<h1>What is OccamDAO? </h1>OccamDAO is a decentralized community-governed entity that offers a suite of services, including a launchpad, a DEX, a DAO, and an incubator program, to help promising projects thrive and find a place on the rapidly evolving blockchain frontier. OccamDAO’s native token, OCC, is a core element of its ecosystem, serving as a reward mechanism, a governance token, and a utility token. Historically, Occam and<a target="_blank" rel="noopener noreferrer nofollow" href="http://Galactica.com"> Galactica.co</a>m have collaborated to understand the shortcomings of FinTech-based DAOs, resulting in extensive research on where and how to improve human-centric DAOs.<h1> OccamDAO x Galactica Partnership details&nbsp; </h1><ul><li>OccamDAO is developing and integrating Galactica’s Guardian SDK (software development kit) to authenticate zkCertificates for platforms like X (formerly Twitter) and Discord, aligning with Galactica's community standards.</li><li>OccamDAO is set to enhance Galactica’s TestNet and SDK, acting as a critical conduit between offline data and the Galactica Network ecosystem.</li><li>With the launch of the Galactica MainNet on the horizon, a significant portion of Galactica’s resources will reward Guardians, benefiting both Galactica’s and OccamDAO's communities. Some of these rewards will also be allocated to OccamDAO’s Chakra pool.</li><li>Research on human DAOs, reputation systems, and other technologies will continue.</li></ul>Welcome to all members of the OccamDAO ecosystem and community!<math xmlns="http://www.w3.org/1998/Math/MathML"><semantics></semantics></math><math xmlns="http://www.w3.org/1998/Math/MathML"><semantics> </semantics></math><math xmlns="http://www.w3.org/1998/Math/MathML"><semantics></semantics></math><math xmlns="http://www.w3.org/1998/Math/MathML"><semantics> </semantics></math>Join us to experience a vibrant, engaging, and dynamic community. Get involved and be a part of the excitement, claim your first SBT (soul bound token) here:<a target="_blank" rel="noopener noreferrer nofollow" href="https://xsbt.galactica.com/">&nbsp;</a><a target="_blank" rel="noopener noreferrer nofollow" href="https://xsbt.galactica.com/">https://xsbt.galactica.com/</a>

We are thrilled to announce our strategic partnership between OccamDAO and Galactica Network. OccamDAO is officially our very first Data Guardian, and we’re delighted to continue our relationship with their team.

Welcome to the Galactica Network, OccamDAO! 

Defining Desired Mathematical Properties of a Reputation Function

Galactica's Reputation Approach Part II

A Guide to Galactica’s TestNet v1.0

Reputation is the core use case of the Web3 Identity Stack.

Part I: Defining The Web3 Identity Stack

This research delves into the present landscape of Real World Asset (RWA) tokenization, its implications for the Web3 sector, and the challenges still on the way, such as the need for a robust RegTech stack in the permissionless blockchain systems. We have outlined the opportunities and the challenges of integrating Web3 stack with the broader FinTech landscape in our first article of the Regulatory Trinity series [1], Table 1 provides a summary. The current research encompasses a case study outlining the compliant privacy primitives of Galactica Network. Prior to reading the article, we encourages a reader to review the follow chart before proceeding.

Real World Assets: The Emerging Paradigm For Web3

<span class="null" ariahidden="null" style="font-size:20pt;font-family:Arial,sans-serif;color:#000000;background-color:transparent;font-weight:400;font-style:normal;font-variant:normal;text-decoration:none;vertical-align:baseline;white-space:pre;white-space:pre-wrap;">Anti-money laundering and combating the financing of terrorism<span class="null" ariahidden="null" style="font-size:11pt;font-family:Arial,sans-serif;color:#000000;background-color:transparent;font-weight:400;font-style:normal;font-variant:normal;text-decoration:none;vertical-align:baseline;white-space:pre;white-space:pre-wrap;">AML and CFT laws have become essential in the financial regulatory framework, particularly concerning digital assets and cryptocurrencies. Examining money laundering cases involving cryptocurrencies and relevant laws provides valuable insights into measures taken to prevent illicit activities and maintain financial system integrity. Notable regulations like the Bank Secrecy Act, US Sanctions Program, and forthcoming legislation such as MiCA in Europe are crucial in tracing funds linked to unlawful activities. Compliance involves maintaining comprehensive records, implementing Know Your Customer standards, and monitoring transactions. These measures aim to punish wrongdoers by confiscating or blocking unlawfully acquired funds, emphasizing the importance of robust AML/CFT regulations in addressing the unique risks associated with digital assets. <span class="null" ariahidden="null" style="font-size:16pt;font-family:Arial,sans-serif;color:#000000;background-color:transparent;font-weight:400;font-style:normal;font-variant:normal;text-decoration:none;vertical-align:baseline;white-space:pre;white-space:pre-wrap;">TradFi AML &amp; CFT <span class="null" ariahidden="null" style="font-size:11pt;font-family:Arial,sans-serif;color:#000000;background-color:transparent;font-weight:400;font-style:normal;font-variant:normal;text-decoration:none;vertical-align:baseline;white-space:pre;white-space:pre-wrap;">We previously discussed this topic in brief in the article “At the Intersection of Privacy &amp; Compliance” [21]. Here we will provide further insight into the laws and the regulatory bodies (in the US) involved in shaping and adapting this regulation for the digital assets space. Some of the most notorious money laundering cases involving cryptocurrencies include:<span class="null" ariahidden="null" style="font-size:11pt;font-family:Arial,sans-serif;color:#000000;background-color:transparent;font-weight:700;font-style:normal;font-variant:normal;text-decoration:none;vertical-align:baseline;white-space:pre;white-space:pre-wrap;">Mt. Gox:<span class="null" ariahidden="null" style="font-size:11pt;font-family:Arial,sans-serif;color:#000000;background-color:transparent;font-weight:400;font-style:normal;font-variant:normal;text-decoration:none;vertical-align:baseline;white-space:pre;white-space:pre-wrap;">Once the world's largest bitcoin exchange, it abruptly ceased operations in 2014 after declaring that around 850,000 bitcoins, valued at over $450 million then and billions today, were missing and likely stolen, marking the biggest loss of Bitcoins in history.<span class="null" ariahidden="null" style="font-size:11pt;font-family:Arial,sans-serif;color:#000000;background-color:transparent;font-weight:700;font-style:normal;font-variant:normal;text-decoration:none;vertical-align:baseline;white-space:pre;white-space:pre-wrap;">BTC-e:<span class="null" ariahidden="null" style="font-size:11pt;font-family:Arial,sans-serif;color:#000000;background-color:transparent;font-weight:400;font-style:normal;font-variant:normal;text-decoration:none;vertical-align:baseline;white-space:pre;white-space:pre-wrap;">Despite serving around 700,000 global customers and thriving in the ambiguous regulatory landscape of emerging crypto markets, BTC-e concealed its services to US customers, trying to evade US legal jurisdiction. The exchange faced accusations of being linked to the theft of over 300,000 BTC from Mt. Gox without exercising due diligence or filing Suspicious Activity Reports. On July 27, 2017, FinCEN found BTC-e in violation of numerous regulations, leading to indictments in California. Charges included money laundering, conspiracy, unlawful monetary transactions, and operating an unlicensed money transmission business.<span class="null" ariahidden="null" style="font-size:11pt;font-family:Arial,sans-serif;color:#000000;background-color:transparent;font-weight:700;font-style:normal;font-variant:normal;text-decoration:none;vertical-align:baseline;white-space:pre;white-space:pre-wrap;">Helix &amp; Coin Ninja:<span class="null" ariahidden="null" style="font-size:11pt;font-family:Arial,sans-serif;color:#000000;background-color:transparent;font-weight:400;font-style:normal;font-variant:normal;text-decoration:none;vertical-align:baseline;white-space:pre;white-space:pre-wrap;">From 2014 to 2019, Larry Dean Harmon operated Helix, a cryptocurrency "tumbler" service, and Coin Ninja LLC, a crypto media site and exchange, both classified as money transmitters and financial institutions by FinCEN. Harmon faced charges for willfully violating the BSA's registration, AML program, and reporting requirements, including the failure to register Helix and Coin Ninja as money services businesses, the lack of an effective AML program for Helix, and failure to report suspicious activities tied to Helix. <span class="null" ariahidden="null" style="font-size:11pt;font-family:Arial,sans-serif;color:#000000;background-color:transparent;font-weight:700;font-style:normal;font-variant:normal;text-decoration:none;vertical-align:baseline;white-space:pre;white-space:pre-wrap;">Alphabay:<span class="null" ariahidden="null" style="font-size:11pt;font-family:Arial,sans-serif;color:#000000;background-color:transparent;font-weight:400;font-style:normal;font-variant:normal;text-decoration:none;vertical-align:baseline;white-space:pre;white-space:pre-wrap;">In 2017, Alphabay, the largest criminal marketplace on the dark web, was seized by the U.S. Department of Justice after operating for over two years. It facilitated the sale of illegal items using cryptocurrencies like Bitcoin, Monero, and Ethereum to conceal its operations. The marketplace's creator, Alexandre Cazes, faced multiple charges related to drug distribution, racketeering, identity theft, and money laundering.<span class="null" ariahidden="null" style="font-size:11pt;font-family:Arial,sans-serif;color:#000000;background-color:transparent;font-weight:700;font-style:normal;font-variant:normal;text-decoration:none;vertical-align:baseline;white-space:pre;white-space:pre-wrap;">Silk Road:<span class="null" ariahidden="null" style="font-size:11pt;font-family:Arial,sans-serif;color:#000000;background-color:transparent;font-weight:400;font-style:normal;font-variant:normal;text-decoration:none;vertical-align:baseline;white-space:pre;white-space:pre-wrap;">A notorious online marketplace operating on the darknet that facilitated anonymous transactions involving illegal goods and services. Founder Ross Ulbricht faced charges of money laundering, drug trafficking, and computer hacking, leading to the FBI's takedown of the site in 2013. The incident had a significant impact on the cryptocurrency community, with Bitcoin, the primary currency used on Silk Road, experiencing a substantial price decline after the site's closure. <span class="null" ariahidden="null" style="font-size:11pt;font-family:Arial,sans-serif;color:#000000;background-color:transparent;font-weight:700;font-style:normal;font-variant:normal;text-decoration:none;vertical-align:baseline;white-space:pre;white-space:pre-wrap;">BitMEX:<span class="null" ariahidden="null" style="font-size:11pt;font-family:Arial,sans-serif;color:#000000;background-color:transparent;font-weight:400;font-style:normal;font-variant:normal;text-decoration:none;vertical-align:baseline;white-space:pre;white-space:pre-wrap;">An exchange which was embroiled in a major scandal in the cryptocurrency world in 2020. It was accused of breaching the Bank Secrecy Act and running an unregistered futures exchange, leading to charges against its founders. The incident heightened regulatory scrutiny of cryptocurrency exchanges, causing investor concerns and undermining confidence in the industry, resulting in BitMEX paying a $100 million fine and implementing new anti-money laundering measures. <span class="null" ariahidden="null" style="font-size:11pt;font-family:Arial,sans-serif;color:#000000;background-color:transparent;font-weight:400;font-style:normal;font-variant:normal;text-decoration:none;vertical-align:baseline;white-space:pre;white-space:pre-wrap;">AML/CFT laws in the US are crucial for preventing illicit activities like money laundering and terrorist financing through the country's financial system. Key agencies responsible for enforcing these laws include FinCEN, OFAC, and the DOJ, with main regulations like the BSA, USA PATRIOT Act, and FATCA. Virtual currencies are also covered under this regulatory framework, with specific guidance from agencies like FinCEN to address their unique risks.<span class="null" ariahidden="null" style="font-size:11pt;font-family:Arial,sans-serif;color:#000000;background-color:transparent;font-weight:400;font-style:normal;font-variant:normal;text-decoration:none;vertical-align:baseline;white-space:pre;white-space:pre-wrap;"><math xmlns="http://www.w3.org/1998/Math/MathML"><semantics> </semantics></math><span class="null" ariahidden="null" style="font-size:11pt;font-family:Arial,sans-serif;color:#000000;background-color:transparent;font-weight:400;font-style:normal;font-variant:normal;text-decoration:none;vertical-align:baseline;white-space:pre;white-space:pre-wrap;"><math xmlns="http://www.w3.org/1998/Math/MathML"><semantics> </semantics></math><span class="null" ariahidden="null" style="font-size:11pt;font-family:Arial,sans-serif;color:#000000;background-color:transparent;font-weight:400;font-style:normal;font-variant:normal;text-decoration:none;vertical-align:baseline;white-space:pre;white-space:pre-wrap;">The BSA mandates financial institutions to establish AML programs to prevent money laundering and terrorist financing, overseen by FinCEN, which enforces the BSA and can penalize non-compliant institutions. The USA PATRIOT Act broadened AML and CFT laws, requiring more entities to comply with the BSA, implement customer identification and enhanced due diligence measures, and report suspicious activity to FinCEN. FATCA obliges foreign financial institutions to report U.S. citizens' offshore accounts to the IRS, and U.S. citizens must also report their foreign financial accounts to the IRS. Regulatory guidance from FinCEN and other agencies complements these laws through interpretive letters, advisories, and industry-specific guidance, providing clarity on regulatory requirements and expectations.<span class="null" ariahidden="null" style="font-size:11pt;font-family:Arial,sans-serif;color:#000000;background-color:transparent;font-weight:400;font-style:normal;font-variant:normal;text-decoration:none;vertical-align:baseline;white-space:pre;white-space:pre-wrap;"><math xmlns="http://www.w3.org/1998/Math/MathML"><semantics> </semantics></math><span class="null" ariahidden="null" style="font-size:11pt;font-family:Arial,sans-serif;color:#000000;background-color:transparent;font-weight:400;font-style:normal;font-variant:normal;text-decoration:none;vertical-align:baseline;white-space:pre;white-space:pre-wrap;"><math xmlns="http://www.w3.org/1998/Math/MathML"><semantics> </semantics></math><span class="null" ariahidden="null" style="font-size:11pt;font-family:Arial,sans-serif;color:#000000;background-color:transparent;font-weight:400;font-style:normal;font-variant:normal;text-decoration:none;vertical-align:baseline;white-space:pre;white-space:pre-wrap;">FinCEN has issued two important guidance documents on virtual currencies. Its 2013 guidance defined certain virtual currency activities as money transmission and required exchangers and administrators of convertible virtual currencies to register as Money Services Businesses (MSBs) and comply with relevant regulations. In 2019, it issued followup guidance to clarify regulatory obligations for businesses dealing with privacy coins and anonymizing services, categorizing privacy coins as subject to the same regulations as non-anonymized cryptocurrencies. It also found that developers of privacy coins might also be considered regulated MSBs if they operate as administrators of a payment system. Compliance with the Funds Travel Rule is mandatory for businesses exchanging privacy tokens and developers of privacy coins, but it does not mandate the tracking or sharing of transaction information via blockchain analysis and surveillance. <span class="null" ariahidden="null" style="font-size:16pt;font-family:Arial,sans-serif;color:#000000;background-color:transparent;font-weight:400;font-style:normal;font-variant:normal;text-decoration:none;vertical-align:baseline;white-space:pre;white-space:pre-wrap;">The Trinity Continues <span class="null" ariahidden="null" style="font-size:11pt;font-family:Arial,sans-serif;color:#000000;background-color:transparent;font-weight:400;font-style:normal;font-variant:normal;text-decoration:none;vertical-align:baseline;white-space:pre;white-space:pre-wrap;">The evolving world of digital assets necessitates robust AML/CFT regulations to address their inherent risks. By adopting a proactive stance towards compliance, industry participants can deter illicit activities and safeguard the reputation of this transformative sector.&nbsp;&nbsp; <span class="null" ariahidden="null" style="font-size:11pt;font-family:Arial,sans-serif;color:#000000;background-color:transparent;font-weight:400;font-style:normal;font-variant:normal;text-decoration:none;vertical-align:baseline;white-space:pre;white-space:pre-wrap;">In our next article in the “Regulatory Trinity” series, we will delve into the delicate balance between user privacy and regulatory compliance – exploring the potential of zero-knowledge technology in facilitating compliant private transfers and fraud investigations on the Galactica Network.

