Know Your Assumptions (KYA) An Alternative to Traditional Know-Your-Customer (KYC) Practices

[RealisticClock]

What Does KYA Mean?

“Know Your Assumptions” refers to the importance of being aware of and questioning the underlying assumptions and principles of the crypto ecosystem. Cryptocurrencies, blockchain technology and Defi protocols are built on specific assumptions and design choices, and understanding these assumptions is crucial for navigating the crypto space effectively and making informed decisions.

Examples Areas of Knowing Your Assumptions

Here are a few key areas where knowing your assumptions is particularly relevant in the crypto world:

1. Decentralization: Cryptocurrencies are often designed to be decentralized, meaning they operate without a central authority. However, the degree of decentralization can vary between different cryptocurrencies. It’s important to understand the assumptions and mechanisms that govern a particular cryptocurrency’s decentralization, such as the consensus algorithm and the distribution of nodes.

2. Trustless Transactions: Cryptocurrencies aim to enable trustless transactions, where parties can transact with each other without relying on a central intermediary. However, this assumption relies on the security and reliability of the underlying blockchain technology. Understanding the assumptions behind the security model, consensus mechanisms, and smart contract functionality is crucial for assessing the trustworthiness of a cryptocurrency.

3. Economic Models: Many cryptocurrencies incorporate economic models, such as tokenomics, to
   incentivize participation and secure the network. These models often involve assumptions about
   token supply, distribution, inflation, and governance. Knowing and evaluating these assumptions can
   help you assess the long-term viability and potential value of a cryptocurrency.

4. Regulatory Environment: The regulatory landscape surrounding cryptocurrencies varies from country to country and is subject to change. Understanding the assumptions and legal considerations related to crypto regulations is important for compliance and managing risks associated with regulatory changes.

Knowing Your Assumptions, Within The Ergo Ecosystem

With Ergo operating on the KYA model (1) and Kushti’s research paper (2) shedding light on the importance of assumptions in cryptocurrencies and DeFi, it becomes evident that there is a need for greater understanding and transparency in the crypto industry. Kushti elaborates on this by stating:

“Traditional financial institutions are doing privacy invasive checks known as KYC/AML practices. In
bankless world of cryptographically-powered decentralized finance it is natural to expect reversion of
control, that is, now users are checking protocols for their properties, including cryptographic and
other assumptions behind them.However, there is no explicit notion of it in the wild. Thus we would
like to introduce Know-Your-Assumptions (KYA) practices as an alternative to KYC/AML practices in
the world of decentralized money and financial tools, where users of the protocols do have real
power, not centralized entities enforcing users to comply with their always-changing rules.”

Asking for transparency and practicing Know-Your-Assumptions (KYA) can contribute to building a solid foundation for the industry to build upon. By embracing KYA as an alternative to traditional privacy invasive checks, we empower users to verify the properties and assumptions of decentralized financial tools, ultimately shaping a bankless world where users hold real power.

Applying Know Your Assumptions - Case 1

Bitcoin As Digital Gold & Ergo (3)

Applying Know Your Assumptions - Case 2

Below would be an example in which a KYA prompt is provided:

Duckpools (4) dApp Providing KYA

Having a “Know Your Assumptions” prompt in DeFi protocols promotes risk awareness, user empowerment, transparency, security, and overall industry growth.

Take for example Aave, a popular decentralized finance (DeFi) protocol:

Aave

By introducing a KYA prompt during the onboarding process or within the platform’s user interface, Aave can promote transparency and empower its users to make informed decisions.

APY is often the main selling point for most protocols, but we need to go beyond just projected profits and consider the risk profiles. With KYA practices, we can quickly evaluate protocols from L1 blockchains to complex DeFi stacks and inter-chain bridges based on the assumptions they rely on.

SigmaFi (5) dApp Providing A Know Your Assumptions

Applying Know Your Assumptions - Case 3

KYA practices benefit not only users but also protocol researchers and developers. By explicitly stating the assumptions in their papers and specifications, researchers can enhance collaboration and foster a deeper understanding of the protocol’s design choices.

Let’s take a look at TrustWallet, a popular crypto wallet as an example. When you first download the extension your promoted to read the terms of service/privacy policy before continuing:

Trust Wallet Legal

Now when interacting with Nautilus Wallet after your initial download, your prompted with explicit risk assumptions as well as open source code before your able to continue:

Example of Nautilus Wallet (6) Providing a Know Your Assumptions

With this, developers can build more robust, resilient and secure systems when assumptions are made clear, allowing for better audits and improvements over time.

Applying Know Your Assumptions - Case 4

Protocols in the crypto industry play a crucial role in fostering user education and understanding. One effective way to achieve this is through comprehensive and accessible documentation. Documentation serves as a valuable resource that enables users to navigate and comprehend the details of a protocol. By providing clear explanations of the protocol’s functionality, parameters, and assumptions, documentation empowers users to make informed decisions and utilize the protocol effectively.

Example of SigmaO (7) Documentation

PancakeSwap Documentation (8)

In the case of Pancake swap a popular decentralized exchange on the Binance Smart Chain, the documentation is used to promote, “Trade where you can instantly swap crypto tokens, Earn where you can earn tokens for free with super high interest rates and Win where Pancake swap makes making money fun!”

