Author
mitsui
A web3 researcher. Operating the newsletter "web3 Research" delivered in five languages around the world.

Contact
The author is a web3 researcher based in Japan. If you have a project that is interested in expanding to Japan, please contact the following:

• X：@web3researchgl

• Telegram：@mitsui0x

*Please note that this newsletter translates articles that are originally in Japanese. There may be translation mistakes such as mistranslations or paraphrasing, so please understand in advance.

Good morning.
I am mitsui, a web3 researcher.

Today we will discuss Coinbase's business structure and strategy. Most recently, the company has been aiming to build a super-application for trading everything under the banner of "Everything Exchange," and we will unravel the aims behind this.

🟦Basic information about Coinbase
🚩Coinbase's 6 aims
💬 Can you commit to a medium- to long-term future?

Subscribe now

🧵TL;DR

• Coinbase, a publicly traded company founded in 2012, promotes "Everything Exchange" with Custody, Staking, USDC collaboration, Derivatives, and its own L2 "Base" in addition to physical trading.

• Revenues will be shifted to the two pillars of "Trading (high volume)" and "Subs & Services (stable revenues such as USDC interest, staking, Custody, etc.)" and non-trading revenues will be strengthened after the market downturn and layoffs in 2022.

• Expand the on-chain economy starting from the user experience and spin the long-term growth flywheel with high-profit products (derivatives, etc.) and tokenization of new assets while reducing reliance on trading.

🟦Coinbase Basic Information

First, let us briefly review some basic information.

Company Overview

• name of company：Coinbase Global, Inc.（NASDAQ: COIN）

• establishment (of a business, etc.): 2012 (San Francisco, U.S.A.)

• co-founder: Brian Armstrong (former Airbnb engineer), Fred Artham (former Goldman Sachs) .

• Background：

  • In 2011-12, Armstrong saw the potential of bitcoin while at Airbnb, joined YC to refine the prototype, and later joined Artham (then a GS trader) to co-found the company. The initial central proposition was "to make the experience of buying crypto assets easy for everyone."

  • In the beginning, the company started with a product that "anyone can safely buy bitcoins via bank transfer". The company name is derived from the PoW "coinbase transaction.

→ The pitch materials for the YC Demo Day arethis way (direction close to the speaker or towards the speaker)The information is available to the public at

Major Transitions

• 2012：Founded Coinbase: In October, launched a service that allows customers to buy and sell BTC via bank transfers.

• 2013：Funding from USV and others (Series A) - Expanding as a "gateway" for consumers to purchase BTC.

• 2016：Coinbase Pro rebranded its exchange division to "GDAX" (later Coinbase Pro).

• April 14, 2021：Listed on NASDAQ(Ticker: COIN). An iconic example of a publicly traded crypto asset company.

• 2022: Decided to optimize costs (layoffs) in response to deteriorating market conditions, and clarified that the business was to "break away from dependence on trading".

• February 2023 → August 2023L2 "Base" was released (February, Test Net) → Main Net was opened to the public on August 9. Accelerated diffusion with "Onchain Summer".

• 2023: International derivatives exchange opened outside the U.S., expanding futures and indefinite futures (a milestone along the Everything Exchange path).

• May 2025 (announced) → August (closed)Acquisition of Deribit, the world's leading crypto derivatives exchange, for approximately $2.9 billion. The company has expanded its full lineup to include the options sector at once.

• presentAs the first US regulated and publicly traded company, it is promoting to become an "Everything Exchange" that integrates physical trading, custody, staking, USDC, derivatives, and its own L2 (base). The company is currently promoting the creation of an "Everything Exchange.

◼️ business-structure

Next is Coinbase's business structure. Understanding this is the key to deciphering Coinbase's prospects. You will see why they are acquiring derivative exchanges, why they are doing Base, why they are aiming to become Everything Exchange, and so on.

Here is the Q2 2025 financial data (Q2-2025-Shareholder-Letter ).

Transaction Revenue

• Consumer (for individual investors)

  • Mainly trading commissions. Still the largest revenue source.

  • The amount increased sharply (over $1 billion) during strong market periods such as Q4'24 and Q1'25.

• Institutional

  • Large transaction fees through Coinbase Prime.

  • Although the overall ratio is small, it is stable due to liquidity provision and OTC transactions.

• Other transaction revenue

  • Mainly sequencer fees for their L2 "Base" chain and minor transaction revenue for specific services.

2. subscription & services revenue (Subscription and Services Revenue)

• Stablecoin revenue

  • Interest share of USDC reserves. Depends on the level of U.S. interest rates and the volume of USDC in circulation.

  • Reached $330 million in Q2'25, a stable revenue pillar.

• Blockchain rewards

  • Staking fees (PoS assets such as Ethereum).

  • Fluctuates according to market conditions and network compensation rates (Q2'25 was in the $140 million range).

• Interest and finance fee income

  • Interest on funds held by customers and interest on loan services.

  • The amount is linked to the interest rate environment, hovering around $60 million.

• Other subscription and services

  • Coinbase One (subscriber membership service) revenue, custody fees, and cloud services for developers.

  • It will grow to $120-140 million scale in 2025.

You can see that they have diverse revenue sources, but (1) transaction revenue is highly volatile, whereas (2) subscription & service revenue is relatively stable.

In fact, this transition is a very interesting part of the process.

As you can see, trading revenues are very volatile.

In fact, revenues were high in 2021 at the time of the IPO, but declined sharply in 2022. This is because trading revenues are sensitive to market conditions.

In response to this deterioration in profitability, Coinbase implemented a major layoff on June 14, 2022, reducing the size of its team by approximately 18%.

At this time, Coinbase has indicated that it will focus on "subscription & service revenue" that is not dependent on transaction revenue (= market conditions).

He then stated that in August 2025, the company will become an "everything exchange," and that it is aiming to become a financial super-application that can handle all assets.

In addition, the 2025Q2 letter to shareholders and financial results presentation explain a three-step product strategy to realize this long-term vision.

The evolution of crypto-assets into "Phase I: investment vehicles," "Phase II: updating the financial system," and "Phase III: app platforms," emphasizing the vision of a time when the on-chain will be the new Internet, seeking to update all aspects of the financial system. He emphasized his vision of an era in which the on-chain will become the new Internet, updating all aspects of the financial system.

🚩Coinbase's 6 aims

So, what exactly is your business strategy? Here is my personal discussion based on publicly available information.

①Expansion of Coinbase One

Read more

Good morning.
I am mitsui, a web3 researcher.

Every Saturday and Sunday at noon, we update the web3 Basics Report. This week we will be discussing the "Right of Use of Ownership".

What is NFT? Technical Structure
Misunderstanding of NFT and copyright (proof of ownership, not rights to the work itself)
NFT issues (copyability, immaturity of legal arrangement)
Hybrid model of usage rights (license) and NFT
Future Outlook: Shift from "owning" to "being involved

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What is NFT? Technical Structure

In the first part of this report, we confirmed that while ownership of physical "objects" has been the foundation of social stability and economic development, clear ownership of digital "data" has not been established, and "usage rights" provided by platforms have become the mainstream.

NFT has emerged as a new solution to this challenge. In the second part, we will first explain in detail the basic concept of NFT and the technical mechanism that supports it.

NFTs are "non-substitutional tokens". This refers to the property that each individual token has unique value and information, and is unique and distinguishable from others. For example, the 1 bitcoin I have (a substitutable token) and the 1 bitcoin you have have have exactly the same value and are interchangeable, but the NFTs we have are irreplaceable because each has a unique value.

So how exactly does the NFT achieve uniqueness?

The key lies in the "token ID" assigned to each individual NFT and the "smart contract" that governs the issuance and management of the NFT.

In the case of NFTs, the smart contract defines information about the name of its NFT collection, the total number of tokens issued, and the token ID, a unique number to identify each individual token.

This token ID is the source of the uniqueness of the NFT: when an NFT is traded, the information "Owner of token ID #1 was changed from Mr. A to Mr. B" is recorded on the blockchain. This record cannot be tampered with by anyone and can be viewed by anyone due to the nature of the blockchain. This enables the following important functions

1. Proof of Authenticity: You can prove that the NFT is authentic and issued by a specific creator.

2. Proof of ownership: It provides clear proof of who currently owns the NFT. The record on the blockchain acts like a real estate registry.

3. Traceability of transaction history: The history of transfers from whom to whom from the time the NFT was issued to the present can be fully tracked.

In addition, NFTs also have an important feature called "Interoperability. Many NFTs can be handled by various wallets and marketplaces without being tied to a specific platform. This is a definite departure from the way digital content has traditionally been handled.

Thus, NFT is a revolutionary mechanism that combines blockchain technology and smart contracts to provide digital data with uniqueness, authenticity, possibilities of ownership, and interoperability that were previously impossible.

NFT and copyright misunderstandings (proof of ownership, not rights in the work itself)

One of the most common misconceptions that has emerged in the rapid proliferation of NFTs is that "if you buy an NFT, you also get the copyright to its digital content. However, this is wrong in principle: the ownership of an NFT and the copyright of the content associated with that NFT should be treated as completely separate rights.

Copyright is an intellectual property right that protects creative expressions (works) such as literature, music, art, and programs. Copyright automatically accrues to the creator of a work when it is created.

NFT ownership, on the other hand, refers to exclusive control over a specific "token ID" recorded on the blockchain; NFTs serve as a kind of "digital certificate" to prove the authenticity and ownership history of digital content.

This relationship is easier to understand when compared to the transaction of a physical work of art.

When a purchaser buys a painting (an original painting) created by an artist, the purchaser acquires ownership of the tangible object, the painting, but the copyright in the painting remains with the artist in principle. The purchaser may not copy and sell the painting or publish it on the Internet without permission.

NFT transactions are structured essentially the same way.

When NFT art is purchased, what the buyer gains is ownership of the NFT tied to that artwork. This means that he/she is the owner of that authentic digital art, as evidenced on the blockchain. However, unless otherwise agreed, the copyright to that digital artwork continues to be held by the artist who created it. Therefore, any commercial use of the artwork by the owner of the NFT, such as printing it on a T-shirt for sale or using it in an advertisement, is likely to constitute copyright infringement.

This is the source of much confusion and trouble regarding NFTs: how exactly can NFT owners use the content they have purchased? This depends on the "terms of use" (license) set forth by the individual NFT project or marketplace.

Many NFT projects allow "personal and non-commercial use" for their owners. On the other hand, projects vary widely in their approach to commercial use: some, such as Bored Ape Yacht Club (BAYC), give owners relatively broad permission for commercial use, while others adopt Creative Commons Zero (CC0) and allow anyone to freely use the material. Some projects allow anyone to use them freely.

While NFT is a powerful tool to prove ownership of digital content, it alone cannot dictate how the content is used. Only by appropriately combining ownership (NFT) and usage rights (license) can the value of digital content be maximized.

NFT issues (copyability, immaturity of legal arrangement)

NFT is a revolutionary technology, but its rapid development has also highlighted various challenges and risks.

Copyability (right-click save issue)

The question, "How can digital data be said to be possessable when it can be so easily copied?" is one of the most frequent criticisms of NFT. The answer to this question is that NFTs do not prove "ownership of data," but rather "ownership of tokens associated with genuine data.

Copied data is clearly distinguished from the original because it is not tied to a proof on this blockchain; the value of an NFT lies in the authenticity, rarity, and ownership status of the data.

Immaturity of legal arrangement

Another major challenge facing NFTs is that the relevant legal system has not kept pace: the legal nature of NFTs (e.g., whether they are subject to ownership rights, whether they are financial instruments, etc.) is unclear, and it is unclear what legal protection owners will receive in the event of a dispute. In addition, there is a lack of clarity regarding copyright infringement and money laundering. In addition, there is a need to ensure consistency with existing laws in terms of anti-piracy and anti-money laundering measures.

These legal challenges can be a hindrance to the healthy development of the NFT market. As technology evolves, countries are rushing to develop legal systems and guidelines.

Hybrid model of usage rights (license) and NFT

The "digital ownership" that NFTs bring is revolutionary, but it alone cannot maximize the value of digital content, as NFT ownership only proves ownership of the token, and does not dictate how the tied content can be used.

It is the copyright and the "usage rights (license)" based on the copyright that govern how content is used. Therefore, in order to maximize the potential of NFT, it is important to build a "hybrid model" that appropriately combines ownership (NFT) and usage rights (license).

NFTs allow creators to set various terms of use for their works and grant them directly and transparently to their owners. For example, the same work of art can be issued under multiple NFTs with different licenses.

The combination of NFTs and smart contracts is also expected to lead to "smart licenses" that automatically enforce the terms of license agreements.

For example, a mechanism can be established whereby each time a derivative NFT is bought or sold, a portion of the proceeds are automatically paid as royalties to the original creator's wallet. This will make rights handling transparent and automated, leading to the development of a creator economy.

Looking ahead: the shift from "owning" to "engaging"

The future that NFT will bring is not limited to the mere ownership and transaction of digital assets. Beyond that, we will see a new socio-economic system in which the concept of "ownership" itself will be further expanded, and the emphasis will shift from "owning" to "being involved.

In DAOs, NFTs and tokens serve not only as assets but also as "memberships" and "governance tokens" (voting rights). Holding a particular NFT qualifies one to participate in the DAO, and depending on the amount held, one is granted the right to participate in proposals and votes on the direction of the project.

This is a new model in which "ownership" is directly linked to "involvement.