In our previous articles within the “Regulatory Trinity” series, we delved into securities regulations and explored the transformative potential of Disclosure NFTs.    In this installment, we'll examine the critical intersection of anti-money laundering (AML) and combating the financing of terrorism (CFT) regulations as they apply to digital assets. We'll analyze real-world cases, relevant legislation, and the importance of compliance for maintaining the integrity of the financial system.

The Regulatory Trinity Pt. VII

<h2>Disclosure NFTs and beyond</h2>Digital assets pose a unique challenge in securities regulation due to their lack of standardized form or definition. Unlike traditional assets, digital assets can take various shapes and structures, making it difficult for regulators to effectively classify and regulate them. This challenge arises from the wide range of use cases and the rapid pace of innovation in this field. The SEC has categorized many Initial Coin Offerings (ICOs) as securities offerings, thereby subjecting them to federal securities laws. According to the SEC's definition, a security is an investment contract where individuals invest money in a common enterprise with the expectation of deriving profits from the efforts of others.According to this definition, a significant number of ICOs would be classified as securities offerings. Investors usually acquire tokens with the expectation of obtaining financial returns through the efforts of the company's management team. Consequently, these ICOs are obligated to adhere to securities regulations, including SEC registration and the disclosure of relevant information to potential investors. However, there are proponents of ICOs who argue that they should be classified as utility tokens rather than securities.ICOs (Initial Coin Offerings), along with other similar fundraising methods like IDOs (Initial DEX Offerings) and IEOs (Initial Exchange Offerings), offer companies a novel and innovative means of raising funds. However, these fundraising mechanisms have also been linked to a high level of risk for investors. The absence of well-defined regulatory standards and a centralized authority to oversee such fundraising activities have resulted in instances of fraud and abuse in the past.Therefore, it is imperative to establish more comprehensive disclosure standards to safeguard investors. This means that companies carrying out such fundraising activities must provide detailed information about their business operations. This includes sharing financial statements, outlining the utilization of raised funds, and highlighting potential risks associated with the investment. In essence, these companies should provide a substantial amount of information akin to what is expected from companies operating under securities laws.Furthermore, it is crucial for regulators to enforce disclosure standards, ensuring that companies furnish accurate and comprehensive information to investors. Regulators can play a vital role in protecting investors by providing guidance on best practices for issuers and monitoring compliance with disclosure requirements.Some companies may try to circumvent securities regulations by devising tokenomics that are not in line with securities laws.This may involve issuing tokens designed to avoid classification as securities, despite possessing characteristics that resemble securities. Such actions can present legal and regulatory complexities for both the company and investors. In this vein,&nbsp; it would be advantageous for companies to issue tokens that are explicitly classified as securities rather than attempting to evade securities regulations. This approach would provide investors with a clear understanding of the investment opportunity and the associated risks, while ensuring that the company complies with securities laws.This section summarizes proposals by Brummer (2022)<a target="_blank" rel="noopener noreferrer nofollow" href="https://stanford-jblp.pubpub.org/pub/disclosure-dapps-defi/release/1#:~:text=Disclosure%20is%20an%20area%20in,know%20what%20they%20are%20buying.">[17]</a>to enhance investor protection within securities regulation. The focus is on disclosure of NFTs followed by how the regtech stack of Galactica Network can be leveraged to further (and even automate) their application.<h2>Documentation</h2>dApps may improve their documentation by clearly indicating if they involve investment or provide financial services like credit markets. The information should be easy to understand and include comprehensive disclosures about the business model and user benefits, such as staking and LP rewards. Material risks, like losing funds, counterparty risks, scaling limitations, and failing transactions leading to monetary losses, must also be disclosed. Additionally, token economics and existing conflicts of interest between LPs, investors, and developers should be transparently communicated, along with a description of DAOs' decision-making process, voting power formation, profit generation, and relevance to the DApp's functioning.<h2>Disclosure</h2>Disclosure NFTs offer unique applications in the realm of decentralized applications. Firstly, the "KYC/AML NFT" facilitates whitelisting by providing users with non-transferrable NFTs as proof of passing KYC/AML checks, granting access to specific features within the dApp. Secondly, "Disclosure DAOs" enable members to submit disclosure principles and model disclosures, potentially receiving NFTs as recognition for their contributions.The utility of "Disclosure NFTs" extends further as data wrappers for disclosure, proving ownership of digital assets. These NFTs can be embedded in smart contracts, creating new disclosure use cases for end-users and investors. For instance, an NFT could tokenize disclosures available for review, linking to off-chain disclosures hosted on external servers or distributed file systems like IPFS or Filecoin. Updates to disclosures could generate new tokens, fostering third-party communities to discuss and deliberate on token-delivered information in specialized chat rooms.To implement these disclosure NFTs effectively, a robust tokenization thesis is necessary to justify the complexity and cost. One approach involves upgrading the functionality of "disclosure" as traditionally understood since the 1930s. Companies can utilize this proposed system by uploading their disclosures to websites and engaging readers with questions or interactive elements. Upon successful completion, the end-user or investor would receive a unique, non-transferable token as proof of their engagement with the disclosures, which could be stored in their digital wallet.<h2>Use case 1: Providing disclosures to investors for automated investing</h2>This use case involves a DApp built on the Galactica blockchain, utilizing a smart contract to regulate investor disclosures for automated investing. Projects seeking funding submit applications, which comprise of comprehensive documentation (detailing tokenomics, risks, business model, etc.) and an on-chain transaction for registering the application while privately disclosing information through ZKP.The documentation is uploaded to the InterPlanetary File System (IPFS), and is required to meet security regulations. It can be updated via resubmission of the registration using a unique identifier (UID). The on-chain transaction includes the IPFS hash of the documentation, ensuring its authenticity and preventing tampering, and links the documentation to the transaction. The founders' unique ID, derived from their personal data in the zkKYC procedure, is provided. This humanID helps maintain a traceable on-chain record of previous applications to prevent fraudulent practices. Additionally, in cases where multiple investment DApps exist, applicants may need to submit their humanIDs for all these DApps.There is an option for secret disclosures to selected recipients through encrypted channels, providing confidential documentation and personal details such as name and address in the ZKP. This could be useful for investors or legal authorities involved in Galactica'sfraud investigation process.Lastly, additional disclosures can be derived from zkCertificate data on Galactica, showcasing the founders' reputation scores, educational qualifications, awards, and property holdings.<h2>Use case 2: Attesting users’ eligibility for crowd investing platforms</h2>This use case ensures compliance with security regulations for crowd investing platforms by attesting user knowledge and eligibility. After reading project documentation, users must pass an online test, receiving a NFT, certifying their understanding. This NFT can be issued as a zkCertificate to help maintain user privacy concerning their investment interests.Users' identities are verified privately and compliantly via zkKYC, with optional zkCertificates attesting personal details such as investor status based on net wealth. The crowd investing platform, built as a smart contract on Galactica, requires users to provide a ZKP confirming that they hold a valid NFT/zkCertificate for their understanding of the project and have passed an age check based on zkKYC data. Further disclosures of being an eligible investor based on personal data in zkCertificates.By embracing these innovative approaches and collaborating with regulators, we can pave the way for a more secure and transparent digital asset ecosystem, fostering investor confidence and supporting responsible growth in this rapidly evolving domain. Additionally, real-world use cases, like providing investor disclosures for automated investing, showcase the practical applications and potential benefits of disclosure NFTs in enhancing investor protection and engagement.<h2>The Trinity Continues</h2>As the digital asset landscape matures, the need for robust regulatory frameworks to protect investors becomes increasingly apparent, and in our next article, we'll shift our focus to the crucial area of anti-money laundering (AML) and combating the financing of terrorism (CFT) in the context of digital assets.&nbsp; We'll be exploring how existing regulations can be applied and highlight the potential for new legislation to address the unique challenges posed by digital assets in safeguarding the integrity of the financial system.

