Building a Better Future for Crypto
Ethos 2.0 Whitepaper
By Shingo and Adam Lavine
The Ethos Manifesto (2016)
To build a bridge.
To establish a marketplace.
To bring together people and knowledge.
To unite old and new.
Don’t be satisfied with what is,
Imagine what can be.
Control your wealth, and your destiny.
The future is for everyone.
We are Ethos.
We founded Ethos in 2016 with the mission of creating a financial ecosystem that is open, safe and fair for everyone. Our vision – unchanged from Day 1 – was to put the power of crypto directly into people’s hands through a robust, secure self-custody platform with integrated services. In other words, “your keys, your crypto” (although we have made huge strides in eliminating the consumer complexity of crypto keys) If anything, the centralized crypto meltdowns of 2022 such as Voyager, Celsius, FTX and others have underscored the need for the Ethos vision more than ever.
The primary retail application of Ethos was the Ethos Universal Wallet, a crypto wallet that enabled users to generate their own unique crypto keys and to store, swap, purchase, send and receive hundreds of different digital assets. The Universal Wallet became quite popular with over 100,000 users worldwide running on Android and iOS devices. What we learned is that the mobile device can be a great storage device for crypto if properly secured.
Ethos self-custody and related blockchain technology was acquired in 2019 in a merger with what would later become Voyager. When we first met Voyager’s founders, we immediately saw the potential in combining the two organizations. We had built a best-in-class crypto platform and team with a large user base and Voyager had an order router and money services licenses. Combining the two platforms we believed we could create a company that could compete with some of the largest organizations in the space — and we were right.
Shingo joined the Board of Directors, became its Chief Innovation Officer, and helped launch the first version of the Voyager trading app. The app was a huge hit and in 2020 growth exploded. The combination of an easy-to-use user interface, robust asset selection and native crypto functionality was unparalleled in the industry at the time. Voyager quickly went from a few hundred users to a few thousand, then hundreds of thousands and then millions, based on the scalable architecture built by the Ethos team. We learned that smooth and easy crypto trading designed for retail customers on a mobile app was indeed a “killer app” for the space.
In February 2021, however, Shingo disagreed with the company’s direction and actions of its CEO. Due to these disagreements and ethical concerns, Shingo resigned from the Voyager Board and left the company.
In 2022, Voyager shuttered the Ethos Universal Wallet entirely forcing its customers to relinquish self-sovereignty and unknowingly turning control over their own assets to Voyager. At this point, management completely controlled funds, and users were in the dark about the risks inherent in a centralized trading platform. In fact, users were told the opposite: that Voyager always put customer safety first, that funds were FDIC-insured and that Voyager was one of the safest places to hold and trade crypto. While supposedly “convenient” and protected by a “risk committee,” this was radically different from the original promise of crypto: “your keys, your crypto.”
However the reality about how funds were managed were quite different. Rather than the cryptocurrencies being held safely in the hands of customers through self-custody, their crypto assets were co-mingled with other customer funds and then lent out by corporate management in incredibly risky ways. While Voyager in theory had a “risk committee”, huge latitude for decision making rested with the CEO. While consumers thought their crypto assets were safe and secure and owned by themselves, in reality they were invested into risky, unsecured loans without customer knowledge or consent to “hedge funds” such as 3 Arrows Capital. Mind-bogglingly, Voyager lent customer funds with little conducted diligence or documentation from 3AC beyond their own assurances about their own assets. No formal financials were provided (it’s unclear if 3AC could have even produced audited financials) Customers learned a hard lesson in the realities of centralized systems – that once you send your crypto to a centralized exchange, you lose all control and are subject to the sovereignty of centralized operators. Voyager – and by extension their customers, employees and shareholders – learned a hard lesson, which is that once crypto leaves your control you don’t really own it anymore.
Voyager turned out to be an early domino, with Celsius and then FTX following in rapid succession. Rather than be a safe place to store crypto, centralization turned out to be a contagion infecting the crypto industry. We wrote an editorial about this for Coindesk entitled The End of the Centralization Era in Crypto.
Rebuilding Customer Trust with Self-Custody
The irony is that centralized meltdowns like Voyager, Celsius, FTX and others prove the use case for why crypto was created in the first place. The financial system abused the trust of many in the 2008 financial crisis and this abuse of trust was the spark that motivated Satoshi Nakamoto to create Bitcoin and turn these norms on its head. Crypto was built to solve – in fact eliminate – issues of trust. By establishing a decentralized financial ecosystem, crypto was creating an alternative to the status quo that let people make their own decisions and take control of their own digital assets. The financial system abused the trust of many in the 2008 financial crisis and this abuse of trust was the spark that motivated Satoshi Nakamoto to create Bitcoin and turn these norms on its head. If anything, the bankruptcy of centralized lenders such as Voyager and Celcius is proof of Nakamoto’s thesis. Decentralization is at the core of why crypto is necessary – for both the traditional financial system and crypto itself.