In the web3 world, the "owner" becomes more than just a consumer or investor, but a "participant" who contributes to the growth of the project. Ownership provides not only increased property value, but also a more multifaceted value: a sense of belonging to the community, the right to participate in decision-making, and a contribution to the growth of the project.

At the heart of web3's vision of a decentralized society is this major trend of redefining "ownership. Beginning with the ownership of physical objects, evolving through intellectual property rights and the right to use digital data, to the ownership of digital assets, ownership is now being extended beyond mere exclusive control to have a more social meaning, such as the right to participate in the community and to prove one's contribution. In this sense, ownership has evolved beyond mere exclusive control.

This is an explanation of ownership and copyright, and an explanation to the misunderstanding of NFT.

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Disclaimer：I carefully examine and write the information that I research, but since it is personally operated and there are many parts with English sources, there may be some paraphrasing or incorrect information. Please understand. Also, there may be introductions of Dapps, NFTs, and tokens in the articles, but there is absolutely no solicitation purpose. Please purchase and use them at your own risk.

About us
🇯🇵🇺🇸🇰🇷🇨🇳🇪🇸 The English version of the web3 newsletter, which is available in 5 languages. Based on the concept of ``Learn more about web3 in 5 minutes a day,'' we deliver research articles five times a week, including explanations of popular web3 trends, project explanations, and introductions to the latest news.

Author
mitsui
A web3 researcher. Operating the newsletter "web3 Research" delivered in five languages around the world.

Contact
The author is a web3 researcher based in Japan. If you have a project that is interested in expanding to Japan, please contact the following:

• X：@web3researchgl

• Telegram：@mitsui0x

*Please note that this newsletter translates articles that are originally in Japanese. There may be translation mistakes such as mistranslations or paraphrasing, so please understand in advance.

Good morning.
I am mitsui, a web3 researcher.

Every Saturday and Sunday at noon, we update the web3 Basics Report. This week we will be discussing the "Right of Use of Ownership".

Introduction: Why Understanding Ownership and Use Rights is Essential to NFT
Ancient - Modern: Establishment of ownership of land and real estate
Since the Industrial Revolution: Patents, Copyrights, and Licensing Mechanisms
The Digital Age: Music CDs and Distribution Services, DRM, and the Subscription Model
Difference between ownership of "objects" and "data
Trust and stability that ownership provides to society

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Introduction: why understanding ownership and use rights is essential to NFT

In today's society, the Internet and digital technology have become the foundation of our lives, and the physical reality and the digital world are merging seamlessly.

In recent years, NFT has attracted particular attention. Phenomena such as digital art being traded at high prices and land in the metaverse being bought and sold are not just transient booms, but have the potential to fundamentally change the concept of "ownership" in the digital age.

However, the debate over NFTs often leads to confusion.

There is no end to the misconceptions that "since I bought NFT art, I should also get the copyright," and "how can I say I can own digital data when I can so easily copy it?" The main cause of this confusion is the confusion between the different concepts of rights: ownership rights to physical "objects" that we have long been familiar with, usage rights (licenses) that allow us to use digital content, and copyrights that protect our creations.

For example, when we purchase a physical book at a bookstore, we take ownership of that book. The book is our property and we are free to read it again, lend it to a friend, or sell it to a used bookstore. However, the copyright to the content of the book, the story and knowledge created by the author, still remains with the author or publisher. Buyers are not allowed to copy and sell the contents of the book without permission or to publish it on the Internet. Two different rights exist here: ownership of the physical medium and copyright of the content as information.

On the other hand, if we purchase an e-book as a download, the situation is more complicated. We feel that we have paid a price and "purchased" the e-book, but what we have legally obtained is only the right to use the content to view it on a particular platform. If the platform terminates its service, we may not be able to read the e-book we would have purchased, and we usually cannot rent or sell it to others. The "purchase" here is a fundamentally different contract than the transfer of physical ownership.

NFT is an attempt to provide a solution to the ambiguous "ownership" situation unique to the digital age using blockchain technology. This paves the way for previously difficult to prove the rarity and authenticity of digital items, allowing them to be traded and transferred in the same way as physical objects.

However, the "digital ownership" brought about by NFT differs neither from traditional physical ownership nor from mere usage rights: purchasing NFT does not necessarily transfer the copyright to the digital content. To properly understand this new form of ownership, we must first unpack how "ownership" and "use rights" have historically been formed and distinguished, and how the evolution of digital technology has affected these concepts.

In the first part, we will overview how humans have acquired the concept of ownership and how intangible property rights such as copyrights and licenses have developed since the Industrial Revolution. It will also clarify the difference between ownership of "objects" and "data" in the digital age, and discuss the role that property rights play in society. In the second part, based on these historical and conceptual arrangements, we will delve deeper into NFT technology, specific use cases, and the challenges facing NFT and its future prospects.

Ancient to Modern: Establishment of ownership of land and real estate

The concept of ownership is a right that we take for granted today, but it is by no means universal. It is a social consensus and a legal system that has been gradually formed and established through social transition, development of economic activities, and political struggles over the long history of humankind.

The most important object in understanding the history of property rights is land. Since land could not be moved, was the basis of production activities, and was a resource essential to the survival of humankind, who controlled and used it was decisive in shaping the social order.

In ancient societies, land and resources were not the exclusive property of a particular individual, but were shared by tribes and communities. However, with the onset of agriculture, mankind became sedentary. The harvest from the land one labors to cultivate is one's own, and the desire to prevent others from taking it away from one's self gave rise to property rights.

It was ancient Rome that laid the foundation for modern ownership. Roman law defined ownership (dominium) as "complete dominion over a thing. This includes the right to use the thing, to derive income from the thing, and to dispose of the thing.

Importantly, Roman law viewed ownership as an absolute and exclusive right belonging to the individual. This concept would have a profound influence on the legal systems of later European countries.

In the feudal societies of medieval Europe, ownership was again complicated. A hierarchical structure was formed in which all land theoretically belonged to the king, who granted land to the lords, and the lowest peasant farmers cultivated the land. This was what could be called "divided ownership," with multiple entities holding different rights to a single piece of land.

It was the Civil Revolution of the early modern period and into the modern era that led to a major transformation in this feudal way of owning land and the establishment of modern property rights. Enlightenment thinkers asserted that property rights were the natural birthright of human beings and the foundation of freedom and equality.

The Declaration of the Rights of Man and Citizen (1789), adopted during the French Revolution, declared that "the right of ownership is a sacred and inalienable right." It was intended to overthrow feudal privileges and guarantee the right of individuals to freely own and trade in property.

Subsequently, modern ownership was established as an exclusive and absolute right of control over a specific object (mainly a tangible object such as land or movable property). An important system of registration was then developed to guarantee this right throughout society.

Real estate registration is a system for recording information about who owns which piece of land in a public ledger and making it publicly available. This has enabled the safe and smooth transfer of ownership and has become an indispensable infrastructure for a functioning market economy.

Since the Industrial Revolution: How Patents, Copyrights, and Licenses Work

While modern property rights were primarily concerned with tangible objects, the Industrial Revolution created a new form of property that could not be captured within the conventional framework. These are the inanimate objects that result from man's intellectual and creative activities: ideas, technologies, and works of art. Since these intangible properties have no physical form, it has been difficult to apply the traditional concept of ownership to them as they are.

If these intangible properties receive no protection, inventors and writers who invest their efforts will soon be imitated by others and will lose the incentive to create. This could hinder the technological progress and cultural development of society as a whole.

In order to protect such intellectual creative activities and promote innovation, a new system of rights called Intellectual Property Rights (IPRs) has been established. The most representative of these rights are patent rights and copyrights.

A patent is a right to protect a new technical invention. In exchange for making the invention available to society, the inventor is granted exclusivity for a certain period of time. This guarantees the inventor the opportunity to recover his/her investment and profit, while at the same time the technical information disclosed to the public is accumulated as knowledge for society as a whole.

On the other hand, copyright is the right to protect cultural and artistic creations such as literature, music, and art. 1710, the Queen Anne Act was enacted in England, granting authors the exclusive right to reproduce and publish their works for a certain period. This is considered the world's first modern copyright law that recognizes works as the property of their authors and protects their rights.

Both patent rights and copyrights are similar to the ownership of tangible objects in that they are exclusive rights of control over an intangible object. The crucial difference, however, is that the rights are finite in time.

Intellectual property rights expire after a certain period of protection, and the invention or work becomes public property (public domain) and can be freely used by anyone. This is a mechanism to balance the interests of the individual creator with those of society as a whole.

The establishment of these intellectual property rights has given rise to a new business model: licensing.

A license agreement is an agreement in which the right holder (licensor) permits another party (licensee) to use its intellectual property under specific conditions (term, region, method of use, consideration, etc.). This has facilitated the distribution of intellectual property and led to the creation of a wide variety of products and services.

The Digital Age: Music CDs and Distribution Services, DRM, and the Subscription Model

The rapid development of digital technology and the spread of the Internet from the end of the 20th century to the 21st century have fundamentally changed the way information is distributed and consumed. This change has also had a profound impact on the relationship between ownership and usage rights, shaking our perceptions of how we own and use "goods" and "content. The case of the music industry is very instructive in understanding this transition.

In the analog era, music was recorded and sold on physical media such as records and cassette tapes. The act of purchasing a record meant that the consumer gained ownership of the physical disc. The owner was free not only to play the record, but also to lend it to a friend or sell it to a second-hand store.

CDs, which appeared in the 1980s, were also a physical medium, and their transaction was treated as a transfer of ownership, much like records. However, the situation changed dramatically in the late 1990s and early 2000s with the widespread use of digital audio compression technologies (e.g., MP3) and the Internet. Digital data could now be instantly made into countless copies and sent around the world via the Internet without any degradation in quality.

To combat this situation, the music industry has taken steps in two directions.

One is the introduction of Digital Rights Management (DRM) technology, which is designed to prevent and restrict unauthorized copying of digital content, but which has also caused significant consumer convenience problems, such as excessive restrictions on the use of content that has been legitimately purchased. However, it has also caused problems by severely impairing consumer convenience, such as excessive restrictions on the use of content that was legitimately purchased.

Another response is the launch of legitimate music distribution services. The pioneer of this model was Apple's iTunes Music Store. However, even in this download sales model, the rights acquired by consumers were in many cases merely usage rights (licenses) to use the content under certain conditions. Unlike ownership of a physical CD, resale or transfer is not permitted.

Then, in the 2010s, mainstream music consumption shifted to a subscription model, with services such as Spotify and Apple Music offering unlimited access to a vast library of songs for a monthly fee. In this model, consumers no longer own the content. What they have is the right to access and use the content on the platform for the duration of the service. Once they stop paying, they no longer have access to any content.

This trend proceeded not only in music, but also in other digital content areas such as movies, books, games, and software.

The shift from "ownership to use" is accelerating in many areas. While this shift has brought many conveniences, it has also made the concept of "digital ownership" extremely ambiguous.

There is a huge disconnect between our "sense of ownership" and the reality of our legal rights.

Difference between ownership of "things" and "data"

As a prerequisite to considering "digital ownership" brought about by NFT, it is necessary to reiterate the difference between ownership of "things (tangible objects)" and the treatment of "data (intangible objects)" in the conventional legal system.

The legal systems of many countries, including the Japanese Civil Code, have been built on the premise of the physical, real world. Under the Civil Code, property rights are established only for "tangible objects.

Tangible objects are those that occupy a portion of space and can be perceived by the human senses. These tangible objects have the following characteristics

1. ExclusivityA tangible object can only exist in one place at a time.

2. Finiteness and scarcity (Scarcity): Tangible objects are finite and production is costly.

3. Transferability: Ownership can be transferred to another party by physical delivery or registration.

Digital data, on the other hand, is information recorded electromagnetically and has no physical substance. Therefore, it does not fall under the category of a "thing (tangible object)" under the Civil Code and is not subject to ownership rights in principle. Data, on the other hand, has characteristics that contrast with those of tangible objects.

1. Non-exclusivity: Can be used by an unlimited number of people simultaneously.

2. Replicability: Perfect reproductions can be made at little or no cost and with no deterioration in quality.

3. Ambiguity of relocation: If you transmit to others, it is ambiguous whether you have "transferred" or "duplicated".

Thus, in the traditional framework, digital data has been treated as an object of "use" rather than an object of "ownership". Often when we "own" digital data, we either have ownership of the physical medium on which the data is recorded or we have usage rights to access the data.

This difference in the legal treatment of "objects" and "data" has created various challenges in the development of the digital economy.

An example is the absence of a second-hand market. Physical books and CDs can be bought and sold on the second-hand market as a transfer of ownership, but in the case of digital content, most are transactions of usage rights, and since the terms of use prohibit resale or transfer, no second-hand market is established.

Trust and stability that ownership provides to society

Why is the institution of "property rights" so important to human society? It is because it is an extremely important social and economic infrastructure that maintains social order, promotes economic activity, and guarantees individual freedom and dignity.

First, property rights contribute to maintaining peace and order in society. If property rights were not established, people would be constantly at risk of having their property taken by others, and society would be dominated by chaos and violence. By legally guaranteeing exclusive control over property and prohibiting others from encroaching on it, property rights systems reduce conflict and bring about social stability.

Second, ownership increases the efficiency of economic activity and promotes economic development. If people are guaranteed that they own the fruits of their efforts, they will be motivated to work harder and invest more. If ownership is insecure, long-term investment will not take place and the economy will stagnate.

Third, property rights enable the security and facilitation of transactions in a market economy. Markets are built on the exchange of goods and services, and unless it is clear to whom the goods subject to a transaction belong, transactions cannot be conducted with confidence. The system of ownership clarifies the location of rights and makes transactions safer.