Comparing this to Spectrum Finance, a cross-chain DEX which are building on top of decentralized cross-chain messaging protocol - Spectrum Network

Spectrum Finance (9) Documentation

Their documentation strives to, “establish clear differentiations among the various aspects of the “Spectrum” as certain elements might confuse novice users”.

It is through these educational materials that protocols can bridge the gap between complex technical concepts and user-friendly comprehension. By prioritizing documentation, protocols demonstrate their commitment to transparency, user empowerment, and the long-term success of their ecosystem.

Conclusion

Decentralized finance promises a new era of financial freedom, and by embracing KYA practices, users can navigate the space more effectively, and we can ensure that this freedom is built on a solid foundation of transparency and informed decision-making.

References:

(1): KYA - ErgoDocs
(2): https://github.com/kushti/kya/blob/master/kya.pdf
(3): Know Your Assumptions
(4): https://www.duckpools.io/
(5): SigmaFi
(6): Storing Crypto on Ergo: Nautilus Wallet | Ergo Platform
(7): SigmaO - Options on Ergo tokens
(8): https://docs.pancakeswap.finance/
(9): What Is Spectrum Finance? | Spectrum Finance

[RealisticClock]

A question from todays AMA made me want to share this, KYA for devs and users. Feel free to give some feedback and share some other cases as well within the ecosystem

[Grayman]

Outstanding. Here you come again with cutting discussion about the entire “space” and tie it back to Ergo, you are shining here.

Again, I will go back to review, but you clearly do more prep than I do before posting, friend.

I recently listened to this interview with the principal researcher behind Spacemesh, Tal Moran:

Tal Moran: Spacemesh – The Space-Time Consensus Blockchain (#291)

His perspective is interesting, but be aware that Spacemesh uses an EVM model, which makes me say eweeeeeeh. Global state is the cheat code that made DOS unsuitable for the internet.

You need control over your own node, in a little vm, and not a global Amiga. wtf?

I feel a bit crazy after rereading that, but there I said it. Global state bullshit instead of eutxo need to call it out.

The idea that a global supercomputer, run by “decentralized” hardware, will maintain state and calculate what to do in order to manage the money… is frankly bonkers on the face of it. Please anyone link an argument that Solidity is actually solid.

I think measurable money is the way, and that should happen at every transaction and in every wallet, not in some database managed by dipshits that would struggle to do my taxes, another system that has “evolved” to prove that evolution needs some damn help from someone somewhere.

Anyway, here you go putting your finger on the jugular of the current DeFi economy, to see if it has a pulse. You live in a rare space.

[RealisticClock]

interesting video thanks for sharing! Actually makes me want to add a case in which current assumptions on the Ergo protocol itself are shared and fair against others. Might add Kushti’s Post for now and another one later one.

• add an Economics model case
• Trustless Transactions case
• Decentralization case

[RealisticClock]

Maybe this can start a discussion on what we want to be shown on a KYC prompt. We can try to set a standard for them, so devs have a template to follow

[glasgowm]

Nice one, beat me to it - I was planning on updating KYA - ErgoDocs

[RealisticClock]

After reviewing the above examples of a KYA prompt, do you believe this is sufficient information for yourself or someone new coming into the ecosystem to review and accept before utilizing a protocol? Is there anything else you want to know before accepting?

Goal

I am focusing on KYA prompts because i’ve noticed despite there being open source code, documentation, and white papers, many users don’t necessarily review them (or know where to find) before jumping into something (which I can also be guilty of). For example, link to SigmaFi docs are at the bottom of the page that people probably don’t notice. Thats why having a KYA prompt with all the information there (including links to sources such as the explorer in the above case) to review can hopefully cut down on the questions and help educate the users.

I just wanted to start a discussion and see if we as a community can work together on creating a standard for KYA prompts. What we want to see added, taken away, and essentially the questions you want to be answered to help you be better informed before using a protocol.

Questions

Here are a few questions to consider:

1. What are the expectations and beliefs for the protocol?
2. What are the assumptions on the security?
3. What is the perceived level of decentralization (explain why/how) ?
4. What are the assumptions held about the economic models and tokenomics (if there is a token)?
5. Are there any concerns about how regulation can affect the use of the protocol?
6. Can we verify the underlying technology, such as smart contracts (where) ?
7. What are the assumptions on the scalability of the protocol and interoperability of different blockchain networks?
8. Is there a level of risk and potential vulnerabilities associated with use?
9. What are the assumptions on the long-term value and adoption?
10. Can we review the documentation regarding the protocol?

Please also share any of your own questions which can be general questions or even specific questions on protocols/projects that are already live. Also, after sharing your questions, how would you like to see them answered?

KYA prompts don’t necessarily have to answer all our questions within it explicitly as they can also provide links to places where people can review such as docs, white papers, explorer, code. If they don’t have either of those, then it can hopefully encourage the creation of such things.

Again the hope to gradually collect all possible questions/answers that can help in building a standard KYA prompt/ checklist for developers/community to use.