In our previous article, "Demystifying Securities Regulations in the Web3 Era," we explored the ways traditional securities laws apply within the rapidly evolving landscape of digital assets.  Building on this foundation, this article delves into the evolving concept of Disclosure NFTs and their potential to transform how companies meet their disclosure obligations, enhancing transparency for investors. Additionally, we will examine how Galactica Network's unique RegTech stack can facilitate and streamline this process.

The Regulatory Trinity Pt. VI

In the dynamic but esoteric realm of decentralized finance (DeFi), traditional Know Your Customer (KYC) processes have emerged as a necessity to comply with KYC (and other compliance processes native to TradFi) appears as an significant impediment to the progress and efficiency of our emergent industry. Galactica, however, is proud to present a pioneering solution that aims to transform DeFi's compliance landscape with our state-of-the-art, privacy-preserving zkKYC technology.<a target="_blank" rel="noopener noreferrer nofollow" href="https://www.mme.ch/en/">MME Legal AG&nbsp;</a>stands as a highly reputable voice in regards to advancing on-chain regulation, earning recognition for their unwavering dedication to progress. The focus of their most recent discourse?&nbsp;<a target="_blank" rel="noopener noreferrer nofollow" href="https://mme.ch/hubfs/zkKYC%20in%20Decentralized%20Finance%20(DeFi)_Unter%20besonderer%20Ber%C3%BCcksichtigung%20der%20Geldw%C3%A4schereigesetzgebung_GesKR%202_2023_Hepp_Bo%C5%A1ki%C4%87.pdf">zkKYC within the realm of Decentralized Finance (DeFi)</a>.&nbsp;In this analysis, we delve into an article penned by Magdalena Boškić, Head of Crypto Compliance Services at <a target="_blank" rel="noopener noreferrer nofollow" href="https://www.sygnum.com/b2b-banking/crypto-compliance-and-regtech/">Sygnum Bank AG</a>, and Sebastian Hepp, Compliance Lawyer at MME Legal AG. Boškić &amp; Hepp present their view that zkKYC resolves the conflict between DeFi and KYC/AML (anti-money laundering) regulations in Switzerland.This article intends to highlight how Boškić &amp; Hepp’s explanations for zkKYC in DeFi, portray the striking similarities of the solutions pioneered by Galactica.<h2>The narrative&nbsp;</h2>In 2022, Galactica embarked on a mission to address the conflict between DeFi and KYC/AML regulations by developing a Layer 1 blockchain that facilitates the use of zkKYC, and with just weeks away from our testnet launch, our talented developers have turned the vision of Zero-Knowledge Know Your Customer for DeFi (zkKYC) - into a tangible reality.&nbsp;KYC is the biggest unresolved issue at the ever-present intersection of privacy and compliance in DeFi, and Zero-Knowledge Know Your Customer (zkKYC) offers a novel approach to identity verification by enabling on-chain, interoperable validations (to learn more about this topic, see our Trinity Series <a target="_blank" rel="noopener noreferrer nofollow" href="https://galactica.com/news?page=1">here</a>). The zkKYC approach adopted by Galactica simplifies the Know Your Customer (KYC) process for businesses, reduces costs and time spent on gathering and validating personal information,&nbsp;while protecting all parties involved.&nbsp;<h2>The problem</h2>Despite the apparent potential of zkKYC, there is currently no established standard for the implementation of a zkKYC framework, and its jurisdictional applicability remains uncertain. An analysis of its compatibility with Swiss Anti-Money Laundering (AML) law reveals some complexities with regard to decentralized finance (DeFi), where traditional regulatory frameworks may only partially apply due to the absence of traditional financial intermediaries.&nbsp;While most DeFi protocols feature some centralized elements subject to regulation, recent Swiss regulations extend to DeFi platform providers facilitating asset transfers; nonetheless, completely decentralized systems are exempt from these regulations. zkKYC alone does not fulfill KYC obligations because it does not share verifiable identity data with the financial intermediary.<h2>The solution&nbsp;</h2>The fundamental ethos of DeFi is to eliminate intermediaries between individuals and their assets, whether they be funds or data, yet, in reality, many DeFi protocols still rely on centralized elements, such as developer admin keys, web2 services for authentication, asset custodians, or highly concentrated governance control.&nbsp;&nbsp;At Galactica, we are confronting this challenge head-on by introducing the Galactica Guardianship model, aligning with the Compliance Oracle solution as explained by MME Legal AG in their recent paper.Galactica's Guardians are trusted entities that make proofs of compliance information available for verification on-chain (Web3), while keeping the user data off-chain and held in private self-custody. In practical terms, such a zkKYC framework ensures that after the user's identification is verified, they will own and maintain custody of their personal data, simply creating private proofs of said data to transact on-chain - a far cry compared to your scanned documents being stored in PDF format on an unknown remote server..&nbsp;Guardians cannot access user activity unless a fraud investigation occurs*, and issue identity verification as a hash of KYC data on-chain (zkCertificate). From there, the customer can generate and send zk-proofs of their data (identity verification) to the financial intermediary/DeFi via the interface of their non-custodial wallet.The Galactica Guardianship model and the Compliance Oracle solution devised by MME Legal AG exemplify a proactive approach to addressing the regulatory challenges facing DeFi, and by enabling on-chain verification while preserving user privacy off-chain, these solutions strike a delicate balance between compliance, privacy and decentralization. A detailed comparison between the approaches can be found in the table below.<img src="/upload/c8175fc5-d28c-4812-a82a-edb0534631fe_1709664767428.jpg">(<a target="_blank" rel="noopener noreferrer nofollow" href="https://mme.ch/hubfs/zkKYC%20in%20Decentralized%20Finance%20(DeFi)_Unter%20besonderer%20Ber%C3%BCcksichtigung%20der%20Geldw%C3%A4schereigesetzgebung_GesKR%202_2023_Hepp_Bo%C5%A1ki%C4%87.pdf">1</a>); (<a target="_blank" rel="noopener noreferrer nofollow" href="https://docs.galactica.com/galactica-developer-documentation/galactica-concepts/zero-knowledge-kyc">2</a>); (<a target="_blank" rel="noopener noreferrer nofollow" href="https://docs.galactica.com/galactica-developer-documentation/galactica-concepts/zero-knowledge-kyc#data-flow">3</a>); (<a target="_blank" rel="noopener noreferrer nofollow" href="https://docs.galactica.com/galactica-developer-documentation/galactica-concepts/zero-knowledge-kyc/fraud-investigation-process/">4</a>); (<a target="_blank" rel="noopener noreferrer nofollow" href="https://docs.galactica.com/galactica-developer-documentation/galactica-concepts/zero-knowledge-kyc/holder-commitment">5</a>) Table 1: Comparison between Galactica Network zkKYC design and recent MME article. As we look to the future of DeFi, it is clear that private but verifiable identity attestations via zkKYC are a crucial step towards achieving seamless integration with traditional financial systems, while preserving the core tenets of decentralization and user privacy embraced by Web3's development ethos.&nbsp; By adopting zkKYC technology and fostering continued collaboration between industry stakeholders, both on and off chain - we will finally unlock the full potential of DeFi as a democratizing force in global finance.*Every dApp run on the Galactica network implements a fraud investigation scheme, which is transparently disclosed to users. Users have the autonomy to decide whether to engage. This scheme typically involves a PVSS (Publicly Verifiable Secret Sharing) system—such as 1/1, 2/3, or 5/5—determining who must reach consensus to link user documents to a transaction on the dApp. For instance, if authorities request transaction information, a dApp can only comply unilaterally with a 1/1 scheme, similar to a centralized exchange (CEX). Otherwise, multiple parties must agree for disclosure to occur, maximizing privacy at the expense of compliance efficiency. Such a system is a superior alternative to many others as it effectively creates a market for all possible compliance and privacy trade-offs. Here, as we shall expect, the ultimate cost of privacy will be slippage.&nbsp; <hr><h2><span class="null" ariahidden="null" style="font-size:11pt;font-family:Arial,sans-serif;color:#000000;background-color:transparent;font-weight:700;font-style:normal;font-variant:normal;text-decoration:none;vertical-align:baseline;white-space:pre;white-space:pre-wrap;">Sources</h2><ul><li><a target="_blank" rel="noopener noreferrer nofollow" href="https://galactica.com/news?page=1">https://galactica.com/news?page=1</a></li><li><a target="_blank" rel="noopener noreferrer nofollow" href="https://www.mme.ch/en">https://www.mme.ch/en</a></li><li><a target="_blank" rel="noopener noreferrer nofollow" href="https://mme.ch/hubfs/zkKYC%20in%20Decentralized%20Finance%20(DeFi)_Unter%20besonderer%20Ber%C3%BCcksichtigung%20der%20Geldw%C3%A4schereigesetzgebung_GesKR%202_2023_Hepp_Bo%C5%A1ki%C4%87.pdf">https://mme.ch/hubfs/zkKYC%20in%20Decentralized%20Finance%20(DeFi)_Unter%20besonderer%20Ber%C3%BCcksichtigung%20der%20Geldw%C3%A4schereigesetzgebung_GesKR%202_2023_Hepp_Bo%C5%A1ki%C4%87.pdf</a></li><li><a target="_blank" rel="noopener noreferrer nofollow" href="&nbsp;https://www.sygnum.com/b2b-banking/crypto-compliance-and-regtech">&nbsp;https://www.sygnum.com/b2b-banking/crypto-compliance-and-regtech</a></li></ul>

zkKYC in Decentralized Finance (DeFi)