Thus, the property rights system is the fundamental system upon which our society and economy function. It is a social consensus that has been refined over a long history to create trust and stability.

However, with the transition to the digital age, the foundations of this supposedly strong ownership have begun to shake. Despite the growing importance of digital data in our lives and economic activities, clear ownership rights to it have not been established. Our digital assets and identities are under the control of specific platform operators and are granted only usage rights.

web3 and NFT attempt to address this challenge of absent ownership in the digital age through the use of blockchain technology. Blockchain makes it possible to prove the uniqueness and authenticity of digital data and to clearly record who "owns" it exclusively.

This is an attempt to realize the role that the registration system has played in the physical world in the digital space without relying on a centralized authority.

The second part of this article will take a closer look at this NFT.

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Disclaimer：I carefully examine and write the information that I research, but since it is personally operated and there are many parts with English sources, there may be some paraphrasing or incorrect information. Please understand. Also, there may be introductions of Dapps, NFTs, and tokens in the articles, but there is absolutely no solicitation purpose. Please purchase and use them at your own risk.

About us
🇯🇵🇺🇸🇰🇷🇨🇳🇪🇸 The English version of the web3 newsletter, which is available in 5 languages. Based on the concept of ``Learn more about web3 in 5 minutes a day,'' we deliver research articles five times a week, including explanations of popular web3 trends, project explanations, and introductions to the latest news.

Author
mitsui
A web3 researcher. Operating the newsletter "web3 Research" delivered in five languages around the world.

Contact
The author is a web3 researcher based in Japan. If you have a project that is interested in expanding to Japan, please contact the following:

• X：@web3researchgl

• Telegram：@mitsui0x

*Please note that this newsletter translates articles that are originally in Japanese. There may be translation mistakes such as mistranslations or paraphrasing, so please understand in advance.

Good morning.
I am mitsui, a web3 researcher.

Every Saturday and Sunday at noon, we update the web3 foundation report. This week's report, "From God to Code. An Evolutionary History of Faith and Trust," which is a bit abstract, but explains what mankind has believed in. Please take a look at it until the end!

1. review of the first part
2. trust in the platform and its limitations
3. code is law - blockchain philosophy
4. tokens and joint illusions
5. the future of what we believe in - the direction web3 is taking
6. conclusion

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1. review of the first part

In the first part, we traced how the object of "trust," which is essential for the maintenance of a large human society, has shifted over the course of history.

Review of the first part

In prehistoric times, our ancestors maintained communal order through faith in an absolute authority called "God. In modern times, the object of trust shifted from "God" to "law. The "rule of law," which guarantees trust through rules set by human beings and the institutional apparatus of the state, was established. In the modern era, with the advance of globalization and capitalism, trust in the "market" has become the foundation of society.

God, law, and the market. These may differ in form, but they were all "devices of trust" created by humankind to maintain society, and they were "common illusions" that we all share.

So what do people believe in the 21st century Internet age?

And now we are living in the Internet age of the 21st century. In this new era, what do we believe and how do we build trust?

In our digitalized society, a new form of "trust intermediary" has emerged. This is the giant platform company represented by GAFAM.

We use the services they provide on a daily basis and take for granted the order of the digital space they have created. However, this new form of "trust" is more fragile and dangerous than ever before.

In the second part, we will first clarify the trust in platforms on which modern society relies and its limitations, and then discuss the emergence of "codes" and "tokens" as the new "things to believe," or web3 ideas and their potential.

2. trust in platforms and its limitations

The spread of the Internet, especially in the "Web 2.0" era from the mid-2000s onward, was a time when the Internet became an integral part of the social infrastructure. However, this Web 2.0 world had a centralized structure dominated by a few giant platform companies.

Web2 order: reliance on "services guaranteed by Google and Amazon".

In our daily lives, we unconsciously trust platform companies deeply.

For example, when we want to know something, we search for it on Google and trust that the information that appears at the top of the search results is correct, because we believe that Google's algorithms have sorted out reliable sources of information.

When we shop online, we use Amazon because we trust that our goods will arrive reliably and that our payments will be secure, and we trust that the Amazon platform guarantees the security of our transactions.

Thus, in the Web 2.0 world, platform companies function as "trust intermediaries. By trusting the centralized administrator, the platform company, we indirectly trust the order and security of the entire digital space.

This structure is very efficient and convenient. Platform companies manage the servers, develop and operate the services, and we are able to enjoy sophisticated services for free (or cheap). It is undoubtedly to their credit that the Internet has spread so rapidly.

However, this centralized trust model is fraught with serious problems.

Centralized problems: censorship, account freezes, risk of company bankruptcy.

Trust in platform companies is based on the assumption that they remain good and fair. However, this is not always the case in reality. When power is concentrated in one place, there is always a risk of abuse.

The first is the risk of censorship and information manipulation. Platform companies have tremendous power to control the distribution of information in the digital space. They can remove certain content or manipulate display rankings at their discretion.

Of course, it is necessary to crack down on illegal content and fake news, but the criteria for making such decisions tend to be arbitrary by companies. Platform companies' policies and algorithms are opaque, and their judgments are not always fair. The danger of a few private companies acting as gatekeepers of information can be a threat to democracy.

Second is the risk of "account freezing and loss of digital identity". If it is determined that you have violated the terms and conditions of the platform company, you risk having your account suddenly frozen (banned) or deleted.

Today, our social networking accounts and email addresses are our very digital identities. All the relationships and data we have built up over the years can be lost overnight due to a unilateral decision by a platform company.

Third is the risk of corporate bankruptcy and service outages (single point of failure). Platform companies are also not eternal. There is a risk of sudden service outages due to corporate bankruptcy or changes in management policy. A centralized system has the structural vulnerability that if the central point collapses, the entire system will malfunction.

The fragility of believing in "what is not supposed to be believed."

The fundamental problem with trust in platforms is that it is an "imputed trust". We have no choice but to trust the management and employees of the platform companies, or the opaque algorithms they have designed.

However, history shows that power will always corrupt, and people will always make mistakes. Corporations are profit-seeking entities, and it is only natural that they put their own interests ahead of the public interest.

Nevertheless, we have placed such an important social infrastructure in the hands of a few private companies. This may be said to be a state in which we are willing to believe in something that is inherently "too dangerous to believe in" in exchange for convenience.

An even more serious problem is that we are losing sovereignty over our own data (loss of data sovereignty): in the Web 2.0 world, the vast amount of data we generate is collected and analyzed by platform companies and used as a source of revenue for advertising and other businesses. We do not have complete control over how our data is used.

The centralized trust model brought about by Web 2.0 brought efficiency and convenience, but also created serious problems such as concentration of power, lack of transparency, and loss of data sovereignty.

That is why a movement is now emerging to redesign the very structure of trust. Rather than relying on a specific administrator, an attempt is being made to build a more transparent, fair, and decentralized system of trust through the power of technology. This is the idea of trusting "code," or the web3 challenge.

3. code is law - blockchain philosophy

The web3 philosophy emerged to overcome the limitations of Web 2.0. At its core is the idea that "code (programs)" rather than "people" or "organizations" are the basis of trust.

Lawrence Lessig's "Code is Law" concept.

An important concept for understanding the idea of "trust in code" is the phrase "Code is Law" proposed by American legal scholar Lawrence Lessig in 1999.

In addition to the conventional "laws," "norms," and "markets," Lessig pointed out the existence of a fourth force, "architecture (structure)," as a force that regulates people's behavior in society. In the digital space of the Internet, he argued that "code" plays the role of this "architecture.

Program code is the physical law of digital space, determining what we can and cannot do there. The phrase "Code is Law" suggests that code has as much or more regulatory power than law. Laws can be broken, but properly designed codes are difficult to break. The rules established by a code are automatically and forcefully enforced. There is no arbitrary human interpretation or exceptions.

Even in the Web 2.0 world, platform companies set the rules by code. However, the code was opaque and could be changed at any time by management.

web3 tries to use this "Code is Law" philosophy in a paradoxical way. In other words, by establishing rules with transparent, unalterable code, web3 seeks to eliminate centralized control and realize a truly free and fair digital society.

Smart Contracts = Unbreakable promises, transparent rules.

The technology that embodies "Code is Law" in web3 is "smart contracts. Smart contracts are programs that run on the blockchain and automatically execute contracts when predetermined conditions are met.

Traditional contracts are based on the law. If a contract is broken, it is necessary to sue in court to seek enforcement, which is time-consuming and costly.

Smart contracts, on the other hand, are described by code and their execution is guaranteed by the blockchain network.

For example, suppose that a smart contract states, "If Mr. A transfers 1 ETH to Mr. B, the ownership of the digital art (NFT) owned by Mr. B will be transferred to Mr. A." When Mr. A transfers the money, this fact is recorded in the blockchain and the smart contract is automatically The smart contract is executed. The ownership of the NFT is then transferred to Mr. A.

No third-party intermediary is required for this process. Execution of the contract is done automatically according to the code, without the risk of contractual default. Smart contracts are truly "unbreakable promise" technology.

Another important feature of smart contracts is their transparency and tamper-resistance.

In principle, the code of smart contracts deployed on the blockchain can be viewed by anyone. It is open to all to see what rules it operates according to.

In addition, once recorded on the blockchain, smart contracts are extremely difficult to tamper with later. Because the blockchain is a "distributed ledger" managed in a decentralized manner by many participants around the world, it is impossible for some administrators to commit fraud or arbitrarily change the rules.

This transparency and tamper-resistance allows smart contracts to achieve fair and trustworthy rules without a centralized administrator.

What does it mean to deposit "belief" in the code?

web3's goal is to realize a "trustless" system. This does not mean that trust is unnecessary. It means "there is no need to trust anyone (individual or organization) in particular.

In the web 2.0 world, we needed to trust the platform companies. In the web3 world, however, we only need to trust the "code" and the supporting "consensus algorithm" of the entire blockchain network.

In the web3 world, it is sometimes said "In Code We Trust", a play on "In God We Trust".

This does not mean blind faith in the technology. web3's key feature is verifiability. In principle, the data on the blockchain and the code of smart contracts can be viewed and verified by anyone.

We do not have to believe in the "agenda" of any particular company or administrator. Instead, we can read the publicly available code and verify for ourselves how the system works. Of course, not everyone can read the code, but audits by experts and the community ensure the transparency and reliability of the system.

Don't Trust, Verify. This is the fundamental stance of web3.

The "believe in the code" attitude is based on a profound insight into human imperfection. Humans are fallible, driven by desire, and abusers of power. That is why important rules should be left to a transparent and enforceable code, out of human hands. This is the philosophy underlying web3.

4. tokens and joint illusions

Blockchain technology has provided the foundation for a trustless system. But that alone does not motivate people to participate and collaborate; for web3 to function as a new social system, a new "faith device" is needed to bring people together and share value. That is "tokens.

Tokens = a new faith device for sharing value.

A token is like a digital bill of rights or voucher issued on the blockchain. Crypto assets are a type of token, but they are not the only kind. Any "value" can be tokenized, including stocks, memberships, voting rights, and digital art (NFT).

The key role of tokens is to digitize value that has been difficult to visualize and transfer, and to allow it to be freely traded over the Internet. This creates a new economic sphere, the "token economy.

However, the essential function of tokens is to create a "common faith" that goes beyond that. Tokens are a powerful tool for expressing "faith" in particular values and goals and for encouraging action based on that faith.

The beauty of tokens is that they can be designed to provide appropriate incentives to those who contribute to the maintenance and development of the community.

Bitcoin mining is a prime example. Miners receive newly issued bitcoins as a reward for helping to maintain the security of the network. This is a very well-designed system in which the pursuit of individual profit (earning bitcoins) directly leads to overall profit (maintaining the network).

On Web 2.0 platforms, even though users contributed content to increase the value of the network, most of the profits were absorbed by the platform companies.

However, web3 projects can reward users who have contributed to the project from the beginning by distributing tokens to them. By holding a token, the user becomes a "co-owner" of the project, rather than just a customer. As the value of the tokens increase, you benefit, and you have an incentive to be actively involved in the growth of the project.

In this way, tokens serve as a powerful coordination mechanism, allowing strangers to work together for a common goal.

Like money and the state, tokens are supported by "joint illusions".

As mentioned in the previous section, money is a joint illusion that functions by "everyone believing in it as something of value. Legal tender issued by the state is secured in value by trust in the state.

So what guarantees the value of a token? When there is no clear issuing entity, as is the case with bitcoin, there is no central bank to guarantee its value.

The value of tokens is also supported by the "joint illusion" of those who believe in them. For example, in the case of Bitcoin, the price is formed because people believe in the "narrative" that the issuance limit is programmed to be 21 million, that it is decentralized and censorship-resistant, and that it is a means of storing value as digital gold.

These narratives are not mere assumptions. They are formed by a combination of objective facts (issuance limits and technical characteristics) backed up by code and expectations for the future (increased use and social implementation). And the more people who share and believe in that narrative, the more valuable the tokens become and the stronger that joint illusion becomes.

Of course, there are dangers associated with token-based joint illusions. Excessive expectations tend to precede bubbles that soar in price without any reality. There is no end to fraudulent projects and hacking incidents.

But this was also the case in the formation of myths and nations. After much trial and error, only the stronger and more reliable narratives survive. web3 has the potential to create this communal illusion in a more open, transparent, and democratic way.

A new form of community created by DAO.

By combining tokens and smart contracts, a completely new organizational form, the "DAO," was created.