We Believe in a Decentralized Future
Users have a choice to either trust someone else to keep their assets safe (e.g. a centralized platform) or trust themselves and retain possession and control of their own funds. We believe in the latter.
In the former case, we have now seen how co-mingling accounts on a centralized platform can subject customers unknowingly to the reckless behavior of others, exactly what they sought to avoid by investing in crypto assets in the first place. In the cases of Voyager, Celsius and others, it has led to massive losses and widespread pain . Would you knowingly hand the keys to your house to a potential burglar? This is analogous to what could happen if you turn your assets over to the treasury management of a centralized platform or exchange, and did happen on some very large, previously highly respected platforms.
We wanted to create a better system where customers are in control at all times. Under a truly decentralized model, users are protected from the risks that come with commingling funds and turning control over your assets to someone else, whether that be a “risk committee,” treasury management, or a CEO.
We want to bring users back to the original vision of Ethos and to the core philosophy of crypto. We believe in a Decentralized Future where the user makes their own decisions and controls their own destiny.
Our vision is to truly put the power of decentralization into people’s hands, where it belongs. We want to make the cryptocurrency market accessible and trustworthy to the average user, accelerating adoption of self-custody technology and allowing the user to stay in control at all times. We want to rebuild a next-generation “Ethos Defi App” that puts custody in individual user’s hands – and this time with integrated instant live trading. In other words, give users the best of both worlds: a way to truly control their own digital assets while making self-directed trades. You can call this a “decentralized Voyager” – self-directed trading and yield opportunities with complete self custody and control. In this vision there is no bank or central exchange – the user has control of their crypto at all times. This not only allows users a “your keys your crypto” level of control, but also in our view provides a best practices framework that could serve as a blueprint for a coherent crypto regulatory framework. We believe requiring crypto companies to offer self-custody wallets with consumer-controlled financial services would go a long way into reducing systemic risk and increasing transparency.
The New World of DeFi
Interestingly, with the exception of the volatility of digital asset prices, DeFi has proven itself while other centralized exchanges went bankrupt. It is a financial ecosystem based on immediate validation and transparency and where “code is law.” There are the inviolate principles that crypto currencies were based on, not the whims of individuals, institutions, or governments who too often have conflicting motivations that can be quite opposed to the ultimate safety of your assets. While still in its early development, this new approach has already led to many millions of transactions and billions of liquidity. While the centralized platforms like Voyager and Celsius went bankrupt and algorithmic “stable coins” such as Luna lost value, the DeFi ecosystem has remained robust, fluid and liquid. DeFi paints a bright future where users defy the status quo by taking control back from centralized financial institutions, defying the middleman and doing transactions with counterparties directly on-chain, governed by code, not people driven by emotions, outside influences, and conflicting motivations.
There are two big problems with this vision going mainstream for the next Billion crypto users: First, crypto keys are still complex, with a tiresome “choose and secure your mnemonic” wallet approach, and secondly DeFi protocols that are difficult to use and navigate for most individuals. Because of these two issues, many users take the path of least resistance to centralized platforms but without understanding, nor being educated about, the inherent risks. Despite centralized meltdowns, convenience, often combined with deceptive marketing, can be powerful lures. Additionally, just as self-custody was difficult and required technical skill in the days of Ethos 1.0, access to the truly interesting areas of the DeFi market are limited to the “technical 1%.” Adding to the complexity, there are hundreds of different DeFi protocols often with fragmented pricing, varying levels of technical security, and opaque user interfaces.
A Foundation of Magic Keys and Vaults
We are building a new Ethos app built from the ground up to address these challenges head-on. As founders, we are leveraging our experience building a decentralized solution (Ethos), contributing to the core rails of a centralized solution (Voyager, Celsius, others) as well as a community-driven collective ownership model (Particle) to rebuild a new decentralized platform where user control and decision making are sacrosanct core principles on which everything is based. from the ground-up. We are also honored to have many of the original Ethos team and community members joining us once again to make this vision a reality.
We are architecturing and building a new Ethos mobile app based on five fundamental building blocks:
- Magic Keys: We have rethought the crypto key from the inside out, and propose a new form of key that utilizes all of the latest advancements in technology to marry world-class security with convenience and ease of use.
- Universal Vault: These keys will secure a user’s personal Universal Vault. These Vaults will be similar in nature to crypto wallets, but with extra security options to keep the assets inside them safe and secure and equally important, easily backed up and recoverable.