<h2>For Developers &amp; Validators</h2>TestNet V1.0 seamlessly carries forward the development journey initiated by the DevNet. We actively seek feedback and input from the community to ensure a cutting-edge on-chain experience that prioritizes compliant privacy.Notable updates include a refined zkKYC issuance process (eliminating the need for MetaMask Flask), the ability to deploy validators, as well as Proto-Governance v1.0 and Reputation v1.0 (which are scheduled for release to the public in TestNet v1.1 in Q2 of 2024). Further updates during the TestNet phase will be revealed shortly, so stay tuned for forthcoming announcements.For developers eager to immerse themselves in the Galactica Network framework, comprehensive documentation can be accessed through our&nbsp;<a target="_blank" rel="noopener noreferrer nofollow" href="https://docs.galactica.com/galactica-developer-documentation/">Developer Documentation</a>. This resource features detailed release notes, developer documentation, and guides. Those intrigued by the prospect of building on Galactica and seeking support from the Galactica Foundation can refer to the&nbsp;<a target="_blank" rel="noopener noreferrer nofollow" href="https://galactica.com/developers#RFPs">RFP Program</a>.<h2>Validator Consideration</h2>Individuals interested in becoming validators are encouraged to review the provided&nbsp;<a target="_blank" rel="noopener noreferrer nofollow" href="https://docs.galactica.com/galactica-developer-documentation/validator-guide">documentation</a>. It's important to note that to participate as a validator during the MainNet launch, one must obtain Galactica Network Citizenship. For further insights into citizenship requirements, we invite you to join our<a target="_blank" rel="noopener noreferrer nofollow" href="https://discord.com/invite/galactica">Discord&nbsp;</a>community and engage with our team.<h2>TestNet V1.0 Voyager Arc Campaign</h2>Following the TestNet launch, akin to our previous&nbsp;<a target="_blank" rel="noopener noreferrer nofollow" href="https://medium.com/galactica-network/voyager-ark-an-incentivized-devnet-discovery-campaign-9523a2ce0521">DevNet initiative</a>, we are excited to unveil the Voyager Arc campaign. This initiative offers selected participants the opportunity to earn Galactica Network Citizenships. Additionally, participation in the Voyager Arc is a prerequisite for those aspiring to attain Wave 3 or Wave 2 GNCs by advancing to Espada or Elysium ranks in the&nbsp;<a target="_blank" rel="noopener noreferrer nofollow" href="https://galactica-network.notion.site/The-Cypher-State-Campaign-bbd82fec434842cd9ff52b0c76c749ef">Cypher State Campaign</a>.<h2>Launch Details</h2>A select group of esteemed validators will be designated as part of the Genesis TestNet V1.0 Validators Cohort, and the TestNet is scheduled for launch sometime in the&nbsp;third week of March.Join us on&nbsp;<a target="_blank" rel="noopener noreferrer nofollow" href="https://zealy.io/cw/galacticanet/questboard">Zealy&nbsp;</a>and participate in the Cypher State Campaign .

Galactica is elated to declare the public unveiling of TestNet V1.0. We extend a warm invitation to developers, validators, and pioneers to engage in the TestNet and delve into the technological marvels of Galactica Network. The TestNet serves as a gateway for users to immerse themselves in the foundational technology driving Galactica Network: zero-knowledge KYC (zkKYC), empowering the web3 space to achieve regulatory compliance while upholding user privacy. As a harbinger of RegTech interoperability, Galactica Network endeavors to establish a sturdy framework for groundbreaking tools that bridge the realms of DeFi and TradFi, and proposes enhanced methodologies for managing identity and reputation.

Galactica Network Public TestNet V1.0 - Launch in March

<h2>Beyond zkKYC: What is a Data Guardian?</h2>Just like Galactica’s KYC Guardians, Data Guardians will play a pivotal role within the protocol; you can think of them as the bridge between your Web3 presence and your broader Web2 and real-world footprint - your data, in your control, and providing tangible benefits to your on-chain-self.Consider: Your off-chain data is currently being monetized by almost every private entity you interact with - so why shouldn't you benefit from it as well?With Data Guardians, you can leverage your Web2 history to gain Web3 perks such as bespoke airdrops and in-dApp benefits, all based on reputational data you already have!&nbsp;<ul><li>Already a power-user of Binance?<ul><li>Great; a Binance competitor might choose to entice you to their own platform with a substantial sign-on bonus based on your Binance trading volume!</li></ul></li><li>You’ve been interacting a lot with a project or community-leader on your favorite social platform?<ul><li>Wonderful! They can now easily target you for an airdrop on-chain without any loss of privacy on your part.</li></ul></li></ul>Data Guardians represent another brick in the wall of the private, real-world Web3 being powered by<a target="_blank" rel="noopener noreferrer nofollow" href="http://byGalactica.com">&nbsp;</a><a target="_blank" rel="noopener noreferrer nofollow" href="https://galactica.com">Galactica.com</a>.<h2>The Basics: Make Your Data Work for You</h2>Data Guardians require you to first prove ownership of external accounts through secure methods like OAuth or wallet-based signatures. Additionally, your zkCertificates are tied to your KYC-verified Galactica address, ensuring only you have the power to utilize them within the ecosystem.The process goes something like this:<ol><li>Import your Web2/Off-chain data<ul><li>Data Guardians connect to various external platforms where you have an established history – this could be social media, launchpads, forums, and other relevant sources.</li></ul></li><li>Verify with Zero Knowledge<ul><li>Once imported, the Data Guardian analyzes and verifies this off-chain data without exposing the raw information, which is not made public on-chain.</li></ul></li><li>Generate zkCertificates - Your on-chain, privacy-preserving credentials:&nbsp;<ul><li>The result is a zero-knowledge certificate (zkCertificate) that acts as a cryptographic "passport", and is a verifiable attestation of your online and financial activity that does not compromise your privacy.</li></ul></li></ol><img src="/upload/fe2edb29-e995-4e62-a198-c406165b88d2_1708964230755.jpg">Data Guardians are an extension of Galactica network's commitment to both privacy and verifiable reputation; they build upon the tech behind our zkKYC framework and go even further, enabling you to securely import and verify your activity across a range of platforms and protocols.<h2>How Data Guardians Transform Your Web3 Experience</h2>Data Guardians allow you to give meaning to your Web3 identity. They can connect to any external sources like social networks, wider service economy (Uber or Airbnb), and other blockchains to gather and verify relevant data that can, in turn, be used on-chain without compromising your privacy.You can think of Data Guardians as specialized oracles, but with a privacy twist - they turn your verified data into zkCertificates which act as cryptographic credentials verifying aspects of your activity without revealing the data itself. By establishing your off-chain data footprint (reputation) via a Data Guardian, you can access exclusive dApps and protocols, get preferential loans based on your social history, targeted airdrops for active community members, and enhanced rewards as a proven project supporter. Projects can use Reputation Root Contract to build custom reputation functions taking these data as inputs - that’s the real power of Galactica Network - the flexibility and decentralization of the design of this system is hardly matched elsewhere. And remember - ZKPs allow for zero privacy compromise.&nbsp;Imagine a world where local businesses and global brands alike can offer you personalized benefits and experiences without compromising your privacy. That’s just one of the use cases that Data Guardians enable; using verified location data, your favorite restaurants could offer exclusive promotions just for you, and luxury brands could target their outreach based on your recent financial activity on supported blockchains. BMW, for example, would be able to target Toyota drivers who have recently expanded their wealth through a successful trade on Binance - the possibilities are endless.&nbsp;Data is the new TVL.&nbsp;Data Guardians enable this level of personalization while still preserving your privacy. You retain full control over what information is shared, and with whom, allowing for tailored experiences and rewards without compromising your identity within the Web3 world.<h2>What Can Data Guardians Verify?</h2>Here are some initial examples of data categories supported by Data Guardians:<ol><li>Financial Activity: Link your banking history, centralized exchange data, or track record on other blockchains.</li><li>Social Footprint: Demonstrate your engagement on Twitter, Discord, Reddit, and relevant forums.</li><li>Proprietary Data: Specific app/service activity from the Data Guardian itself can be proven on chain without compromising your privacy.</li></ol>The potential of Data Guardians is vast, and we believe they represent a key building block for a Web3 where trust and reputation rule within a private environment.<h2>Galactica's First Data Guardians</h2>The <a target="_blank" rel="noopener noreferrer nofollow" href="https://galactica.com">Galactica.com</a> team is currently working on a (semi) public SDK for Data Guardians.&nbsp;<span class="null" ariahidden="null" style="font-size:11pt;font-family:Arial,sans-serif;color:#000000;background-color:transparent;font-weight:400;font-style:normal;font-variant:normal;text-decoration:none;vertical-align:baseline;white-space:pre;white-space:pre-wrap;"><span class="null" ariahidden="null" style="font-size:11pt;font-family:Arial,sans-serif;color:#000000;background-color:transparent;font-weight:400;font-style:normal;font-variant:normal;text-decoration:none;vertical-align:baseline;white-space:pre;white-space:pre-wrap;"><span class="null" ariahidden="null" style="font-size:16pt;font-family:Arial,sans-serif;color:#000000;background-color:transparent;font-weight:400;font-style:normal;font-variant:normal;text-decoration:none;vertical-align:baseline;white-space:pre;white-space:pre-wrap;">However, already now we are ready to work with any reputable team willing to build and maintain one of these uniquely private data oracles. If you'd like to pioneer this space, please reach out to us on Discord, our contact form, or established private channels.We are already in preliminary talks with several potential Data Guardians; each with the potential to connect your established history on various platforms with new opportunities in Web3, while freeing your data for your own benefit with no loss of privacy.By importing and verifying social data (like Twitter, Discord, and Reddit activity), you demonstrate your value and credibility, which in-turn unlocks reputation-enhanced DeFi, targeted airdrops based on genuine engagement, and more.Beyond Data Guardians, <a target="_blank" rel="noopener noreferrer nofollow" href="https://galactica.com">Galactica.com</a> is entering a new stage of rapid development, and we look forward to showing you all what we've been working on recently - so make sure you stay up-to-date with the latest developments by following us on our social pages!<span class="null" ariahidden="null" style="font-size:11pt;font-family:Arial,sans-serif;color:#000000;background-color:transparent;font-weight:400;font-style:normal;font-variant:normal;text-decoration:none;vertical-align:baseline;white-space:pre;white-space:pre-wrap;"><span class="null" ariahidden="null" style="font-size:11pt;font-family:Arial,sans-serif;color:#000000;background-color:transparent;font-weight:400;font-style:normal;font-variant:normal;text-decoration:none;vertical-align:baseline;white-space:pre;white-space:pre-wrap;"><span class="null" ariahidden="null" style="font-size:11pt;font-family:Arial,sans-serif;color:#000000;background-color:transparent;font-weight:400;font-style:normal;font-variant:normal;text-decoration:none;vertical-align:baseline;white-space:pre;white-space:pre-wrap;"><span class="null" ariahidden="null" style="font-size:11pt;font-family:Arial,sans-serif;color:#000000;background-color:transparent;font-weight:400;font-style:normal;font-variant:normal;text-decoration:none;vertical-align:baseline;white-space:pre;white-space:pre-wrap;">