DAOs are organizations that are jointly owned and controlled by the participants without a specific management or board of directors. The rules of operation of the organization are set by smart contracts (code), and decisions are made through voting by token holders (governance voting).

In a stock company, the hierarchical structure is such that the shareholders appoint the managers, and the managers in turn direct and order the employees. DAOs, however, have a flat structure and participants operate autonomously. Rewards for contributions are also automatically distributed according to the code.

DAOs offer the potential for more democratic and transparent organizational operations that differ from traditional communities such as nations and corporations. People from all over the world come together and cooperate with each other for a common purpose (e.g., specific protocol development, investment, philanthropy, etc.). This is a new form of "community" in the Internet age.

We could not automatically choose the nation to which we belong based on where we were born, but we may be able to choose the DAO to which we belong based on our own values. Tokens are a device of "faith" that supports this new "nation," and DAOs are a form of "community" for practicing that faith.

5. the future of what we believe in - the direction web3 is taking

From God to law, from law to market, and from market to code. The history of human "belief" has been a process of constant evolution. web3 presents a new form of trust, at the cutting edge of this history. But it is by no means a panacea.

Like God, law, and the market, web3 is "not absolute".

The first thing to recognize is that web3 is not a perfect system either. Just as God, law, and the market each had their limitations and challenges, web3 has many challenges to overcome.

First, there are technical challenges. Blockchain has a "scalability problem. Further technological innovation is needed for it to be widely used as a social infrastructure.

Second is the vulnerability of the code and the risk of hacking. The "Code is Law" philosophy assumes that code is perfect, but since it is written by humans, bugs and design errors can exist. We must also recognize the danger of placing absolute trust in the code.

Third, barriers to participation and the digital divide: using web3 services requires specialized knowledge, such as setting up a wallet and managing private keys. Improving the UX is essential for the general public to be able to use these services as a matter of course.

Fourth, there is friction with laws and regulations. Decentralized systems have aspects that do not fit within existing legal and regulatory frameworks. There is a search for an appropriate regulatory framework to protect users without stifling innovation.

Only by resolving these issues one by one will web3 be widely accepted by society. We need to calmly assess the possibilities and limitations of web3 without over-idealizing it.

However, it breaks new ground in terms of transparency, decentralization, and execution by code.

Despite the many challenges, the direction proposed by web3 has the potential to fundamentally change the way we have built trust. At its core, web3 is about three things: transparency, decentralization, and execution by code.

1. transparency: All transaction history and code is publicly available and can be verified by anyone. This prevents abuse of power and fraud; there can be no black boxing of algorithms like in Web 2.0 platforms. It is in the spirit of "Don't Trust, Verify".

2. dispersibility: The system is not dependent on a specific administrator, but is maintained by all participants. This increases censorship resistance and reduces the risk of system downtime. It also puts the sovereignty of the data back in the hands of the users (self-sovereignty).

3. Execution by Code: Smart contracts allow contracts to be executed automatically, without the need for third-party intervention. This eliminates human arbitrariness and allows for efficient and frictionless transactions.

These characteristics can be one effective solution to the challenges we face in modern society, especially the concentration of power and the crisis of trust.

The Challenge of Humanity in the "Age of Choosing What to Believe.

The advent of web3 means that the time has come when we can choose "what to believe".

Until now, we have had no choice but to accept the state to which we automatically belong according to our place of birth, or the socially defined laws and market system.

However, in the web3 world, there are a variety of parallel systems (protocols, DAOs, token economies, etc.) designed according to different values and rules. We are free to join or leave the system that best matches our values.

Of course, web3 will not completely replace the existing system. States, laws, and markets will continue to play an important role, and web3 will force changes in existing systems by complementing them and, at times, encouraging competition. We will live in an era of centralized and decentralized systems, depending on our goals.

This age of "choose what you believe in" gives each of us the autonomy to choose and create a society based on our own values. At the same time, however, it also places a heavy responsibility on us.

We must think for ourselves and make decisions about what to believe and which systems to participate in. We must increase our literacy, understand the risks, and take responsibility for the consequences of our choices.

web3 has given humanity a powerful tool to design our own society. How we use this tool is in our own hands. This is a new challenge for humanity.

6. conclusion

In this series, "From God to Code: An Evolutionary History of Belief and Trust," we have approached the essence of web3 by tracing the history of what humans have "believed.

web3 can be a "new belief system" comparable to religion and the state.

Human society has always been founded on the belief in a "common illusion" shared by people. Over time, the object of this belief has shifted from "God" to "law" and then to "the market. Each of these systems has functioned as an "operating system of trust" to maintain the social order, but they have also had their limitations.

Now, a new form of trust in the Internet age has emerged: code. Based on blockchain technology, web3 enables a trustless system that does not require a centralized administrator. Smart contracts embody "Code is Law" and tokens serve as a new "faith device" for sharing value.

web3 is not just a technological innovation. It is an ideological movement that seeks to redefine the very nature of trust in society. web3 has the potential to take root in society as a new "belief system" comparable to the Reformation and the establishment of the modern state.

From God to code - this is a turning point in history that can be called the "democratization of trust".

The "God to Code" trend represents a historical turning point in which the subject of trust shifts from centralized authority (God, the state, platform companies) to decentralized protocols (code, the community).

This is a change that can be called the "democratization of trust. We are entering an era in which we can verify for ourselves and choose what we believe, rather than blindly following a particular authority.

web3 is still in its infancy and faces many challenges. However, its underlying values of transparency, decentralization, and autonomy have the potential to bring about the freer and fairer society we have long sought.

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Disclaimer：I carefully examine and write the information that I research, but since it is personally operated and there are many parts with English sources, there may be some paraphrasing or incorrect information. Please understand. Also, there may be introductions of Dapps, NFTs, and tokens in the articles, but there is absolutely no solicitation purpose. Please purchase and use them at your own risk.

About us
🇯🇵🇺🇸🇰🇷🇨🇳🇪🇸 The English version of the web3 newsletter, which is available in 5 languages. Based on the concept of ``Learn more about web3 in 5 minutes a day,'' we deliver research articles five times a week, including explanations of popular web3 trends, project explanations, and introductions to the latest news.

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mitsui
A web3 researcher. Operating the newsletter "web3 Research" delivered in five languages around the world.

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The author is a web3 researcher based in Japan. If you have a project that is interested in expanding to Japan, please contact the following:

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*Please note that this newsletter translates articles that are originally in Japanese. There may be translation mistakes such as mistranslations or paraphrasing, so please understand in advance.

Good morning.
I am mitsui, a web3 researcher.

Every Saturday and Sunday at noon, we update the web3 foundation report. This week's report, "From God to Code. An Evolutionary History of Faith and Trust," which is a bit abstract, but explains what mankind has believed in. Please take a look at it until the end!

1. Introduction
2. faith in God - absolute authority
3. rule of law - from God to man
4. trust in the market - the invisible hand
5. summary

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1. introduction

Our society is built on cooperation among strangers. When we buy coffee at the convenience store in the morning, we trust that the clerk will operate the cash register correctly and that the money we paid will have value. When we board a train, we trust that the operating system is functioning properly.

But when you stop and think about it, isn't this remarkable? How can we "believe" so much in someone whose face and name we do not know, or in a system we cannot see?

Aim of the article: "Why do people believe in something?" and approach the essence of the web3 based on the universal theme of "Why do people believe in something?

From God to Code: An Evolutionary History of Faith and Trust," through Part I and Part II, aims to answer this fundamental question: "Why do people believe in something? and aims to unravel the history of "faith" and "trust" that have shaped human society, and to approach the essence of "web3".

web3 is a concept for a new Internet based on blockchain technology. Often referred to as the "decentralized Internet," it aims to realize an autonomous digital society that does not depend on specific companies or governments. However, the focus tends to be exclusively on the technical aspects of the concept, and the ideological and social background, such as "Why is it needed now?

At the core of web3 is the idea of "trustless. This does not mean that trust is unnecessary. Rather, it is an attempt to ensure trust in society through mathematical cryptography, program code, and a system of consensus building among all open network participants, rather than relying on personal trust in a specific person (individual or organization).

From this perspective of "revolutionizing the nature of trust," we can see that web3 is not merely an evolution of technology, but is positioned at the forefront of the lineage of "what we believe" that has been spun by humankind throughout its long history.

A look back at how "faith and trust" have shaped human society.

One of the critical differences between humans and other animals is our ability to form large groups and to cooperate flexibly. Studies in evolutionary psychology and cultural anthropology suggest that the foundation of this ability is the "ability to believe in something jointly.

For example, Yuval Noah Harari, in his book "The Complete History of Sapience," pointed out that humankind was able to prosper because of its ability to believe in "fictions" (myths, religions, nations, money, laws, etc.), or "common illusions.

Belief in a common narrative, such as "we believe in the same God," "we are citizens of the same country," or "this piece of paper is worth 10,000 yen," has enabled cooperation on a scale of tens or hundreds of millions of people.

This "joint illusion" is the true nature of "faith" and "trust," which are the subject of this series of articles. We have always needed "something worth believing in" to sustain our society. And that object has changed over the course of history.

In prehistoric times, people believed in "God. Eventually, in modern times, "law" and "the state" became the object of trust. And today, perhaps the thing we believe in most strongly is "the market.

God, law, and the market. Although they differ in form, they are all "devices of trust" that mankind has created to maintain society.

In the first part, we will first overview the three eras of "God," "law," and "market," and take a closer look at what mankind has believed and how it has maintained the social order. This historical transition should help you deeply understand the inevitability of why web3, which is the subject of the second part, has emerged as a "new form of trust.

2. faith in God - absolute authority

For most of human history, it has been belief in "God" that has supported the foundation of social order. From our modern perspective, religion is often seen as a matter of personal belief, but in the past, religion was law, politics, economics, and everything else in society.

The existence of God in ancient civilizations: the relationship between religion and social order.

When humans transitioned from a hunter-gatherer lifestyle to an agro-pastoralist lifestyle and began to settle down, the size of communities expanded dramatically. In order to sustain a group of hundreds or thousands of people that transcended blood and acquaintance, a powerful story that could be shared by all became necessary. That was the birth of "God.

In ancient civilizations, gods were revered as absolute beings that governed natural phenomena and influenced people's destinies. Rituals to pray for a good harvest, sacrifices to quell plague. All of these were associated with the will of the gods and defined the code of conduct of the people.

In ancient societies, temples, as religious institutions, played an important role as more than mere places of prayer.

First, temples were "centers for the accumulation and redistribution of wealth. People paid a portion of their harvest to the temple as an offering to God. This functioned like a tax in modern times. The wealth collected was not only used to support the lives of priests and kings, but was also stockpiled in times of famine and redistributed to fund public works projects. People gave offerings because they believed that their offerings to the gods would be used for the benefit of the community as a whole.

Second, temples were "centers for the recording and management of information. Many of the earliest written records found in Mesopotamia were account books recording the number of grain and livestock delivered to the temple. Accurate records of who paid how much and to whom and how much was owed were essential to maintaining trust within the community. And it was the authority of God that guaranteed the accuracy of the records. Because "God was watching," people could not falsify their records and were willing to keep their promises.

Thus, religion in ancient societies performed a handful of functions similar to those performed by modern governments, banks, and courts. And at the center of it all was the anchor of absolute trust in "God.

Belief in God" supported the rules of the community, including the theory of royal priesthood and religious trials.

As the community became larger and larger and took the form of a nation-state, the ruling kings and emperors looked to God for the legitimacy of their power. This is the basic idea behind the theory of "divine endowment of kingship.

The king is a special being chosen by God and is God's agent on earth. By convincing people to believe such a story, the king gained absolute power. The king's commands were God's commands, and any disobedience to them was considered blasphemy.

For example, the pharaohs of ancient Egypt were worshipped as gods. Even in the absolute monarchies of Europe, the power of the king was considered sacred and inviolable, bestowed by God, and combined with the authority of the church to establish a strong ruling system.

Law and justice were also supported by divine authority. Before the establishment of the modern rule of law, the final standard for determining what was right and wrong was God's teachings, or religious precepts.

The famous Code of Hammurabi also states in its preface that King Hammurabi was given the law by the sun god Shamash. This gave the law powerful legitimacy to compel people to abide by it by declaring that it was a "divinely given law of justice," not merely a set of rules determined by a human king.

In medieval Europe, ecclesiastical law governed every aspect of people's lives. Disputes were often judged by religious tribunals, which handed down penalties such as excommunication and heresy. These penalties were so severe that they could mean social death.

There is also the "Shinmei Trial," which was conducted when the evidence was insufficient. For example, one would put one's hand in boiling water and determine guilt or innocence based on the healing of the burns. At first glance, this method seems irrational, but at that time it was seriously believed that God would perform miracles on the righteous and protect them. People accepted the results only because they believed in the absolute authority of God's judgment.

Thus, "belief in God" was a prerequisite for the functioning of communal rules (law). By setting up a transcendent being, God, people were able to have an objective standard that transcended conflicts of interest and maintained social order.

Coins minted in the name of God, oaths based on the Bible.

The power of faith supported not only politics and law, but also trust, which is the foundation of economic activity. Money and contracts are prime examples.

For money to have value, everyone must believe in its value. Historically, monetary trust was often associated with divine or religious authority.

Ancient coins were often inscribed with portraits of gods and religious symbols. Rulers sought to ensure the value of their coins by associating their own authority with that of the gods. In medieval Europe, coins were also often inscribed with a cross or the portrait of a saint. This was a symbol that the value of the coin was guaranteed by God.