- Live Analytics: Users will be able to broadcast and execute transactions directly on the Blockchain. There will be no need to withdraw or transfer funds, thereby eliminating counter-party and centralized risk. This same mechanism will extend to yield and more complex trades.
- Best Price Execution: Price discovery will occur on an aggregate basis across decentralized protocols, thereby allowing users to find the best prices and liquidity. In this model, transactions can be split across multiple providers for optimal execution.
- Ethos Rewards: The Ethos token will be a decentralized token encouraging users to take control of their own crypto vs. exposing themselves to centralized risk.
All five elements listed above will be integrated into a single user-friendly mobile app. Much like the original Ethos, this project will abstract and simplify what was previously a complex world. This will let users access transparent pricing and complex offerings to their own individual risk profile while staying in possession of their funds at all times. You can simply think of this as a “Decentralized Voyager” – taking what worked and what was positive about Voyager and jettisoning those elements that didn’t put consumers first.
Self-Custody and Decentralization
We believe in user choice, self-sovereignty and self-determination. We believe that the best way for users to protect themselves from centralized failures is through decentralization. This is why self-custody is at the center of the new Ethos app.
Our vision is to rebuild the Ethos platform in the same way we built it the first time, but better. Every user on the Ethos Platform will create their own unique keys and crypto Vault. Instead of a centralized custodian, Ethos will act purely as a technology platform that enables users to connect directly to different DeFi protocols – in other words, each other and a vibrant network of trading opportunities. The user remains in control at all times and is given clear, transparent pricing which is inclusive of spreads and licensing fees. Users will also be able to use the Ethos Defi App as a full smart contract execution system. The Ethos Defi App will thereby connect users to other decentralized applications.
Magic Key Sharding
No single point of failure means – in our interpretation – minimizing the attack surface of a single mnemonic via sharding and also incorporating Social Guardians into the design of the app. We want to remove as many barriers as possible to make self-custody accessible to anyone. One of the most common issues that the average individual has with self-custody is losing their key. Our keys will be “magic” in the sense that they will be able to be sharded using Shamir’s Secret Sharing, and those individual shards are encoded and backed up with a double layer of encryption. This gives the user the benefit of being able to restore their key in the event of loss or a new device. In addition, keys can be easily “re-sharded” on a regular basis for an additional layer of security and peace of mind.
Magic Words for Magic Keys
To encode the shards, users will just have to remember 3 of 5 “magic words” that are unique to them, such as their mother’s maiden name, home town, pet name, etc. These magic words won’t be used to encode the crypto funds, but rather encode the shards so that they can be backed up securely through services like Google Drive and Apple iCloud. (Some wallets let you backup full mnemonics, a practice we think is quite risky) This opens up a new avenue of convenience (you can backup encoded shards on your device or anywhere you want) and security (only you can authorize a restoration of your shards through your unique magic words) This in our view starts to meet the hurdle of “low mental overhead.”
A Universal Vault is similar to a wallet, but with more layered options for security. For example, we will use social guardians, a concept espoused by Vitalik Buterin in his paper referenced above. In this approach, a guardian can be anybody (friend, relative, spouse) who only holds “veto power” if they see suspicious activity. In other words, if someone is trying to steal your crypto or identity, the social guardians act as a simple yet highly effective line of defense for your vault. In addition, we will incorporate 2FA technologies to vaults, and envision hardware keys such as Yubi being added to Vault’s capabilities.
Finally we have “maximum ease of transacting.” Throughout the entire process, the user must always remain in control and keep full custody of their funds. We made a decision early on that Ethos will never take possession of a user’s funds or keys. Rather, it should be as easy as possible to safekeep, trade and seek yield opportunities through crypto that is held under user control.
To this end we will be introducing “Live Analytics” where users can transact directly from their Vault without the need to move their funds to a centralized service. The blockchain can match the convenience, speed and liquidity of a centralized exchange with the added benefit of self-custody and self-sovereignty. Ethos will charge a licensing fee for transactions, but the transaction will occur directly between the user and the protocol, not “through” Ethos servers. This is the guiding principle for future Live Analytics integrations including yield and more complex instruments.
Best Price Discovery
Ethos is not a decentralized exchange (DEX). Rather, the Ethos Defi App will search across multiple exchanges to find the best price for any specific trade, swap or yield instrument. In other words, the Ethos Defi App will discover routes for users to transact directly to different DeFi protocols. Pricing is transparently displayed to the user and the user can choose to accept or reject the price. Price discovery will occur on an aggregate basis across decentralized protocols, thereby allowing users to find the best prices and liquidity. Transactions can be broken down into smaller “sub transactions” to facilitate this, so multiple providers can be used to facilitate transactions.