Introducing Data Guardians

Securities regulations have a long and complex history, often shaped in response to crises triggered by episodes of extreme greed and unscrupulous behavior. The main goal of these regulations is to safeguard investors from bad actors and provide them with adequate information to make informed investment decisions.The Securities Act of 1933, a cornerstone of securities regulation, broadly defines "security" to cover investment contracts or instruments. In the context of digital assets, the Act has been applied to Initial Coin Offerings (ICOs) and cryptocurrencies. To offer or sell digital assets deemed securities to the public, issuers must either register with the Securities and Exchange Commission (SEC) or seek exemptions from registration. Compliance with registration and disclosure requirements is mandatory for ICOs and token sales considered securities under the Act.To determine if a digital asset qualifies as a security, the SEC applies the Howey Test. According to this test, an investment is considered a security if it involves an investment of money, in a common enterprise, with an expectation of profits derived from the efforts of others. This test has been crucial in clarifying the regulatory status of various digital assets.Issuers of digital assets considered securities must provide comprehensive information about their business, the digital asset, and the associated risks to potential investors. Moreover, the Act contains anti-fraud provisions, ensuring that issuers, brokers, and dealers do not engage in fraudulent or manipulative practices.Certain exemptions exist under the Act, such as Regulation D for private placements and Regulation A for smaller public offerings, allowing some digital assets to be exempt from registration requirements.The Securities Exchange Act of 1934 grants the SEC the authority to regulate securities, securities markets, and market participants, including digital assets deemed securities and the platforms where they are traded. Platforms trading such digital asset securities may need to register as national securities exchanges, alternative trading systems (ATS), or broker-dealers, and intermediaries facilitating transactions must register with the SEC as broker-dealers.The Act also includes provisions that prohibit fraud and manipulation in the trading of securities, which extend to digital assets that are considered securities. Public companies with digital asset holdings or operations must comply with financial reporting requirements and adhere to proxy rules for shareholder voting.The Investment Advisers Act of 1940 requires registration of investment advisers providing advice on investing in digital assets deemed securities. Registered advisers must adhere to fiduciary duty, act in the best interests of their clients, and disclose information about their business practices and fees.The Investment Company Act of 1940 applies to investment companies managing portfolios consisting of digital assets deemed securities, necessitating registration with the SEC, unless exemptions apply. The Act imposes requirements related to management, governance, diversification, risk management, disclosure, and asset valuation.The Commodity Exchange Act of 1936 (CEA) falls under the purview of the Commodity Futures Trading Commission (CFTC) and asserts jurisdiction over certain digital assets, particularly cryptocurrencies, considering them as commodities. The Act regulates the trading of futures, options, and swaps on commodities, including digital assets. Market participants trading digital asset derivatives must register with the CFTC and comply with relevant regulations.The Securities Investor Protection Act of 1970 (SIPA) provides limited protection to customers of failed broker-dealers, including those holding digital assets deemed securities. However, it's essential to note that SIPA coverage for digital assets is limited, and cryptocurrencies like Bitcoin or Ethereum are generally not covered.Over the years, several entities and individuals have faced enforcement actions for violating securities laws related to digital assets. For instance, in 2019, the SEC halted an alleged unregistered digital token offering by Telegram Group Inc., while Bitqyck Inc. and its founders were charged with violating securities laws for unregistered offerings and misrepresenting their business capabilities.More recently, Ripple Labs Inc. and its executives faced SEC charges for conducting an unregistered digital asset securities offering, and crypto entrepreneur Justin Sun was charged with multiple securities law violations.These examples illustrate the importance of adhering to securities regulations and the potential consequences of non-compliance. As the web3 space continues to evolve, it is crucial for market participants to stay informed about the regulatory landscape and ensure compliance to foster a secure and transparent environment for investors and innovators alike.<h2>The Trinity Continues..</h2>The evolving nature of digital assets calls for a nuanced approach to regulation, and with concepts like Disclosure NFTs emerging, exploring innovative ways to uphold investor protection is key.&nbsp;In the next installment of this series, we'll dive deeper into how Disclosure NFTs can enhance accountability and transparency within web3 platforms, examine the practical implications of this, and discuss how Galactica Network's RegTech stack can further support the automation of this regulatory approach.

Securities regulations have a rich history of safeguarding investors within traditional financial markets, and as the web3 landscape rapidly expands, understanding how these regulations translate to the realm of digital assets becomes paramount.   Building on our previous exploration of DeFi app compliance, this article delves into the intricacies of securities regulations within the web3 era - we'll examine key legislation, case studies, and the ongoing debate on how to strike a balance between regulation and innovation within the world of digital assets.

Demystifying Securities Regulations in the Web3 Era

Decentralized Finance (DeFi) has revolutionized the financial landscape, offering borderless, privacy-focused, and censorship-resistant solutions. However, as this innovative space continues to grow, policymakers and regulators are grappling with the challenge of striking a balance between promoting innovation and ensuring compliance with market infrastructure regulations. Let’s explore how Galactica Network's RegTech stack provides a viable solution to achieve compliance for profit-generating decentralized applications (dApps).Our approach relies heavily on a16z crypto's seminal work, titled "Regulate Web3 Apps, Not Protocols"<a target="_blank" rel="noopener noreferrer nofollow" href="https://a16zcrypto.com/content/article/web3-regulation-apps-not-protocols/">[10]</a>. We present Galactica Network’s RegTech stack here as a solution to achieving compliance with market infrastructure regulations, specifically with regard to profit-generating decentralized applications (dApps).While researchers continue to debate the burden of compliance, the text suggests that automation and open-sourcing can reduce costs for new dApps entering the space. In other words, building the infrastructure for standardizing and reusing compliance primitives can prove to be essential for striking the middle ground between emerging regulatory requirements for dApp compliance and resistance to it on the side of the wider industry substantiated by claims that such requirements could prove to be detrimental for innovation in the space as burden of compliance can be excessive.&nbsp;The core theses of the a16z crypto articles are summarized, emphasizing the idea that regulating web3 apps instead of protocols is a more effective approach. The architecture for dApp compliance can be designed on the app level while preserving the underlying protocol as is. As is evident from the preceding discussion, market structure legislation, which aims to limit trading of illicit assets, protect users, and sustain innovation in web3, has been a key focus of policymakers and regulators in 2022.<h2>Use Case #1 - Compliant DAO</h2>Description: In this use case, we outline a design for a DAO that complies with regulations to avoid involvement in illicit activities. This design includes a mechanism for segregating funds, reducing governance risks, and outlining a legal entity structure that interfaces between DAO members, the treasury, and the regulator. This model can be applied to dApp building on Galactica, ensuring a privacy-focused, censorship-resistant, and jurisdiction-aware solution that, most importantly and at all times, maintains compliance with the required set of regulations.Explanation:In order to design a DAO that is compliant, the following key steps can be undertaken:<ol><li>Create mechanisms for clean treasury and income: Ensure that the treasury and its income streams can distance themselves from illicit activities. This can be achieved by implementing a Default Value Accrual (DVA) model (see a16z article for reference), where earnings are split into default and blacklisted pools. On regulator request or DAO vote, the blacklist can be updated to turn off illicit earning streams without removing fees altogether.</li><li>Minimize Governance Risks: Risks of non-compliant governance changes can be minimized by limiting the decision-making power of the DAO, for example, deciding on parameters such as the fee percentage. Absolute DAO control over smart contract updates could lead to non-compliant changes.</li><li>Establish a Legal Entity Structure for DAO: It's important to have a well-defined interface between DAO members, treasury, and government. A sound legal entity structure will provide this interface.</li></ol>This compliant DAO design<a target="_blank" rel="noopener noreferrer nofollow" href="https://a16zcrypto.com/posts/article/regulate-web3-apps-not-protocols-practical-application/">[10]&nbsp;</a>can be applied to dApp building on the Galactica platform with certain goals:<ol><li>Segregate Funds: Create a similar segregation of funds at the treasury level.</li><li>Geographical Segregation of Inbound Transactions: Make geographical segregation of inbound transactions more effective.</li></ol>A hypothetical dApp utilizing DVA on Galactica could be a compliant DEX. It would only accept legitimate funds and be jurisdiction aware. The DAO would only generate income from compliant activity. This ensures user privacy and makes the protocol censorship resistant, even in jurisdictions with overly strict regulations. Technically, this is feasible on Galactica, which uses the Ethereum Virtual Machine (EVM).To achieve these goals, the DEX could be based on the Uniswap AMM model with trading pairs, factory contracts, a front-end, etc. Compliance checks on users and fund origins would ensure legitimacy. Earnings would be managed using the DVA mechanism with fees collected for all swaps. Jurisdiction awareness would be ensured by providing factory contracts to create interface contracts to the base DEX. So each trading pair instance could be tailored for a specific jurisdiction, such as US, EU global, etc. Galactica’s compliant transaction feature makes the segregation of funds efficient and feasible because it automates who is able to access which pool. Users can be required to provide zero-knowledge proofs about living in the jurisdiction a trading pair instance is made for. Therefore good and bad funds in the DVA model can be separated in a verifiable and automated way.&nbsp; User privacy would be maintained by hiding personal details through zkKYC and separating addresses from other on-chain activity. Censorship resistance would be achieved by ensuring that blacklisted users, funds and interfaces still function, with earnings for the DAO and liquidity providers being burned for users from blacklisted jurisdictions.In order to mitigate complexity and the risk of non-compliance, certain features like automatic pool expulsion for trading securities without jurisdictional limits may not be implemented. Instead, a more practical solution could involve the ability to blacklist pools on regulator request.<h2>The Regulatory Trinity</h2>As we conclude our exploration of how Galactica Network's RegTech stack offers a compliance solution for decentralized finance (DeFi) applications, it's clear that navigating the regulatory landscape requires innovative approaches. By leveraging automation, open-sourcing, and thoughtful design, such as the compliant DAO model, Galactica provides a blueprint for integrating compliance without stifling the revolutionary potential of DeFi.In our next discussion, we'll delve into the nuances of securities laws, examining how they apply to Web3 initiatives and exploring strategies for navigating these legal frameworks. We'll aim to demystify the complex terrain of securities regulations as they pertain to the burgeoning Web3 industry. Understanding these regulations is crucial for developers, investors, and regulators alike to ensure that the digital finance ecosystem remains vibrant, secure, and compliant.&nbsp;

In our last release of the Trinity series, we discussed the role of exchange regulations in the absence of centralised entities. This time we're moving on to Galactica’s specific implementation of regulation at the dapp level.