People felt safe in their dealings with strangers because they believed in the sacred symbols inscribed on the coins.

In addition, economic activity can only take place when there is trust that contracts (promises) will be honored. But in the absence of a modern, enforceable judicial system, how could one guarantee the fulfillment of a contract? The answer was also "God.

From ancient times through the Middle Ages, important covenants were often made in temples or churches and took the form of an oath in the name of God. In Christian societies, it was common to swear an oath by laying hands on a Bible. This is a statement of intent: "If I break this oath, I am willing to suffer God's punishment. For the faithful, God's punishment was more terrible than any earthly penalty because it meant eternal suffering in hell after death.

This sense that God was watching, and the fear of divine punishment, served as a powerful incentive to keep the covenant. This internalized watchfulness disciplined people's behavior and sustained the trust of society as a whole.

However, this social system based on "faith in God" did not last forever. From the Middle Ages to the modern era, the absolute authority of God began to waver due to changes in social structure and the evolution of knowledge. Humanity then began to search for a new "something to believe in" to replace God. This is the "rule of law," which we will look at next.

3. the rule of law - from God to man

The era in which "God" reigned as the absolute authority continued for a long time, but from the late Middle Ages to the modern era, that authority gradually began to waver. A movement to build a social order based on human reason and consensus, rather than the will of God, emerged.

Transition from the Middle Ages to Modernity: the Reformation and the Rise of Secular Power.

One of the major factors that began to shake the authority of God was the Reformation that began in the 16th century.

Until then, the Catholic Church, with the Pope at its head, had been the sole and absolute authority in the Western European world. However, religious reformers such as Luther and Calvin criticized the corruption and skeletonization of the church and insisted that "the foundation of faith is not the church, but the Bible itself. The widespread availability of the Bible through Gutenberg's letterpress technology also encouraged this movement.

The Reformation brought about major changes throughout society. First, the absolute authority of the Catholic Church collapsed and religious authority became decentralized. With the sole monopoly of truth gone, people were forced to think and judge for themselves.

Second, through the turmoil and religious wars that accompanied the Reformation, people became acutely aware of the disastrous effects of fighting over religious beliefs. As a result, the idea of separation of church and state, that religious and political matters should be kept separate, became widespread.

The scientific revolution of the 17th century also had a major impact. Scientists such as Copernicus, Galileo, and Newton unraveled the laws of nature based on observation and experimentation. A new worldview emerged in which the world did not operate according to the will of God, but according to rational laws.

While religious authority receded, secular powers such as kings and princes grew in strength. They sought independence from the church and strengthened their control over their own territories. Thus, a new political unit emerged, the "sovereign state," with clear borders and independent governing power (sovereignty).

Sovereign nations needed a new "something to believe in" to replace God in order to maintain domestic order. This was "law" and the "state" itself.

Rousseau's theory of social contract, order formation based on "people's agreement".

When God's authority was absolute, it was believed that the social order was established by God and that people had no choice but to follow it (the theory of the divine right of kingship). However, during the Age of Enlightenment from the 17th to the 18th century, this idea was fundamentally overturned. At the center of this change was the "social contract theory.

Thinkers such as Hobbes, Locke, and Rousseau tried to answer the question, "Why do states and laws exist in the first place?" and they attempted to answer this question with the concept of the social contract.

They first envisioned a state in which there would be no state or laws, i.e., the "state of nature. Then, in order to escape the inconveniences of this natural state, they assumed that people would voluntarily cede some of their liberties and rights and enter into a contract establishing a common power (government or state).

The revolutionary aspect of this ideology was that it sought the basis for the state and laws not from divine commands or traditions, but from "the consensus of the people. This was a major shift toward the idea that social order is not something given from heaven, but something created by free and equal individuals of their own will.

In particular, Rousseau, in his "Theory of the Social Contract," argued that the state, established by the social contract, should be governed by what he called the "general will," the will of the entire community for the public good. Law, he said, is the expression of this general will.

People obey the law not because it is God's command or because it is the king's command. They are obligated to obey it because it is a rule they have set for themselves. This is the basic idea of the "rule of law.

The social contract theory is only a thought experiment, not a historical fact. However, this powerful narrative has profoundly changed people's attitudes. The joint illusion that "we are equal citizens bound by contract" was created and laid the groundwork for the modern nation-state.

Appearance of the State and Law → The object of belief goes from "God" to "institutions and laws".

With the ideological backing of social contract theory, the modern state developed "law" as the foundation of social order. This trend became firmly established through civil revolutions such as the American Revolution and the French Revolution.

The symbol of this is the Constitution. The Constitution is the supreme law that establishes the basic framework of the nation, guarantees the rights of the people, and prevents the abuse of power. People believed that by believing in the written rule of the Constitution, they could prevent the arbitrary exercise of state power and protect their own freedom and security.

The codification of law established objective rules that can be interpreted the same way by anyone who reads them. This increased the predictability of people's behavior and social stability.

However, simply creating a law is no guarantee that it will be followed. For a law to be effective, it must be enforceable in order to crack down on violations and enforce penalties. Modern states have developed elaborate institutional apparatuses (police, prosecutors, courts, etc.) for this purpose. In addition, the three branches of government (legislative, executive, and judicial) were separated to prevent abuse of power and to enforce the rule of law by mutually restraining and balancing them (separation of powers).

People trust and follow the law because they believe these institutions are functioning properly. Even if they do not know individual police officers or judges personally, they trust that the "system" will ensure fairness.

Thus, the object of trust shifted from the supernatural "God" to "institutions" or "laws" designed by human beings based on reason. Whereas faith in God supported social order through internal discipline, the rule of law is a system that supports social order through external coercion and institutional mechanisms.

However, as society has become more complex and globalized, more and more problems cannot be solved within the framework of the state alone. This is where the "market," which we will look at next, has come to be trusted by people.

4. trust in the market - the invisible hand

While "law" and the "state" formed the backbone of modern society, it was the "market" that became the flesh and blood of society and enriched people's lives. The market economy became a powerful engine for increasing the wealth of society as a whole through the free economic activity of individuals.

Adam Smith and the idea that "markets bring order".

In pre-modern societies, economic activity was often viewed negatively from a moral and religious perspective. Accumulation of wealth was discouraged as an act of greed, and economic activity was strictly limited by communal rules and guild regulations.

The 18th century economist Adam Smith revolutionized this way of thinking. In his book "The Wealth of Nations" (1776), he discussed the remarkable coordinating ability of a market economy.

Adam Smith argued that the individual is free to pursue his own self-interest, which in turn benefits society as a whole. A baker bakes bread not out of benevolence, but for his own benefit. However, when the free pursuit of one's own profit by each individual is coordinated through the market mechanism (price mechanism), supply and demand will match, resources will be allocated efficiently, and society as a whole will be enriched.

Smith called this coordinating function of the market "the invisible hand (of God)." Importantly, no one needs to plan or order with the whole in mind. Even though each person is acting in his or her own interest, order is created in the market system as a whole, as if someone is coordinating the market.

This ideology led to the idea of laissez-faire, or "free market" thinking, in which the state should minimize its intervention in economic activities. People came to believe the narrative that "leave it to the market and everything will be fine. Trust in the "order" and "abundance" brought by the market became so powerful that it rivaled trust in God and the state.

Gold standard and central banking system → Credit for money is secured by "market and state".

For a market economy to function, it is essential that the value of money, the means of transaction, remain stable. How has the mechanism for guaranteeing the creditworthiness of money evolved since the modern era?

In the 19th and early 20th centuries, many countries adopted the "gold standard. This is a system in which the value of money is tied to a real asset: gold. Central banks issued money in proportion to the amount of gold they held, guaranteeing that money could be exchanged (redeemed) for gold at any time.

Under the gold standard, the trust in money was secured by the fact that it could be exchanged for gold. Even if people did not fully trust the state or government, they could use money with confidence because they believed in gold, an asset with universal value.

However, after World War I and the Great Depression, many countries abandoned the gold standard. They then ceased gold convertibility and shifted to a "managed currency system" in which the central bank regulates the amount of money issued at its own discretion.

Under a managed currency system, the value of money is not backed by a real asset, gold. What, then, guarantees the credibility of money?

It is the "credibility of the state" and the "confidence of the market.

Central banks are responsible for maintaining the value of money through monetary policy in order to achieve price stability and economic growth. People use money because they believe that the central bank has the ability and will to conduct appropriate policy operations. The economic strength and political stability of a country also affect the credibility of its money.

Thus, the modern monetary system consists of the "state (central bank)" providing the institutional framework and the "market" evaluating the country's economic strength and policy management. We can believe that a mere piece of paper printed by Fukuzawa Yukichi is worth 10,000 yen because we believe that this entire complex system is functioning.

Globalization and market universalism are spreading today.

In the second half of the 20th century, especially since the end of the Cold War, the market economy swept the world. As globalization progressed, people, goods, and money began to move freely across national borders, and the world was integrated into one huge market.

From the 1980s onward, "neoliberal" policies aimed at deregulation, privatization, and smaller government were promoted. policies aimed at deregulation, privatization, and smaller government.

People enjoyed the economic growth and affluence that the market brought, and they increasingly put their trust in the market. The myth that "the market is always right" and "let the market solve everything" was born.

But faith in the markets has never been rock solid, and the Lehman Shock of 2008 exposed the limits of market universalism and the fragility of the financial system. Overly complex financial instruments made it difficult to properly assess risk, and the greed of a few market participants brought the entire system to the brink of collapse. Ultimately, a massive injection of public funds by the state was required to remedy the market failure.

While the market economy pursues efficiency, it has also brought negative aspects such as widening inequality and environmental problems. We are now beginning to realize the limitations and fragility of the "market" system, even though we believe in it.

5. summary

In the first part of this report, we have reviewed how the "beliefs" that humans have held in order to sustain society have shifted over history.

What we "believe" has changed from God → Law → Market.

In prehistoric times, people believed in "God. God's absolute authority was essential in setting community rules and maintaining order. The sense that "God is watching" governed people's behavior and supported trust in society as a whole.

In the modern era, "law" and the state replaced God as the object of trust. Based on the theory of social contract, people established rules by their own consent and tried to ensure their fulfillment through institutional mechanisms. The "rule of law" was a new form of social order based on trust in human reason.

And today, our strongest belief is in the market. Our faith in the efficiency and abundance that the market mechanism brings has become the driving force of our global society.

However, it remains the case that "believing in someone/something" is still the premise of the community.

The subject of "what we believe" has changed, but one thing has remained the same: we still need to believe in someone/something in order to sustain our society. That is that we still need to "believe in someone/something" in order to sustain our society.

God, law, and the market. These are all "devices of trust" for strangers to cooperate with each other, the "common illusion" we all share. Without this common illusion, society would not exist.

And none of these devices of trust has been perfect. Heretics have been oppressed in the name of God, injustice has been committed in the name of law, and inequality has grown in the name of the market. Each time we have experienced these failures and limitations, we have updated the nature of trust.

In the next issue, we will consider whether "code" can be an object of trust based on this process.

And now we stand on the threshold of a new era. The evolution of the Internet and digital technology is exposing the limits of existing trust frameworks (the state, the market, and the giant platform companies of the Web 2.0 era) while at the same time creating new forms of trust.

That is trust in "code," or the web3 worldview.

Written by program code and enforced by blockchain technology, the rules do not allow for arbitrary human interpretation or tampering. It is a new form of "law" that is transparent, fair, and automatically enforced.

In the second part, we will take a deeper look at this historical trend, why "code" is now the new object of trust, and how web3 can change our society.

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Disclaimer：I carefully examine and write the information that I research, but since it is personally operated and there are many parts with English sources, there may be some paraphrasing or incorrect information. Please understand. Also, there may be introductions of Dapps, NFTs, and tokens in the articles, but there is absolutely no solicitation purpose. Please purchase and use them at your own risk.

About us
🇯🇵🇺🇸🇰🇷🇨🇳🇪🇸 The English version of the web3 newsletter, which is available in 5 languages. Based on the concept of ``Learn more about web3 in 5 minutes a day,'' we deliver research articles five times a week, including explanations of popular web3 trends, project explanations, and introductions to the latest news.

Author
mitsui
A web3 researcher. Operating the newsletter "web3 Research" delivered in five languages around the world.

Contact
The author is a web3 researcher based in Japan. If you have a project that is interested in expanding to Japan, please contact the following:

• X：@web3researchgl

• Telegram：@mitsui0x

*Please note that this newsletter translates articles that are originally in Japanese. There may be translation mistakes such as mistranslations or paraphrasing, so please understand in advance.

Good morning.
I am mitsui, a web3 researcher.

Today we have researched "Ethena". We have compiled this information to help you understand the past changes and new initiatives regarding the very present Ethena, so please read it through to the end.

💴What is Ethena?
🗺️ proprietary tokens and surrounding ecosystem
💬 Fastest-growing next-generation stablecoin

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🧵TL;DR

• Ethena is a stable coin platform that issues USDe, a "delta-neutral" crypto asset + short futures, and has expanded rapidly since its launch in 2024 to become one of the top 3 cryptocurrencies by market capitalization.

• The sUSDe is a USDe stake beneficiary token that distributes a yield on the LST staking fee plus the funding rate/basis as a source of funds (supported by a reserve fund in the event of an emergency). The design aims to mitigate the trilemma of "diversification, stability, and capital efficiency."

• Ecosystem extended to ENA/sENA (governance and compensation/airdro multiplier), Ethena Network (Ethereal/Derive), L2 Converge, derivative USDtb (government bond backing), tsUSDe (TON version), iUSDe (institutional).