The ETHOS token will be the native token of the Ethos protocol. The token will be used for improved pricing, early access to features and exclusive functionality. We envision the ETHOS token as a way of attracting users by giving back. There is no token sale. Initial tokens will be given away, for free, to individuals who have been affected by centralized meltdowns and users will be able to earn more by participating in the Ethos platform. The Ethos token will be a decentralized token encouraging users to take control of their own crypto vs. exposing themselves to centralized risk.
Users who hold or lock up sufficient ETHOS tokens will receive access to tiered “Trade Rewards” which will result in rewards based on trading activity on the platform. Ownership of the token is not necessary to access rewards, however, rewards will become more enticing the more tokens that the user owns.
The ETHOS token will also provide holders with early access to new features and discounts to future features.
The ETHOS token will also provide holders enhanced referral rewards based on token ownership. The more tokens you own, the more you will be rewarded for inviting your friends!
Ethos Cornerstones – Our Beliefs
We believe that for crypto to be accessible and trustworthy to the everyday user, it needs to be built ethically. It should be built for humans, not for CEOs. That’s why, we are presenting our four core beliefs about how Ethos will be built – and we will never compromise.
We have written a four part series on each of these core beliefs. You can click on each one to learn more about it.
Control: Your Keys, Your Crypto, Your Ethos. You are in control. Always.
Transparency: Any exchange can claim to be transparent, but blockchain never lies.
Community: Power belongs to you. Together, we can defy the status quo.
Ease: Don’t choose between security and accessibility. Easy, safe and made for everyone.
The Future is For Everyone
It is time for you to take control. It is time that crypto was made transparent. It was time that crypto was built for people, not CEOs. It is time for crypto to be made accessible to all. Together, we’ll go back to crypto’s roots to create the future of finance. Because the future is for everyone.
An address is a unique identifier that users can use to receive cryptocurrency or send cryptocurrency to. Every user has a unique address derived from their keys.
Best Price Execution
Best Price Execution will chart routes for users in a decentralized manner to discover the best price for a trade.
Bitcoin is the first cryptocurrency launched by Satoshi Nakamoto. Bitcoin pioneered the idea of owning your own keys and taking custody of your own funds.
CeFi stands for “Centralized Finance”. Centralized institutions include banks, brokers and centralized cryptocurrency platforms such as exchanges or lenders.
Commingling is when funds from multiple users or sources are put into a single account owned by a centralized platform.
DeFi stands for “Decentralized Finance”. Decentralized protocols include decentralized exchanges or “DEX” or other protocols that offer a wide variety of services including loans, lending, margin, options etc.
DEX stands for “Decentralized Exchange”. Decentralized exchanges let people swap different digital assets without any intermediaries.
The ETHOS token is the native token of the Ethos protocol. It provides functionality within the Ethos ecosystem including member discounts and access to additional features.
Ethereum is the first platform to introduce Smart Contracts. It is the blockchain upon which much of DeFi is built. As of writing, 64% of all trades are transacted on the Ethereum blockchain.
Ethos Smart Contracts
Ethos smart contracts are a decentralized smart contracts platform that lets users access DeFi protocols. In addition, users will have the option of deploying their own smart contracts directly on chain.
Ethos Defi App
The Ethos Defi App is the core piece of Self-custody technology that lets users take control of their funds.
Intermediaries are any individual or institution that sits in the middle of a transaction and takes control of funds. Centralized platforms are typically intermediaries.
Key Shards are little pieces of information that can, if brought together collectively, reconstruct a key. Individual key shards are useless unless they are combined with other shards to create a key.
Miners are groups of people around the world that secure blockchain manners and ensure they remain decentralized. They process blockchain transactions and enable blockchains such as Bitcoin and Ethereum to function.
Private Keys are keys that are used to sign transactions. Any transaction that has been signed by a private key can be processed by a blockchain network. Private keys must be kept secret and are always held by the user.
Public Keys are keys that are used to receive funds. Some public keys are used to generate addresses and other public keys are addresses themselves. Public keys do not have to be kept secret like private keys.
Self-custody is a core function of cryptocurrencies that allow users to take possession of their own funds. Self-custody is inherently decentralized and isn’t subject to risks that centralized custody entails.
Smart Contracts are decentralized programs that run on the blockchain. DeFi protocols run on Smart Contracts.
Swaps Swaps are a process where a user can exchange one digital asset for another on a DEX.
Staking is a process by which a user locks up coins to receive a yield. Staking may help secure networks.
The Future Is For Everyone
This is not an offer to sell or a solicitation to buy any digital assets. The cryptocurrency space is volatile. Please be careful and thoughtful when purchasing any cryptocurrency coin, digital asset or token. This paper can be changed at any point without prior notice. You are responsible for complying with local jurisdictional laws and regulations. We encourage and support reporting and paying taxes on your cryptocurrency gains.