Regulating DeFi Apps with Galactica Network's Compliance Solution

Previously in our ‘Regulatory Trinity’ series, we examined the impact of financial oversight on market actors, and its relevance within the context of Web3’s dynamic ecosystem. We now turn our attention to decentralized exchanges (DEXs) - platforms that facilitate peer-to-peer trading of digital assets without the involvement of centralized intermediaries.&nbsp;The decentralized nature of these exchanges presents unique challenges and opportunities for regulatory frameworks within the Web3 ecosystem.<h2>The Role of Digital Asset Exchange Regulations</h2>The growth of digital asset exchanges has revolutionized the financial landscape, offering investors and users unprecedented opportunities for investment and trading. However, to ensure a secure and transparent environment that fosters trust and confidence, comprehensive market structure regulations are essential. Let’s delve into the policy objectives of digital asset exchange regulations, the significance of decentralized exchanges (DEXs), and the scope of these regulations.<h2>Policy Objectives of Digital Asset Exchange Regulations</h2>The primary objective of regulatory frameworks for digital asset exchanges is to establish a robust market structure that addresses several key concerns while promoting growth and innovation. These include:<ol><li>Addressing Illicit Trading:One of the foremost goals of regulations is to tackle the trading of illicit assets within the digital asset market. By setting stringent compliance requirements and implementing thorough auditing procedures, authorities aim to curb fraud, manipulation, and other illicit activities.</li><li>Promoting Innovation:Regulations seek to strike a balance between oversight and innovation. Encouraging innovation within the digital asset ecosystem is crucial for its continued growth and relevance. By fostering an environment that supports new technologies and ideas, regulations can facilitate responsible development while mitigating potential risks.</li><li>Mitigating Investor and User Risks:A key aspect of digital asset exchange regulations is to protect investors and users from various risks. These risks include those arising from conflicts of interest and custodial arrangements, which can have significant implications for market integrity and user security.</li></ol><h2>The Significance of Decentralized Exchanges</h2>Decentralized exchanges, commonly known as DEXs, have emerged as an essential component of the digital asset market structure. Some argue that DEXs could be exempt from regulatory oversight due to their decentralized nature. However, DEXs play a critical role in the ecosystem, and any exclusion from regulation could have serious consequences.<ol><li>Maintaining Market Integrity:Failure to regulate DEXs could lead to an uneven playing field, where non-compliant platforms gain a competitive advantage over regulated centralized exchanges. This imbalance may foster fraud, manipulation, and illicit activities, eroding trust and confidence in the digital assets market as a whole.</li><li>Balancing Centralization Risks:Unchecked decentralization may inadvertently result in centralization of power among a few key players. Such a concentration of control contradicts the core principles of decentralization that underpin the digital assets ecosystem.</li></ol><h2>Scope of the Regulations and Specifics</h2>To ensure comprehensive oversight, digital asset exchange regulations should encompass both centralized and decentralized venues. The following are key areas that should be covered by these regulations:<ol><li>Codebase Audit:Regular audits of exchange platforms' codebase to ensure security and reliability.</li><li>Risk Disclosures:Transparent and comprehensive risk disclosures for users and investors.</li><li>Custody of Customer Funds:Robust practices to safeguard customer funds and protect against theft or loss.</li><li>New Assets Listing Standards:Clear standards and procedures for listing new assets on exchanges.</li><li>Trading Activity Recording:Thorough recording and storage of trading activity data for transparency and regulatory compliance.</li><li>Conflicts of Interests:Mitigating potential conflicts of interest to ensure fair and unbiased operations.</li><li>Governance Policies:Well-defined governance policies to maintain accountability and transparency.</li><li>Reporting Standards:Consistent and standardized reporting practices for enhanced oversight.</li><li>Financial Resources Minimums:Minimum financial resource requirements to ensure exchanges are adequately capitalized.</li></ol>Comprehensive market structure regulations for digital asset exchanges are crucial to achieving policy objectives that foster trust, security, and innovation. While striking the right balance between regulation and innovation is challenging, it is essential for the long-term sustainability of the digital asset ecosystem.&nbsp;By encompassing both centralized and decentralized exchanges, authorities can create a level playing field that protects investors and users, while encouraging responsible growth and development within the dynamic world of digital assets.Next time, in Part IV of the Regulatory Trinity, we’ll be considering the regulation of decentralized applications in the context of Galactica’s compliance solution.

Previously in our ‘Regulatory Trinity’ series, we examined the impact of financial oversight on market actors, and its relevance within the context of Web3’s dynamic ecosystem. We now turn our attention to decentralized exchanges (DEXs) - platforms that facilitate peer-to-peer trading of digital assets without the involvement of centralized intermediaries. 

Part III of the Regulatory Trinity

<h3>Announcing DevNet V2.0 Andromeda: A New Era for Galactica&nbsp;</h3>We are thrilled to introduce the much-anticipated version 2.0 of our DevNet, codename Andromeda. It marks a significant milestone in Galactica Network’s journey towards building the technological foundations for compliant privacy and the Cypher State.<h3>Rigorous Audit: The Galactica ZK Vault&nbsp;Snap</h3>First and foremost, we are proud to announce the successful audit of our Galactica ZK Vault Snap by Sayfer, a renowned auditor trusted and recommended by MetaMask. This rigorous evaluation was pivotal in ensuring the utmost security and reliability of our platform. The results were outstanding:<ul><li>Zero critical issues found</li><li>All 4 discovered issues were fixed</li><li>A highly productive collaboration with the Sayfer team</li></ul>The full audit report is available for your perusal at <a target="_blank" rel="noopener noreferrer nofollow" class="markup--anchor markup--p-anchor" href="https://sayfer.io/audits/metamask-snap-audit-report-for-galactica/">Galactica’s Audit Report</a>.<h3>Transitioning from DevNet V1.0 to V2.0: Andromeda</h3>With the launch of Andromeda, we will be resetting the DevNet. Fear not, for you can re-experience the process and get your DevNet zkKYC at <a target="_blank" rel="noopener noreferrer nofollow" class="markup--anchor markup--p-anchor" href="https://app-andromeda.galactica.com/">Galactica’s Andromeda App</a>. For MetaMask connection details, check out our <a target="_blank" rel="noopener noreferrer nofollow" class="markup--anchor markup--p-anchor" href="https://docs.galactica.com/galactica-developer-documentation/devnet">documentation</a>.<h3>Technical Upgrades</h3>DevNet V2.0 is not just an update; it’s a leap forward. Here’s a sneak peek into what we’ve been working on:<ol><li>New Golang SDK for KYC Guardians: An intuitive SDK for KYC Guardians to issue and manage zkKYC records. Check it out at <a target="_blank" rel="noopener noreferrer nofollow" class="markup--anchor markup--li-anchor" href="https://github.com/Galactica-corp/guardians-sdk">Galactica Guardians SDK</a> and the <a target="_blank" rel="noopener noreferrer nofollow" class="markup--anchor markup--li-anchor" href="https://docs.galactica.com/galactica-developer-documentation/kyc-guardian-guide">KYC Guardian Guide</a>.</li><li>Monorepo Repository: A comprehensive repository for enhancing integration, reusability, and developer experience. It contains the TypeScript packages for our zero-knowledge circuits, the zkCert library, Snap, type definitions, front-end API, and examples.</li><li>Galactica ZK Vault Snap for MetaMask: An improved user experience focusing on the security and privacy of ZKP disclosures, with a better structured and typed API interface through the new Snap-API package.</li><li>Zero-knowledge Certificates: Encryption of exported zkCerts, revocable zkKYC registries, and an enhanced “guardian registry” smart contract, all catering to the feedback from KYC guardians and the community.</li><li>Front-end API for Galactica ZK Vault Snap: Simplifying the integration of ZK disclosure and zkKYC features for projects building on Galactica.</li><li>Galactica Node Enhancements: Transitioning to the CometBFT consensus engine, adding the Epochs module, and updating the Cosmos SDK, all contributing to a more robust and efficient system.</li></ol>You can find the detailed <a target="_blank" rel="noopener noreferrer nofollow" class="markup--anchor markup--p-anchor" href="https://github.com/Galactica-corp/galactica-monorepo/releases/tag/monorepo_v0.3.0">technical changelog on Github</a>.<h3>Towards the TestNet and&nbsp;Beyond</h3>This update brings us a step closer to unveiling our TestNet. We extend our heartfelt thanks to everyone who participated in the first Voyager Ark Campaign. Stay tuned, as the second Voyager Ark Campaign is about to take flight soon!<h3>Join Us in this Galactic Adventure!</h3>We invite developers, enthusiasts, and visionaries to dive into the new Andromeda DevNet and explore the frontiers of ZK blockchain technology. Together, let’s build a decentralized future that’s more secure, authentic, and accessible to all. Galactica Network — Core stack for Compliant Privacy, DeSoc and beyond! <a target="_blank" rel="noopener noreferrer nofollow" class="markup--anchor markup--p-anchor" href="https://app-andromeda.galactica.com/">Join the DevNet V2.0 Today</a>

We are thrilled to introduce the much-anticipated version 2.0 of our DevNet, codename Andromeda. It marks a significant milestone in Galactica Network’s journey towards building the technological foundations for compliant privacy and the Cypher State.

Galactica Network DevNet V2.0 Update

This document outlines the way the Galactica Network Governance will be implemented before its final version.

Galactica Network's Proto-Governance Model

This article is an attempt to illustrate both the parallels and contrasts between Galactica.com's approach and the ideas encapsulated in Buterin's paper. We will primarily focus on the realm ofcompliant privacy, and explore how both sides envision the future of private yet compliant transactions in the blockchain space. Note that we have released a number of articles pertinent to this matter such as the “Regulatory Trinity”, “At the Intersection of Compliant Privacy” and the “Galactica zkKYC Framework.”