• Strategy is to accelerate growth through alliances and multi-chain expansion (Telegram/TON, etc.) + ENA buyback by StablecoinX. Key risks are collapse of delta neutrality and CEX/custody dependence; ENA utility enhancement is key going forward.

💴What is Ethena?

The "Ethena" is a new type of stablecoin protocol built on Ethereum, offering a synthetic dollar "USDe" backed by crypto assets.

Unlike traditional legal tender-backed stablecoins such as USDC and USDT, the USDe is designed to maintain value through short positions in physical crypto assets such as Bitcoin and Ethereum and futures that offset their price fluctuations.

While USDC and USDT are legal tender-backed and USDS (formerly DAI) is called crypto-asset-backed, USDe is a delta-neutral stablecoin.

This mechanism is so revolutionary that USDe has quickly grown to be the fourth largest stablecoin by market capitalization in less than four months since its release in 2024, and is now the third largest by market capitalization.

I would like to begin with an explanation of USDe, and I will start with the genesis of the idea.

◼️USDe Birth Background

The inspiration for the Ethena project stems from the vision proposed in the blog post "Dust on Crust" published by BitMEX founder Arthur Hayes in March 2023.

Hayes noted that "yielded digital dollars" are the biggest opportunity in the crypto asset market, and that demand for this product far outstrips the entire crypto market, including bitcoin.

Ethena Labs was founded to realize this vision and launched in February 2024 with a USDe of "synthetic dollars". The founder and CEO is Guy Young, who has nearly a decade of experience in traditional finance (investment banking, hedge funds, and private equity) and most recently led the principal investment department at Cerberus Capital, a large US investment fund. Mr. Young's knowledge and practical experience in traditional finance has been incorporated into the design of Ethena, including its high yield offerings and risk management.

Since its inception, Ethena has received support from prominent investors and companies, including BitMEX founder Arthur Hayes (who published the blog that inspired his vision), US asset management giant Franklin Templeton, crypto asset investment firm Galaxy Digital, and exchange Binance Labs, among others.

With such strong backing, Ethena launched its protocol in the spring of 2024 and rapidly gained users and liquidity in the first few months after launch.

◼️How USDe works

So, let's cut to the chase: how does the USDe work? What is a synthetic dollar?

USDe is a delta-neutral stable coin whose value is stabilized to $1 by crypto asset collateral and futures hedging.

Users can deposit ETH, WBTC, staked ETH (stETH), or even USDC into the protocol to mint USDe. ETH is then sold (shorted) on the futures market to offset the risk of price volatility of the collateral ETH. This allows the shorting of the futures market to offset the loss of the shorted ETH against the increase in the value of the physical ETH collateral when the price of ETH rises, and vice versa when the price of ETH falls.

It is a little difficult to understand here, especially if you have not had much exposure to finance. This delta-neutral type is not a new concept in crypto, but a trading strategy that has been around in the financial world until now. As I mentioned earlier, the founders have 10 years of experience in finance, and they brought that experience to crypto.

Simply put, delta-neutrality is a strategy of taking a neutral stance, whereby two strategies, one that benefits when prices rise and one that benefits when prices fall, are taken so that neutrality is maintained regardless of whether prices go up or down.

That is what I was writing about earlier, when Ethena accepts collateral funds (e.g., ETH), it holds a short position in an amount equal to the collateral funds.

To recap,

• ETH of collateral funds are held in physical form as is -> gain when ETH price goes up

• Hold a short position of the same amount → Gain when ETH price falls

Since a short position is an investment strategy that bets on the price going down, the above equation holds true. This allows for a one-to-one collateral fund that is not subject to volatility, even if the collateral fund is a crypto asset, and thus a stablecoin.

So, I'm wondering, why go through all this trouble? and how is the "establishment of digital dollars with a yield", which was the reason for the establishment of Ethena in the first place, being realized?

The USDe itself does not yield, it is simply one of the stabled coins. However, staking USDe to sUSDe distributes the yield on the collateral funds.

◼️sUSDe

You can get sUSDe by staking USDe as explained earlier.

That yield comes from USDe's collateral funds, and there are two main sources of yield

Revenue Source 1: Staking fees from collateral assets

The first component of yield is the revenue generated by the collateral asset itself: when Ethena uses LSTs, such as Lido's stETH, as collateral, the protocol earns revenue from the Ethereum staking fees received by those LSTs. This compensation provides a stable yield, typically around 3-4% per annum, and supports the protocol's revenue base.

Revenue Source 2: Funding rate and basis spread from derivatives

This is the primary and most variable yield on protocol earnings.

• Funding Rate: In the perpetual futures market, funds are periodically transferred between long and short positions in order to control the gap between the futures price and the spot price, which is called the funding rate. Historically, bull markets in crypto assets often lead to a "positive funding" situation, where long position holders pay a fee to short position holders because of the increased demand for leveraged long positions, and because Ethena holds short positions, receive this funding rate as revenue.

• Basis Spread: This refers to the difference between the futures price and the cash price, which can also be a source of revenue for the protocol.

The fund allocates income from these two investments, providing an APY of approximately 27% at launch, reaching a high of over 67% at one point in the bull market in early 2024. Later, as the market calmed down, it converged to a more sustainable 9% to 15% range. By the way, the average APY for 2024 is reported to be 18%. That's amazing.

In addition, Ethena maintains a Reserve Fund (Reserve Fund) as a safety net to ensure protocol stability. This fund covers the cost of a sustained negative funding rate (short position holders turn to the payout side) should the market turn bearish. It is designed to prevent the underlying assets of the protocol from being damaged and to ensure that sUSDe staking users are not directly exposed to negative yields.

◼️Solving the Stablecoin Trilemma

In addition to pure yield, Ethena also solves the trilemma of stabled coins.

Stablecoin design has long faced a challenge known as the "trilemma." Specifically, the difficulty of simultaneously achieving three desirable characteristics: decentralization, stability, and capital efficiency.

• Legal tender-backed stablecoins (e.g., USDT, USDC) ensure a high degree of stability by holding reserves of legal tender such as US dollars in bank accounts. However, the reserves are managed by a centralized bank or trust company, which sacrifices diversification because of the inherent risk of asset freezes due to issuer decisions or government regulations.

• Crypto asset-backed stablecoins (e.g. DAI) are issued by depositing crypto assets (e.g. ETH) as collateral in a smart contract. While this increases diversification, it also leads to low capital efficiency, as collateral of significantly higher value than the issue amount (overcollateralization) is required to absorb the risk of price volatility of the collateral asset.

• Algorithmic stablecoins (e.g., TerraUSD/UST) are an attempt to stabilize prices by adjusting supply through an algorithm, without specific collateral. This could theoretically be both highly capital efficient and decentralized, but as history has shown, it is vulnerable to market extremes and fails to maintain stability.

Ethena is building USDe as a new approach to this trilemma.

USDe will adopt a "delta-neutral" strategy, using physical crypto assets as collateral while hedging its price volatility risk with derivatives. In this way, USDe aims to achieve 1:1 capital efficiency without the need for excess collateral, while achieving both diversification (censorship resistance) through its crypto-asset native design and stability through its market-neutral position.

However, criticisms and risks also exist. While it is said to be decentralized, it is inevitably exposed to opacity, CEX bankruptcy and hacking risks because the storage of crypto assets and trading strategies are conducted by CEXs such as Binance.

🗺️ proprietary tokens and surrounding ecosystem

Ethena is the fastest stablecoin to reach $10B in the market, and its growth speed is outstanding. Of course, there is the background of the market that USDT and USDC had pioneered at the time of its release, but such rapid growth is tremendous.

Now that we have explained the core mechanisms, USDe and sUSDe, we will now explain Ethena's proprietary token, ENA, and the Ethena ecosystem, which will expand as it grows.

◼️ENA

The Ethena ecosystem is supported by the native token ENA.

The total supply is 15 billion ENA, with the following vesting schedule: 30% allocation to core contributors, 25% to investors, 30% to ecosystem development (including airdrops), and 15% to the Ethena Foundation.

The utility is primarily used for governance, where ENA holders have the right to participate through voting in key decision-making processes of the protocol, such as decisions on the risk management framework, introduction of new collateral assets, and reserve fund allocation policies.

Read more

Good morning.
I am mitsui, a web3 researcher.

We update the web3 Basics Report every Saturday and Sunday at noon. This week we will discuss the "Basics of RWA Tokenization". Please read to the end!

1. Introduction
2. choice of legal instrument
3. Token Design
4. automation of cash flow and distribution
5.NAV calculation and Oracle
6. summary

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1. introduction

Review of Part I: SPVs, Tranches, and Waterfalls

In the first part, we explained in detail the basic mechanics of securitization, explaining that three elements form the foundation of the modern securitization market: bankruptcy isolation through SPVs (special purpose vehicles), risk distribution through tranche structures, and mechanical allocation of funds through waterfalls.

The SPV acts as a legal vessel to insulate investors from the originator's credit risk and ensures certainty of asset transfer through a true sale (true sale).

The tranche structure is a mechanism that creates multiple securities with different risks and returns from a single pool of assets. The tiered structure of senior, mezzanine, and equity provides investment opportunities for both conservative and aggressive investors. Credit enhancement measures, which combine internal and external enhancements, ensure that each tranche is appropriately credit rated.

Waterfall is a mechanism for mechanically allocating collected funds according to a pre-determined order of priority. Allocations are made in the following order: expense payments, senior interest payments and principal redemptions, mezzanine, and equity, with trigger provisions, such as OC and IC tests, triggering automatic protective measures in response to changes in asset quality.

RWA Token is a challenge to code the "securitization idea" as it is

RWA Token is an initiative to digitize and automate the basic idea and structure of securitization, as we have explained, through blockchain technology and smart contracts. By not merely representing existing securities on the blockchain, but by encoding the entire securitization process, the goal is to create a more transparent and efficient capital market infrastructure.

In traditional securitization, transparency and automation have been achieved through complex contract documents and numerous intermediaries. However, written contracts leave room for interpretation, and human processing presents the risk of delays and mishandling. In addition, information asymmetries have sometimes made it difficult for investors to make informed investment decisions.

The RWA token attempts to solve these challenges through blockchain technology. The automatic execution of contracts through smart contracts, the immediate disclosure of information through transparent ledgers, and the unfalsifiability of transactions through cryptographic methods have the potential to further enhance the value of securitization.

2. choice of legal instrument

SPV (off-chain legal entity)

In RWA tokenization, as in traditional securitization, it is essential to have a legal instrumentality with bankruptcy isolation capabilities. This is because no matter how innovative blockchain technology is, under the current legal system, an entity with legal personality is required to hold physical assets and legal rights.

RWA token projects typically employ a structure in which an SPV established off-chain holds the underlying assets and tokenizes its equity or beneficial interest. This SPV performs essentially the same functions as those used in a traditional securitization, including purchasing assets from the originator, raising funds from investors, and distributing cash flows.

The choice of the region in which the SPV will be established is based on a comprehensive consideration of the regulatory environment, taxation, and legal stability. Delaware in the United States, the British Virgin Islands, Luxembourg, and Singapore are jurisdictions often chosen for RWA tokenization projects. These jurisdictions have well-developed legal systems for SPVs and provide a familiar legal environment for international investors.

The connection between SPVs and blockchain is usually realized in the form of digital securities or tokens issued by SPVs, which are linked to the value of assets held by the SPV and its earnings, and managed and traded on the blockchain, combining the benefits of traditional securitization with those of digital technology The SPVs can then use the tokens to manage and trade them on the blockchain.

Trust scheme/fund instrument

Trust schemes are also an important option in RWA tokenization. In particular, the legal characteristics of trusts offer significant advantages in the securitization of real estate and receivables, where segregation of assets is important. A system in which the trustee legally becomes the owner of the assets, but manages and operates the assets only for the benefit of the beneficiaries, is extremely effective in terms of investor protection.

In RWA tokenization using a trust scheme, the common structure is for the trustee to hold the underlying assets and tokenize the beneficial interest. The beneficial interest is a comprehensive right that includes the right to claim distribution of income and return of principal from the trust assets, and expressing this right in digital form allows for flexible investment product design.

When using a fund instrument, a tokenization of investment fund interests (units) is used. Funds have the advantage of being able to diversify their investments in a variety of assets and establish a professional asset management structure. It may also be advantageous in terms of regulatory compliance, as it can utilize the legal framework of existing mutual funds and private funds.

Designed for regulatory and investor attributes

The legal design of RWA tokens requires careful consideration of the demographics of the eligible investors and applicable regulations. There is more flexibility in product design for general investors and for the private market, which is limited to qualified investors. By utilizing systems such as Rule 506(c) in the U.S., the Enterprise Investment Scheme (EIS) in the U.K., and the Qualified Institutional Investor Special Practice in Japan, products for institutional investors and high net worth individuals can be offered while avoiding cumbersome registration procedures.

On the other hand, products for general investors are subject to strict disclosure requirements, compliance with the suitability principle, and explanation requirements at the time of sale. In particular, for securitized products with complex structures, explanatory materials must be prepared so that investors can fully understand them, and appropriate risk warnings must be provided.

In regulatory compliance, when a transaction spans multiple jurisdictions, the requirements of each jurisdiction must be met simultaneously. For example, for sales to investors in the U.S., the requirements of the Securities and Exchange Commission (SEC) rules must be met; for sales to investors in Europe, the requirements of MiFID II; and in Japan, the requirements of the Financial Instruments and Exchange Law must be met. For this reason, global products are often designed to meet the most stringent standards.

