Gnosis Safe has a monopoly over multi-signature smart contract wallets on Ethereum. According to Safe’s team account on Dune, in January 2021, users were creating an average of 120 of its multi-signature smart contract wallets (or as Gnosis Safe calls them, “Safes”) per week. Nowadays, users create over 1,000 Safes per week.
Weekly transactions using Safes have also increased 10X during the same period. Safes hold approximately $40 billion worth of assets today. Stated another way, the assets in Safes are worth one-quarter of the market capitalization of Ethereum itself.
Users have been creating multi-signature smart contract wallets on Gnosis Safe since November 2018. This summer, the company behind the protocol has raised $100 million from Coinbase Ventures, Tiger Global, Lightspeed, 1kx, and Digital Currency Group.
What is Gnosis Safe, anyway?
Gnosis Safe (now rebranding to simply “Safe”) offers an easy way to manage multi-signature wallets. Like most things in Ethereum, although it’s technically possible to write the code yourself, almost everyone just uses a service provider. Safe specializes in multi-signature smart contract wallets that not only store funds but also enable executable functions with those funds.
Multiple signature requirements can be attractive to organizations seeking protection against a single signer misappropriating funds in a single-sig wallet.
As part of the Ethereum Virtual Machine (EVM) ecosystem, it can work with most major EVM-compatible wallets, including ERC-20 tokens and ERC-721 NFTs. It also runs on the Arbitum, Aurora, Binance (BNB) Smart Chain, Gnosis Chain, and Polygon blockchains.
Big names that use Gnosis Safe include ConsenSys, Aave, SushiSwap, and Ethereum Name Service (ENS).
Its Twitter account says the organization is migrating to a new domain due to its rebranding but other moves include transaction service migrations on Gnosis Chain on October 20 and Ethereum Mainnet on October 24.
Gnosis Safe is one of several centralizing forces in Ethereum
Since Ethereum switched to a Proof-of-Stake (PoS) algorithm with its Merge, concerns about centralization have escalated. Even before the Merge, most users interacted with Ethereum through one managed API, Infura, using one key manager, Metamask, referencing one block explorer, Etherscan.
Moving beyond tech stack centralization, PoS staking services are now centralizing the management of ETH itself. Liquid staking pools have overtaken a majority of staked Ethereum. Today, just four entities — Coinbase, Binance, Kraken, and Lido — control the private keys to the majority of liquid-staked ETH.
Gnosis Safe became one of the organizations that contributed to the increasing centralization of Ethereum with its huge market share for managing multi-signature wallets.
The largest liquid staking service, Lido, uses Gnosis Safe. Lido offers an ETH-denominated 5.4% APR to investors who don’t have the 32 ETH required to become their own validator. Lido currently controls $5.7 billion worth of liquid-staked ETH and dwarfs its competitors. Its nearest competitor, RocketPool, has just $550 million. Next, StakeWise, has less than $100 million.
If rogue administrators at Coinbase, Kraken, and Binance were to ever conspire with Lido, these four key holders could sign for more than half of all staked Ethereum.
Ethereum users might expect that no one can block them from downloading a wallet using the ostensibly decentralized Ethereum blockchain. If one wallet engages in censorship, they could try downloading a wallet from another one.
However, MetaMask proved that this isn’t true. Many crypto-enabled websites only connect to Metamask and don’t support third-party software wallets. Metamask blocked users in Venezuela and Iran from using its wallet — indicating that a centralized party controls decision-making for its software. OpenSea also blocked Iranian users, miffing beliefs of decentralization in the NFT industry.
Gnosis Safe’s monopoly over multi-signature smart contracts became one of several centralizing factors in Ethereum. Safe provides valuable security for organizations that worry about the possible theft of digital assets. Safes are, perhaps, more secure than single-signature wallets. However, Safe also encourages the centralization of Ethereum.