Vitalik’s Privacy Pools vs Galactica Network Compliant Privacy Design

In the first part of our series, “<a target="_blank" rel="noopener noreferrer nofollow" href="https://galactica.com/news/the-regulatory-trinity">The Regulatory Trinity</a>,” we discussed the emergence of Web3 — a transformative force redefining the digital frontier. We examined the many challenges accompanying its mainstream adoption and touched upon the trinity of regulatory goals designed to shape and govern its intricate ecosystems. Continuing our journey, this next segment dives into the foundational tenets of traditional financial oversight, examining their impact on market actors and their significance in the context of Web3’s dynamic financial terrain.The bedrock of the global financial system is a vast network of institutions and intermediaries channeling capital to foster risk reallocation and ultimately economic growth. Comprehensive regulatory regimes have been put in place to ensure that these systems function persistently. They also seek to protect investors and the public interest, and ensure the overall stability and transparency of the financial system. Market Structure Regulation plays a critical role in shaping the institutional landscape of financial markets. It defines the responsibilities and obligations of market participants, and works to foster fair, transparent, and efficient markets.In this post, we will explore the regulations governing exchanges and alternative trading systems (ATSs) in the United States, and their impact on market participants and investors.It’s important to note that as we will demonstrate throughout this set of articles, while regulations have noble goals, TradFi systems are prone to failure and fail time and time again mostly due to moral hazard and their inherent opaqueness. It is the synthesis of web3 stack and ideals and TradFi regulatory regimes that has the best shot at a more resilient, equitable and transparent system.<h3>Exchanges &amp; ATSs: A Crucial Component of Market Infrastructure</h3>In the United States, market infrastructure regulation is overseen by the Securities and Exchange Commission (SEC). Exchanges and ATSs are key components of this infrastructure, providing platforms for trading various financial instruments. Exchanges, such as the New York Stock Exchange (NYSE) and NASDAQ, play a central role in price discovery and liquidity provision.The Securities Exchange Act of 1934 and the Maloney Act of 1938 set the foundation for self-regulation in the U.S. securities markets. They assigned self-regulatory responsibilities to national securities exchanges and strengthened the SEC’s oversight of self-regulatory organizations. These regulations aim to prevent fraud, manipulation, and unfair discrimination while promoting just and equitable principles of trade.<h3>Regulatory Requirements for Exchanges</h3>Exchanges that wish to operate within the United States must adhere to specific rules. These rules are designed to protect investors, ensure fair access, and maintain market stability. Likewise, exchanges are required to prevent fraud and manipulation, promote fair trading principles, and allocate fees reasonably. They also must not impose unnecessary burdens on competition or allow broker-dealers to become members, with few exceptions.Exchanges are granted certain benefits under their regulatory regime, such as the ability to maintain protected quotes. This means that market makers must execute orders at their displayed prices and quantities, even if the market moves unfavorably. Protected quotes promote market stability and ensure fair execution for investors.<h3>Regulatory Framework for&nbsp;ATSs</h3>Automated Trading Systems (ATSs) offer an alternative regulatory framework for trading services that are similar to traditional exchanges. To operate within this framework, ATSs must register as broker-dealers, become members of self-regulatory organizations, and comply with reporting requirements to the SEC.ATSs provide certain advantages over exchanges, such as the ability to offer unique services like dark pools, where securities can be traded anonymously. However, they do not receive the same level of regulatory benefits as exchanges, which can affect their appeal to businesses seeking higher regulatory oversight and protection. <a target="_blank" rel="noopener noreferrer nofollow" class="markup--anchor markup--p-anchor" href="https://www.sec.gov/spotlight/emsac/memo-regulatory-model-for-trading-venues.pdf">[1]</a><h3>Impact on Financial Platforms</h3>The impact of market data fees and regulations can be seen in the practices of financial platforms like Robinhood and Citadel. Robinhood, as a popular retail brokerage, relies heavily on real-time market data to provide seamless trade execution to its users. The fees associated with obtaining this data can significantly influence its business model and user experience.Similarly, global financial institutions like Citadel heavily rely upon comprehensive and timely market data to optimize their trading strategies. The fees and regulatory requirements for accessing this data play a vital role in shaping their operations and profitability.<h3>Cases of Violations</h3>There have been numerous cases of violations within this nouveau financial industry. Firms like Kraken, Robinhood, Bittrex, and Binance have faced legal action for various violations, including failing to register certain services, misleading customers, and violating securities laws.The SEC charged Kraken for failing to register their crypto asset staking-as-a-service program in 2023. This program promised investors annual returns of up to 21% in exchange for transferring their crypto assets to Kraken for staking. To settle the charges, Kraken has agreed to cease offering this program and pay $30 million in penalties. <a target="_blank" rel="noopener noreferrer nofollow" class="markup--anchor markup--p-anchor" href="https://www.sec.gov/news/press-release/2023-25">[2]</a>Similarly, the SEC charged Robinhood Financial LLC in 2020 for misleading customers about its revenue sources and failing to seek the best execution terms for customer orders. The SEC found that Robinhood made false claims about its execution quality, which resulted in inferior trade prices costing customers $34.1 million. To settle the charges, Robinhood agreed to a cease-and-desist order, a censure, and a $65 million penalty. Robinhood also agreed to hire an independent consultant to review its policies and procedures. <a target="_blank" rel="noopener noreferrer nofollow" class="markup--anchor markup--p-anchor" href="https://www.sec.gov/news/press-release/2020-321">[3]</a>The commission also sued cryptocurrency exchange Bittrex for violating securities laws in 2023. Despite Bittrex actively winding down its U.S. operations, the SEC has taken action against the firm and its former CEO, Bill Shihara, alleging that they operated a securities exchange, broker, and clearing agency without proper registration, among other charges. <a target="_blank" rel="noopener noreferrer nofollow" class="markup--anchor markup--p-anchor" href="https://www.investopedia.com/crypto-exchange-bittrex-charged-by-sec-7481453#:~:text=The%20SEC%20alleges%20that%20Bittrex,suggest%20those%20coins%20were%20securities.">[4]</a>The CFTC ordered Tether and Bitfinex to pay $41 million and $1.5 million respectively, for making misleading statements and conducting illegal transactions in 2021. Tether falsely claimed its stablecoin was fully backed by US dollars, while Bitfinex carried out illegal transactions on their cryptocurrency trading platform. Both firms have been ordered to cease and desist from further violations of regulations. <a target="_blank" rel="noopener noreferrer nofollow" class="markup--anchor markup--p-anchor" href="https://www.cftc.gov/PressRoom/PressReleases/8450-21">[5]</a><h3>Conclusion</h3>Market Structure Regulation is essential for maintaining the integrity and fairness of financial markets. Exchanges and ATSs operate under differing regulatory frameworks, with exchanges being subject to more stringent oversight. This regulatory fabric ensures that all market stakeholders comply with standards that safeguard investors, advocate for equitable data access, and preserve market equilibrium.As the financial landscape continues to evolve, initiatives like Flashbots within the crypto space highlight the significance of fair execution and access to data in decentralized finance. By upholding transparent protocols and avoiding manipulative practices, we can create a more democratic and equitable financial ecosystem. Ensuring fair and open access to data and promoting fair pricing mechanisms will be crucial for fostering trust, integrity, and fairness in both traditional exchanges and emerging digital platforms.Next time, we will delve deeper into the world of digital asset exchanges. Part 3 of this series will take a closer look at their regulatory needs, and offer insights on the pivotal role they play in Web3’s burgeoning financial ecosystem.

In the first part of our series, “The Regulatory Trinity,” we discussed the emergence of Web3 — a transformative force redefining the digital frontier. We examined the many challenges accompanying its mainstream adoption and touched upon the trinity of regulatory goals designed to shape and govern its intricate ecosystems. Continuing our journey, this next segment dives into the foundational tenets of traditional financial oversight, examining their impact on market actors and their significance in the context of Web3’s dynamic financial terrain.