3. token design

Transfer Restrictions and White Lists

RWA tokens, like traditional securities, must be designed to be held only by appropriate investors. Strict transfer restrictions and whitelist features are essential to implement, especially for products that are limited to qualified investors or only for investors in certain geographic areas.

The implementation of transfer restrictions is done at the smart contract level. Before transferring tokens, the system automatically checks whether the transfer address is registered as an eligible investor and rejects the transaction if the conditions are not met. This feature technically prevents erroneous transfers to ineligible investors or sales to investors who violate regulations.

Only addresses of investors that have passed KYC and AML checks will be registered in the whitelist management. These investors are subject to periodic eligibility checks and are automatically removed from the white list if they no longer meet the requirements.

The same restrictions apply to transactions in the secondary market, as well as to DEX and OTC transactions, where regulatory compliance is ensured through automated checks using smart contracts.

Senior/Mezzanine Tokenization

The tranche structure in traditional securitization is also an important design element in RWA tokens. Issuing multiple token classes with different risk/return characteristics can address diverse investor needs and optimize funding costs.

Senior tokens are the safest token class, offering the most secure and stable yields. Coupons are typically paid at fixed or floating rates, and redemption of principal is also a top priority. Pension funds, insurance companies, and other institutional investors seeking stable cash flows are the primary holders. Smart contracts will incorporate a mechanism whereby allocations to senior tokens will take priority over other token classes.

Mezzanine tokens offer higher returns than seniors, but bear higher risk. They may be divided into multiple subclasses, each with a different interest rate and subordination. They are intended for investors with high risk-taking ability, such as hedge funds and private equity funds.

Equity tokens have the highest return potential in exchange for the highest risk. Often the originator itself holds a substantial portion and maintains an ongoing incentive for asset quality. Equity token holders typically have voting rights in key decisions and are also responsible for governance functions.

4. automation of cash flow and distribution

Servicer → Pooled Account → Smart Contract Distribution

Cash flow management in RWA tokens is an application of the traditional waterfall concept of securitization to the digital environment. It cleverly combines off-chain and on-chain mechanisms to efficiently and transparently distribute cash flows generated by the underlying assets to investors.

Similar to conventional securitization, servicers are responsible for the management and collection of underlying assets. The servicer collects repayments from borrowers, manages delinquent loans, and disposes of collateral, and consolidates the collected funds in a pooled account. Up to this stage, the process is off-chain and utilizes the same mechanisms as existing financial systems.

Funds accumulated in the pooled account are transferred to the smart contract on a regular basis (usually monthly). This remittance can be executed automatically based on predefined conditions or triggered by a trusted third party (Oracle). At the time of remittance, the smart contract is also provided with detailed breakdown information on principal collections, interest income, fees, and expenses.

Based on the funds and information received, the smart contract automatically executes the distribution process according to pre-coded waterfall rules. This process is transparent and all investors can see the distribution status in real time. The results of the process are permanently recorded on the blockchain, which can also be used as an audit trail.

Pro Rata/Priority/Trigger Linked Distribution

The smart contract distribution process allows for flexible combinations of multiple distribution methods.

In the most basic pro rata distribution, funds are allocated proportionally according to the percentage of each investor's holdings. This ensures fair treatment and transparency among token holders of the same class.

In a priority distribution, the allocation is executed in the same order as in a traditional securitization waterfall: expenses, senior, mezzanine, and equity. In smart contracts, this order of priority is strictly coded, leaving no room for artificial decisions. After each stage of allocation is completed, allocation to the next priority is executed.

Trigger-linked distributions automatically change the distribution method in response to changes in asset quality; when indicators such as the Over-Collateralization Test (OC Test) or the Interest Coverage Test (IC Test) fall below thresholds, normal distributions are suspended and the funds in the equity portion are automatically applied to accelerate principal redemption. The process is automatically executed to apply the equity portion of the funds to the acceleration of principal redemption.

Automatic deduction of fees and credit enhancement costs

The automatic deduction of various fees and credit enhancement costs plays an important role in the RWA token system. In traditional securitizations, the treatment of these expenses can be complex and opaque, making it difficult for investors to understand the actual net return.

Servicer fees are usually set as a fixed percentage of the collection amount or as a fixed amount. With smart contracts, the commission amount is automatically calculated and transferred directly to the servicer's wallet as soon as the collection amount is determined. This process eliminates the risk of late payment or calculation errors.

Management company fees, trustee fees, audit fees, and legal fees are similarly automated. These expenses are typically set as fixed monthly or quarterly amounts and deducted at the beginning of the funds distribution. Synchronization of expense accruals and payments improves the efficiency of cash flow management.

The processing of credit enhancement costs is another important function. The cost of external guarantees and insurance, provision of reserve funds, and OC buildup are automatically executed according to predefined rules. These credit enhancement measures are essential for the protection of investors in the upper tranches, and the transparency and certainty of their execution is ensured by smart contracts.

5. nava calculations and oracle

Frequency and methods of asset valuation

Accurate determination of the Net Asset Value (NAV) of the underlying asset is extremely important in the calculation of the value of RWA tokens. In particular, reliable valuations must be provided for secondary market transactions and for periodic reporting to investors.

When real estate is the underlying asset, the frequency and methodology of valuation depends on the nature of the instrument. While highly liquid instruments may require monthly valuations, quarterly or semi-annual valuations are generally employed. A combination of the income capitalization method, the transaction case comparison method, and the cost method is used as the valuation method, and the average or median value of valuations by multiple real estate appraisers is often used.

When receivables are used as underlying assets, valuation is generally based on a cash flow model. Expected cash flows are calculated considering the borrower's credit status, delinquency rate, collection rate, and interest rate environment, and converted to present value using an appropriate discount rate. Methods that utilize machine learning models to predict credit risk from large amounts of data are also gaining popularity.

Detailed disclosure of the valuation process and results is important to enhance the transparency of the valuation. We will improve credibility by regularly providing investors with information on the independence of the valuation institution, the appropriateness of the valuation methodology, and an analysis of the differences from the previous valuation.

Bridging on- and off-chain

A key challenge for the RWA token system is how to reliably capture real-world information generated off-chain into the on-chain. The oracle function is a critical infrastructure that plays this bridging role.

The Price Oracle provides on-chain market data such as real estate prices, interest rates, exchange rates, and stock indices. It obtains information from multiple independent data providers and generates reliable pricing information by eliminating outliers and calculating weighted averages.

Event oracles provide critical event information such as defaults, collateral dispositions, and the initiation of legal proceedings. This information serves as a trigger for automated processing by smart contracts, enabling a quick response. To ensure reliability, multiple independent sources of information will be used to verify the information, and a system will be adopted to establish a certain verification period.

The KYC Oracle provides real-time investor eligibility information. It continuously monitors information such as changes in the investor's financial status, change of residence, and sanctions listings, and alerts the smart contractor as necessary. To protect privacy, a method is also being developed that utilizes zero-knowledge proof technology to only verify eligibility without disclosing detailed information.

Integration with audit trail

In an RWA token system, all transactions and decision-making processes must be recorded in a transparent and traceable manner. The blockchain's tamper-resistance and transparency can be leveraged to create a comprehensive audit trail that is difficult to achieve with traditional financial instruments.

An audit trail at the transaction level records all issuance, transfers, redemptions, dividend payments, etc. for each token. Detailed information such as time stamps, parties involved, transaction amounts, and fees are permanently stored and can be used for later auditing and dispute resolution.

The audit trail of the valuation process records the data sources used in the NAV calculation, the calculation methodology, the person in charge of the valuation, and the approval process. If questions arise regarding the validity of the valuation, interested parties can refer to this information for verification. In addition, if any changes or special adjustments are made to the evaluation methodology, the reasons and approval process are clearly documented.

An audit trail of governance activities will record voting by investors, resolutions on important matters, contract changes, etc. In a decentralized governance system, proposal submissions, discussion processes, and voting results are all managed on-chain, making participants' actions transparent.

6. summary

Moving the basic elements of securitization on-chain, RWA token = "contract -> coded"

The essence of RWA tokens can be summed up as "coding the basic elements of securitization".

All three major elements of securitization, bankruptcy isolation through SPVs, risk distribution through tranches, and mechanical distribution of funds through waterfalls, which were explained in detail in the previous part, can be implemented as smart contracts.

In conventional securitization, complex contract documents define the rights and obligations between the parties and are managed through human interpretation and execution. However, by implementing these contractual conditions as program code, the room for interpretation is eliminated, and automatic and transparent execution becomes possible. By building on the simple logical structure of "if condition A is satisfied, then process B is executed," the operation of extremely complex financial instruments can be automated.

This "coding of contracts" allows many previously costly and time-consuming processes to be performed instantaneously, greatly reducing the risk of human error and conflicts of interest. For investors, it provides a more transparent and predictable investment environment, and for issuers, it reduces operating costs and improves efficiency.

What is important is that this coding will not merely improve operational efficiency, but will also enhance the value of the financial product as a financial product. Real-time information disclosure, 24/7 automated processing, and global access will create added value that has been difficult to achieve with conventional financial infrastructure.

Potential and Challenges for Next Generation Capital Markets Infrastructure

Beyond the mere digitization of existing products, RWA tokenization has the potential to bring structural innovation to the entire capital markets infrastructure. It is expected to move away from the traditional centralized financial system to a more decentralized, transparent, and efficient system.

The first technological possibility is a revolutionary increase in liquidity. Assets such as real estate and private equity, which previously had limited liquidity, will become accessible investments for more investors through the creation of smaller lots and secondary markets. In addition, 24-hour trading, immediate settlement, and low-cost operations will greatly enhance convenience for investors.

From the perspective of globalization, RWA tokens also have great value. Cross-border investments, which used to be complicated due to differences in regulations and payment systems in different countries, will be simplified with a unified protocol. Investors in emerging markets will be able to access high-quality assets in developed countries, while investors in developed countries will be able to tap into growth opportunities in emerging markets.

However, to realize these possibilities, a number of issues must be resolved.

On the regulatory front, it is important to harmonize with the financial regulations of each country, develop a regulatory framework that accommodates new technologies, and promote international regulatory coordination. In particular, in collaboration between existing financial institutions and new technology companies, it is necessary to establish appropriate risk management and investor protection frameworks.

On the technical side, the challenges include scalability, security, and interoperability. It is necessary to develop blockchain infrastructure that can efficiently process large volumes of transactions, address cybersecurity risks, and enable the transfer of assets between different blockchains. It is also important to develop technological bridging capabilities in the integration with traditional financial systems.

In addition, ensuring adequate liquidity is the most important issue in the development of the market. Since participants are limited in the early stages, it is necessary to promote the entry of market makers, establish appropriate price discovery mechanisms, and promote investor education. It is also important to promote standardization to increase comparability and interoperability among different projects.

Ultimately, the success of RWA tokenization will depend on the right blend of technological innovation and financial industry knowledge. By leveraging the full potential of blockchain technology, while at the same time inheriting the wealth of experience and knowledge accumulated in the securitization market, it is hoped that a truly valuable next-generation financial infrastructure will be created.

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Disclaimer：I carefully examine and write the information that I research, but since it is personally operated and there are many parts with English sources, there may be some paraphrasing or incorrect information. Please understand. Also, there may be introductions of Dapps, NFTs, and tokens in the articles, but there is absolutely no solicitation purpose. Please purchase and use them at your own risk.

About us
🇯🇵🇺🇸🇰🇷🇨🇳🇪🇸 The English version of the web3 newsletter, which is available in 5 languages. Based on the concept of ``Learn more about web3 in 5 minutes a day,'' we deliver research articles five times a week, including explanations of popular web3 trends, project explanations, and introductions to the latest news.

Author
mitsui
A web3 researcher. Operating the newsletter "web3 Research" delivered in five languages around the world.

Contact
The author is a web3 researcher based in Japan. If you have a project that is interested in expanding to Japan, please contact the following:

• X：@web3researchgl

• Telegram：@mitsui0x

*Please note that this newsletter translates articles that are originally in Japanese. There may be translation mistakes such as mistranslations or paraphrasing, so please understand in advance.

Good morning.
I am mitsui, a web3 researcher.

Every Saturday and Sunday at noon, we update the web3 Basics Report. This week we will discuss the "Basics of RWA Tokenization". Please read to the end!

1. Introduction
2. players and basic structure
3. Role of SPV
4. waterfall (fund allocation rules)
5. credit enhancement
6. summary

Subscribe now

1. introduction

Why you should learn about "securitization" before understanding RWA tokens

In recent years, there has been a rapidly growing interest in Real World Assets (RWA) tokens in the web3 sector. There is a growing effort to tokenize traditional financial assets on the blockchain to create new liquidity and investment opportunities. However, to understand the essence of RWA tokens, it is essential to have a deep understanding of the traditional "securitization" mechanism that underlies them.

Securitization is a financial technology that began in the U.S. mortgage market in the 1970s and has since spread throughout the world. The system of bundling assets, issuing securities based on the cash flow generated from those assets, and distributing them to investors by subdividing the risk is the foundation of modern finance.

Although various reforms were made after the financial crisis of 2008, the basic idea and technology continues to evolve today, and the RWA token is truly an attempt to encode this idea of securitization with blockchain technology.

A mechanism to bundle and securitize assets to visualize and distribute risk

Securitization is a financial technology that bundles assets such as loan receivables and real estate held by banks and financial institutions and issues securities backed by the cash flows generated from these assets.

The crux of this mechanism is to diversify the risk of individual assets by pooling them and dividing them into multiple securities (tranches) with different risk and return according to the needs of investors with different risk preferences.

Traditionally, when a bank lent out a mortgage loan, the credit risk remained on the bank's balance sheet. Through securitization, however, banks can now sell the loans to third parties and transfer the risk. This allows banks to secure new sources of financing and gives investors the opportunity to invest in a diversified portfolio.

The breakthrough of this system lies in the "visualization of risk" and "automatic distribution by contract. The system discloses detailed risk information on individual loans, which was previously buried within the bank, and mechanically distributes the collected principal and interest to investors according to predetermined contractual conditions. This idea of transparency and automation is the foundation of the later RWA tokens.

2. players and basic structure

Securitization transactions are an ecosystem composed of multiple specialized players. Each plays a specific role, and as a whole, provides efficient risk diversification and financing.

Originator (bank/non-bank)

The originator is the initial holder of the assets subject to securitization. This includes the bank that lent the mortgage, the non-bank that provided the auto loan, the credit card company, and the educational financial institution that handles student loans. The originator has a direct relationship with the customer and manages the entire process from credit screening to asset origination.

The originator's role goes beyond a simple asset sale. After securitization, they are required to "risk retain" a portion of the assets in many cases and have ongoing responsibility for the quality of the assets. They also play an important role in maintaining relationships with borrowers and in providing information to investors in securitized products.

SPV

A Special Purpose Vehicle (SPV) is the legal instrument at the heart of a securitization transaction. The most important feature of an SPV is its "bankruptcy protection" function. Even if the originator fails, the assets transferred to the SPV are legally protected and the interests of investors are protected.

SPVs are usually special purpose legal entities formed solely for securitization transactions, and their activities are strictly limited. They are not allowed to engage in any other business and only hold assets, issue securities, and distribute the cash flows generated therefrom. This restriction minimizes the risk of the SPV itself going bankrupt.

Arranger Servicer Trustee

Arrangers are investment banks and securities firms responsible for the overall design and structuring of securitization transactions. They provide comprehensive coordination from upstream to downstream of the transaction, including asset selection, design of the tranche structure, and development of the sales strategy to investors. They must have the expertise to design securities that meet the needs of the market while satisfying complex legal, tax, and regulatory requirements.

Servicers are responsible for managing assets after securitization. They collect principal and interest from borrowers, manage delinquent receivables, and execute legal proceedings as needed. In many cases, the originator itself doubles as the servicer, but in others, the servicing is outsourced to a specialized servicing company. The quality of the servicer's operations directly affects the ultimate performance of the securitization product, making its selection and supervision extremely important.

The Trustee is a fiduciary that oversees the operations of the SPV on behalf of the investors' interests. It monitors compliance with the terms of the agreement and exercises its rights on behalf of investors when necessary. It acts as a "watchdog" in securitization transactions, helping to prevent conflicts of interest and ensure transparency.

Investor (Senior/Mezzanine/Equity)

One of the core innovations in securitization is the creation of multiple securities (tranches) with different risks and returns from a single pool of assets. Investors in securitized products invest in different tranches depending on their risk appetite.

The basic principle of tranche design is the "trade-off between risk and yield. By accommodating the order of loss absorption and the priority order of interest payment, securities can be supplied simultaneously to meet the diverse needs of investors.

The order of loss absorption is usually designed in the following order: equity (most subordinated), mezzanine (intermediate), and senior (highest priority). In the event of a loss to the asset pool, the equity tranche absorbs the full amount first, followed by the mezzanine tranche if that is not enough, and finally to the senior tranche.

On the other hand, the order of yields is opposite to the loss absorption order. The equity bearing the highest risk is entitled to the highest yield, and the safest senior is entitled to the lowest yield. This design allows risk-averse investors to obtain stable low yields and risk-preferring investors to obtain high return potential.

Senior investors are primarily institutional investors such as pension funds and insurance companies seeking stable returns. These investors place the highest priority on safety of principal and are satisfied with relatively low returns.

Mezzanine investors are investors who accept higher risk in exchange for higher returns than seniors. Hedge funds, private equity funds, and some insurance companies and asset managers are typical investor groups.

Equity investors invest in the portion with the highest return potential instead of the highest risk. Often the originator itself owns the equity portion and maintains an ongoing incentive for asset quality.

3. role of SPV

TRUE SALE

In securitization transactions, "true sale" is an extremely important legal and accounting concept. When an asset transfer from an originator to an SPV is legally recognized as a "true sale," the asset is completely removed from the originator's balance sheet. This allows the originator to realize accounting asset reduction benefits as well as regulatory capital savings.

Multiple legal requirements must be met to qualify as a genuine sale. First, ownership of the assets must be fully transferred to the SPV. Second, the originator must not continue to retain substantial control over the transferred assets. Further, the transfer consideration must be based on fair market value.

Accounting standards also have strict requirements for the recognition of a true sale. After the 2008 financial crisis, these requirements have become more stringent, and off-balancing requirements have also been strengthened.

bankruptcy remoteness

Bankruptcy segregation is a core feature of investor protection in securitization transactions. Even if the originator fails, assets properly transferred to the SPV are legally protected from pursuit by the originator's creditors. This protection insulates investors from the credit risk of the issuer and allows them to make investment decisions based purely on the quality of the underlying assets.

In order to achieve bankruptcy isolation, great care must be taken in the establishment and operation of the SPV, which must be established as an independent legal entity and strictly limit its activities to those related to securitization transactions. In addition, a system must be established whereby the originator cannot exercise effective control over the SPV's decision-making.

In practice, to strengthen bankruptcy segregation, SPVs are subject to various safeguards, such as the appointment of independent directors, restrictive covenants on business activities, and strict segregation of duties. In addition, professional verification of the effectiveness of bankruptcy segregation is generally conducted through a legal opinion.

4. waterfall (fund allocation rules)

Cost → Senior → Mezza → Equity Priority

The waterfall is the key rule that defines the order in which funds collected from the asset pool are allocated in a securitization transaction. These allocation rules are contractually defined in detail at the inception of the transaction and then mechanically applied throughout the investment period. Transparency and predictability allow investors to make their own investment decisions appropriately.

In a typical waterfall, the first priority is to pay the various costs associated with the transaction. Servicer fees, trustee fees, rating agency fees, audit fees, legal fees, and other expenses necessary for the continuation of the transaction are ensured to ensure the stable operation of the securitization product.

After expenses are paid, the remaining funds are directed to distribution to investors. First, interest payments and principal redemptions are made on the senior tranche, then the mezzanine tranche, and finally the equity tranche. Within each tranche, interest payments generally take priority over principal redemptions.

Automatic distribution change by trigger (OC/IC test)

The waterfall incorporates various trigger provisions to maintain the health of the asset pool. The most important triggers are the Over-Collateralization (OC) and Interest Coverage (IC) tests. If these tests are violated, the normal waterfall is altered and a more conservative allocation of funds is implemented.

The OC test monitors the ratio of asset pool balance to outstanding securities. If this ratio falls below a predetermined level, additional credit enhancement is deemed necessary and funds normally allocated to equity are redirected to accelerate principal redemptions. This will maintain the level of senior and mezzanine protection.

The IC test monitors the ratio of interest income to interest expense. If interest income from the asset pool declines to the point where it cannot cover interest payments on outstanding securities, the allocation to equity will be suspended to make up the shortfall. In some cases, interest payments to mezzanines may also be suspended.

These trigger mechanisms act as a "self-healing" function for the securitized product. They enhance investor protection for the top tranche by detecting early deterioration in asset quality and automatically switching to a more conservative allocation of funds. For investors, this means that they receive protection based on objective criteria without the intervention of human judgment.

5. credit enhancement

Internal complements (OC, RS, excess spread)

Credit enhancement in securitization transactions is an important mechanism to enhance the credit quality of the securities issued and to achieve better ratings and lower financing costs. Internal credit enhancement is characterized by the fact that it is credit enhancement generated within the transaction structure and does not rely on external guarantees or insurance.

Overcollateralization (OC) is the most basic internal complementation technique. It creates a credit enhancement effect by setting the value of the asset pool higher than the total amount of securities to be issued. For example, if ¥9.5 billion of securities are issued for an asset pool of ¥10 billion, OC worth ¥500 million will be provided. This OC effectively acts as an equity tranche, absorbing the initial loss.

The Reserve Fund (RS) is a cash reserve that is accumulated at the beginning of the transaction or during the investment period. A portion of the recoveries from the asset pool is set aside separately to provide for future losses. The reserve fund is typically invested in highly rated short-term securities or deposits and maintains liquidity that can be used immediately to cover losses if needed.

The excess spread is the excess income generated as the difference between the interest income from the asset pool and the interest payments and expenses to security holders. This excess spread is first used to cover the current period's credit losses, and any residual is used to build up the reserve fund or allocated to equity. The existence of a stable excess spread is an important indicator of a securitized product's ability to provide sustainable credit enhancement.

External Completion (Guarantee, Insurance, Liquidity Supply)

External supplements are credit enhancements provided by third parties and are used to further improve the creditworthiness of a transaction. However, since it depends on the creditworthiness of the external supplement provider, its selection and setting of contractual terms are important.

A guarantee is a mechanism whereby a financial institution or guarantee company guarantees the payment of principal and interest on a security. In particular, guarantees by government financial institutions and highly rated banks can significantly improve the creditworthiness of securitized products. In mortgage securitization, the guarantee program by the Government Housing Loan Corporation (formerly Japan Housing Finance Agency) plays an important role.

Insurance is a product in which insurance companies cover credit losses on securitized products. Specialized insurers, known as monoline insurers, once played a major role in insuring securitized products, but many failed during the 2008 financial crisis and their role is now greatly reduced.

Liquidity provision is a mechanism for dealing with short-term cash flow discrepancies. The bank provides a commitment line to provide liquidity in the event of a temporary cash shortage. This allows the bank to respond to discrepancies between the timing of collections from the asset pool and the timing of interest payments on the securities. Although liquidity provision does not cover credit risk, it is an essential function for the stable operation of securitized products.

6. summary

Essence of securitization = "vessel × risk distribution × rules"

In a nutshell, the securitization mechanism described in detail in this paper can be described as a combination of "vessel × risk distribution × rules".

The interaction of these three elements creates a flexible and efficient financing and investment mechanism that cannot be achieved through traditional financing.

The "vessel," the SPV, protects investors through bankruptcy segregation and ensures asset transfer through a true sale. This legal vessel makes it possible to invest purely based on the quality of the assets, without relying on the creditworthiness of the originator.

Risk sharing" is achieved through a tranche structure. By creating multiple securities with different risks and returns from a single pool of assets, we can meet diverse investor needs. Efficient risk allocation can be achieved by understanding the characteristics of senior, mezzanine, and equity securities and by taking appropriate credit enhancement measures.

The "rules" are embodied by the detailed contractual provisions represented by the waterfall. Transparency and predictability are ensured by clarifying in advance the rules of conduct at every juncture, including the order in which funds are allocated, trigger clauses, early redemption conditions, and so on. The mechanical application of these rules minimizes the intervention of human judgment and ensures fair and efficient operations.

A system that visualizes risk and automatically allocates it according to contract

The greatest innovation that securitization has brought to the financial markets is the "visualization of risk.

The risks of individual assets, previously buried and invisible in banks' balance sheets, are now made explicit to investors through detailed disclosure. A vast amount of data, including borrower attributes, collateral characteristics, geographic diversification, and vintage information, is systematically organized and made available for investor analysis.

Even more important is the "automatic allocation according to contract". Through waterfall and trigger clauses, funds collected from the asset pool are mechanically distributed without the need for human judgment. This automation eliminates conflicts of interest, improves processing efficiency, and ensures transparency. Investors are able to earn returns based purely on the terms of the contract, without being subject to complex human relationships or political decisions.

Post-financial crisis reforms have made this transparency and automation even more sophisticated. Standardized data formats, machine-readable disclosure materials, and ongoing monitoring systems allow investors to efficiently perform sophisticated analyses. Risk retention requirements have also ensured the continued involvement of originators, improving overall market quality.

This philosophy is very compatible with blockchain

The basic ideas of securitization - transparency, automation, and mechanical processing based on rules - are in fact extremely compatible with the characteristics of blockchain technology and smart contracts. Elements such as prior clarification of contract terms, automation of execution, and ensuring transparency of processing are the very values realized through coding.

In traditional securitization, transparency and efficiency have been achieved through complex contract documents and numerous intermediaries. However, by codifying these mechanisms, further transparency, reduced processing costs, and real-time processing can be achieved. Digital technology has the potential to create added value by automatically executing waterfalls, instantly triggering trigger clauses, and providing instantaneous information to investors.

Blockchain technology will also enable smaller lots, 24-hour trading, and global access, which have been difficult to achieve with traditional securitization. Smart contracts will also streamline the process of verifying qualified investors, recording transaction history, and transferring ownership.

Thus, the combination of the basic idea of securitization and blockchain technology has the potential to bring about structural innovation in the capital markets, rather than merely the IT adaptation of existing operations. In the second part, we will explain in detail how this securitization philosophy will be embodied in the form of RWA tokens.

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Disclaimer：I carefully examine and write the information that I research, but since it is personally operated and there are many parts with English sources, there may be some paraphrasing or incorrect information. Please understand. Also, there may be introductions of Dapps, NFTs, and tokens in the articles, but there is absolutely no solicitation purpose. Please purchase and use them at your own risk.

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