Market Structure Regulation

<h2>Introduction: DeFi as the beating heart of Web3</h2>In 2008, an anonymous computer scientist named Satoshi Nakamoto proposed a new peer-to-peer electronic cash system called Bitcoin. In the years since, Web3 has persistently found itself at the forefront of financial innovation around the globe. The contemporary blockchain landscape is primarily bent on challenging and changing traditional finance, or TradFi. While its practical applications have shown great potential, it still remains a remix of this traditional financial system — albeit one dedicated to improving the efficiency and fairness of the former’s now-outmoded paradigm.Distributed technologies represent a revolutionary reimagining of the outdated mainframe-powered financial systems of the past. However, like its TradFi predecessors, web3 remains subject to a predefined set of regulatory restrictions and goals imposed by existing institutions. In this set of articles, we will demonstrate that web3 operates within a trinity of regulatory goals, including laws focused on anti-money laundering (AML), securities and commodities regulations, and edicts that define the broad framework for market infrastructure.<span class="null" ariahidden="null" style="font-size:11pt;font-family:Arial,sans-serif;color:#000000;background-color:transparent;font-weight:400;font-style:normal;font-variant:normal;text-decoration:none;vertical-align:baseline;white-space:pre;white-space:pre-wrap;"><h2>The Trinity</h2>While some of these regulations are written in a way that is purposely complex, their essence is simple, and their intent (for the most part) is driven by noble aspirations. Despite their Gordian intricacies, these regulations serve to ensure the integrity of financial systems and protect investors, customers, and other stakeholders from fraud and abuse.<ul><li>Anti-Money Laundering (AML) and Counter-Terrorist Financing (CTF) laws aim to prevent bad actors from profiting from nefarious activities. These laws are undoubtedly beneficial to society as a whole. However, there is reason to believe that, as currently designed and implemented, they are largely ineffective and inefficient.</li><li>Securities and commodities laws are designed to protect investors from scams and manipulation that are all too common when fundraising for a 'common enterprise' or trading shares of such enterprises on secondary markets. The benevolent intent behind these laws is clear. As such, it is difficult to argue against the benefits that web3 would reap if there were less fraud and deception in the space. Imagine the potential of web3's unique technology stack if developers and end users no longer had to worry about bad actors misusing it at no cost to themselves.</li><li>Market infrastructure regulation ensures that intermediaries facilitating access to financial markets and services operate in a manner that promotes market efficiency and treats all parties equally. This regulatory framework serves the greater good of capitalism, ensuring that the financial system operates in a fair and efficient manner. However, despite the intent behind these regulations, their implementation in practice has often fallen short, resulting in a track record of non-compliance and inefficiency. In many cases the root causes of reduced effectiveness of market infrastructure regulations lie in inherent lack of transparency that characterizes TradFi systems, lack of transparency that web3 has been created to ameliorate.&nbsp;</li></ul>Delivering regulatory clarity for digital assets is a challenging process that has extended over two decades. We can largely attribute the core issues to two pillars:<ul><li>One of the most pressing challenges regulators face is the categorization of digital assets. Are they commodities, securities, or do they fall under an entirely new category? Digital tokens often exhibit characteristics of one, both, or neither, creating a significant dilemma.</li><li>The problem of tailoring complex regulations to a rapidly evolving industry built upon fast paced innovation which presents a moving target for regulatory authorities. Web3 promises a leap in human progress comparable to that of the internet itself.&nbsp; The pace of innovation far outstrips the rate at which slow and sophisticated TradFi regulatory frameworks can adapt. National authorities aim to establish regulations that are robust enough to prevent misconduct and protect stakeholders, yet flexible enough to accommodate the advancements promised by this burgeoning industry. The global nature of these burgeoning technologies cannot be ring-fenced or sandboxed by any given regulatory authority, creating a tale of unstoppable force and immovable object in action. <span class="null" ariahidden="null" style="font-size:11pt;font-family:Arial,sans-serif;color:#000000;background-color:transparent;font-weight:400;font-style:normal;font-variant:normal;text-decoration:none;vertical-align:baseline;white-space:pre;white-space:pre-wrap;"></li></ul><h2><span class="null" ariahidden="null" style="font-size:16pt;font-family:Arial,sans-serif;color:#000000;background-color:transparent;font-weight:400;font-style:normal;font-variant:normal;text-decoration:none;vertical-align:baseline;white-space:pre;white-space:pre-wrap;">Contemporary Web3 - a parody of it’s own foundational ideals</h2><span class="null" ariahidden="null" style="font-size:11pt;font-family:Arial,sans-serif;color:#000000;background-color:transparent;font-weight:400;font-style:normal;font-variant:normal;text-decoration:none;vertical-align:baseline;white-space:pre;white-space:pre-wrap;">As a result, despite its foundational ideals of democratization and decentralization, the web3 space often resembles a "glorified casino," characterized by high-stakes speculation, significant risk, and ill-prepared ‘next billion’ lured in solely by the potential for substantial reward - another 1000x gem, which more often than not will appear a delusion post factum. But, as always, when it’s clear, it’s also too late.&nbsp;The combination of delayed regulatory clarity, pseudonymity, and rapid advancements in decentralized finance (DeFi) and non-fungible tokens (NFTs), along with an unprecedented wave of central bank liquidity and a large amount of capital being deployed by echelons of risk hungry VCs, has created a bloated, hyper-financialized industry. This has resulted in a paradoxical situation where the industry has burned more of its supposed "next billion users" than it has elevated from poverty. Without effective regulation, the industry risks losing its potential to bring about positive change in the world.<h2><span class="null" ariahidden="null" style="font-size:16pt;font-family:Arial,sans-serif;color:#000000;background-color:transparent;font-weight:400;font-style:normal;font-variant:normal;text-decoration:none;vertical-align:baseline;white-space:pre;white-space:pre-wrap;">Embracing compromise to sustain Cyber Freedom</h2><span class="null" ariahidden="null" style="font-size:11pt;font-family:Arial,sans-serif;color:#000000;background-color:transparent;font-weight:400;font-style:normal;font-variant:normal;text-decoration:none;vertical-align:baseline;white-space:pre;white-space:pre-wrap;">Web3's current state of perpetual plutocratic anarchy is unsustainable. Regulators from around the world are taking notice of the "financial wild west," and it is imperative that the industry embraces a number of necessary changes. Fighting these changes will only lead to a dystopian future where thin and unconnected enclaves of "free" cipher capital slowly fade away in a sea of centralized CBDC liquidity. It is essential to work towards a regulatory framework that balances innovation and growth while ensuring compliance and protection for all stakeholders.As industry participants, we have the responsibility to offer an alternative — a web3 done right. We must develop a tech stack that adheres to the principles of decentralization and sovereignty, while also harnessing the wealth of human knowledge found within existing regulatory statutes. Despite the many flaws of TradFi, including failed controls and often unpunished levels of corruption, it has enabled significant progress and fostered innovation through reactive regulatory measures aimed at limiting abuse and fostering innovation.The only way to preserve cyber freedom while improving the world is to build at the intersection of web3 tech and TradFi regulation. To better understand how we can accomplish this task, it is essential to have a deep understanding of the regulations themselves: their origins, their current state, and how we can adapt them in a way that supplements a more decentralized world.<h2><span class="null" ariahidden="null" style="font-size:16pt;font-family:Arial,sans-serif;color:#000000;background-color:transparent;font-weight:400;font-style:normal;font-variant:normal;text-decoration:none;vertical-align:baseline;white-space:pre;white-space:pre-wrap;">Concluding thoughts</h2><span class="null" ariahidden="null" style="font-size:11pt;font-family:Arial,sans-serif;color:#000000;background-color:transparent;font-weight:400;font-style:normal;font-variant:normal;text-decoration:none;vertical-align:baseline;white-space:pre;white-space:pre-wrap;">We conclude this introduction with the following table, initially from a remarkable piece "DeFi Beyond the Hype" by Wharton. <a target="_blank" rel="noopener noreferrer nofollow" href="https://wifpr.wharton.upenn.edu/wp-content/uploads/2021/05/DeFi-Beyond-the-Hype.pdf">[2]</a> We have taken liberty to add remedies and commentary. Here we see the opportunities and challenges of implementing a compliant middle ground between TradFi and web3. Understanding these opportunities and challenges will enable us to develop strategies and solutions that foster the growth of web3 while adhering to regulatory requirements and ensuring a more inclusive, transparent, and efficient financial future. <span class="null" ariahidden="null" style="font-size:9pt;font-family:Arial,sans-serif;color:#000000;background-color:transparent;font-weight:400;font-style:normal;font-variant:normal;text-decoration:none;vertical-align:baseline;white-space:pre;white-space:pre-wrap;">Table 1. Opportunities, Challenges of Web3 from Reg/Tech Perspective<img src="/upload/6febcb6c-e6d2-4f30-b9c8-0c5c18718689_1694178315095.jpg"><span class="null" ariahidden="null" style="font-size:11pt;font-family:Arial,sans-serif;color:#000000;background-color:transparent;font-weight:400;font-style:normal;font-variant:normal;text-decoration:none;vertical-align:baseline;white-space:pre;white-space:pre-wrap;"><span class="null" ariahidden="null" style="font-size:9pt;font-family:Arial,sans-serif;color:#000000;background-color:transparent;font-weight:400;font-style:italic;font-variant:normal;text-decoration:none;vertical-align:baseline;white-space:pre;white-space:pre-wrap;">Source:<a target="_blank" rel="noopener noreferrer nofollow" href="https://wifpr.wharton.upenn.edu/wp-content/uploads/2021/05/DeFi-Beyond-the-Hype.pdf"><span class="null" ariahidden="null" style="font-size:9pt;font-family:Arial,sans-serif;color:#000000;background-color:transparent;font-weight:400;font-style:italic;font-variant:normal;text-decoration:underline;-webkit-text-decoration-skip:none;text-decoration-skip-ink:none;vertical-align:baseline;white-space:pre;white-space:pre-wrap;">Defi Beyond The Hype</a><span class="null" ariahidden="null" style="font-size:9pt;font-family:Arial,sans-serif;color:#000000;background-color:transparent;font-weight:400;font-style:italic;font-variant:normal;text-decoration:underline;-webkit-text-decoration-skip:none;text-decoration-skip-ink:none;vertical-align:baseline;white-space:pre;white-space:pre-wrap;">and authors own compilationA better web3 would foster an environment where opportunities can flourish, taking advantage of the vast innovative potential that the space offers. At the same time, the industry should take responsibility for mitigating consumer challenges by prioritizing its own self-regulation. This would ensure that future iterations of web3 technologies operate in a compliant and sustainable manner.In pursuit of a balanced approach, our objective does not lie in advocating for censorship or exclusivity. Instead, we strive to identify middle ground solutions that enable the web3 community to uphold its principles while harnessing the immense potential of the web3 technological framework to bring about positive and far-reaching transformations for humanity worldwide.

In 2008, an anonymous computer scientist named Satoshi Nakamoto proposed a new peer-to-peer electronic cash system called Bitcoin. In the years since, Web3 has persistently found itself at the forefront of financial innovation around the globe. The contemporary blockchain landscape is primarily bent on challenging and changing traditional finance, or TradFi. While its practical applications have shown great potential, it still remains a remix of this traditional financial system — albeit one dedicated to improving the efficiency and fairness of the former’s now-outmoded paradigm.

The Regulatory Trinity

Voyager Ark is a uniquely incentivized DevNet discovery campaign, designed as an opportunity for users to pass our <a target="_blank" rel="noopener noreferrer nofollow" href="https://app-devnet-v1.galactica.com/">DevNet zkKYC process</a>, and be among the first to execute transactions on the Galactica Network DevNet. In recognition of your active participation and contributions, you'll also be eligible to earn many attractive rewards, making your voyage with us even more enriching.This campaign is meant to serve as a launchpad for active participation in Galactica Network, fostering the network's ethos of privacy, compliance, and meritocracy.<h1>Ready to get started with Voyager Ark?</h1>With a few simple steps, you'll be all set to explore, learn, and earn rewards. Here's your roadmap for getting started:<ul><li>Step 1: Kick off your journey by filling out <a target="_blank" rel="noopener noreferrer nofollow" href="https://docs.google.com/forms/d/e/1FAIpQLSdaXrUvEGGh6i1sYih851tBcfQWFdm8qR8A2xHupld-B-H3BQ/viewform">this Google Form</a>. It's simple — just provide some basic information such as your Discord ID, Github profile, email address, and name. You'll also need to supply an EVM compatible wallet address inside the same form. We'll use this for your <a target="_blank" rel="noopener noreferrer nofollow" href="https://app-devnet-v1.galactica.com/">DevNet zkKYC</a> registration, and to distribute any $GNET you earn in future.</li><li>Step 2: Now it's time to get social. Post a Tweet sharing your thoughts and experiences with the Galactica DevNet platform. Don’t forget to add our campaign hashtag #GNET so that the rest of the community can follow along on your adventure.</li></ul>Upon completion, you will earn the "DevNet/TestNet Participant" role on <a target="_blank" rel="noopener noreferrer nofollow" href="https://discord.com/invite/galactica">our Discord Server</a>.This achievement opens up numerous benefits and privileges in the community and throughout the Cypher State campaign, including:<ul><li>Exclusive Community Channels: You'll gain access to exclusive channels on our Discord server where you can directly interact with our developers and other participants. These channels provide a space for meaningful discussion, feedback, and assistance related to the DevNet/TestNet.</li><li>Increased Visibility and Reputation: Your role as a "DevNet/TestNet Participant" will distinguish you within the community, contributing to your reputation and influence within Galactica Network's meritocratic ecosystem.</li><li>Influence Over Future Development: Your insights and feedback will have a direct impact on the refinement of Galactica Network's development, allowing you to influence the direction of our project.</li><li>Potential Reward Opportunities:Your active participation could make you eligible for future reward opportunities, including potential airdrops, bounty programs, and other incentivized activities.</li></ul><h2>Rewards galore!</h2>Early testers who secure their NFT will be rewarded with exclusive retroactive drops upon mainnet launch of Galactica Network and a chance to claim the coveted 'Wave 3 Citizenship.' This will be conducted through the Raffle channel on our Discord server, and will conclude at the campaign's end. The first individual selected via the raffle will receive this honor.<h2>Campaign Timeline</h2>The Voyager Ark campaign kicks off on August 11th and concludes on October 11th.<h2><a target="_blank" rel="noopener noreferrer nofollow" href="https://app-devnet-v1.galactica.com/">We’re excited for you to join us!</a></h2>Voyager Ark is more than a campaign; it's your gateway to becoming an integral part of the Galactica Network. As an innovative Layer 1 protocol built on the Cosmos SDK, Galactica Network stands at the forefront of the decentralized future. By joining us on this journey, you're actively contributing to an ecosystem that's striving to redefine traditional functionalities with blockchain-based alternatives.This is not just an invitation; it is a call to action. We encourage you to join, participate actively, and seize the opportunities that lie ahead. This is a golden opportunity for you to leave your mark on the future of digital interactions. Come aboard, embrace the Voyager Ark campaign, and seize the transformative opportunities that lie ahead with Galactica Network.

This campaign is meant to serve as a launchpad for active participation in Galactica Network, fostering the network's ethos of privacy, compliance, and meritocracy.

Voyager Ark: An incentivized DevNet discovery campaign

<h1>Introduction</h1>In the rapidly evolving world of digital finance, new concepts frequently emerge that have the potential to redefine our understanding of money and its function within society. Recently, the Bank of International Settlements (BIS) proposed such an idea, <a target="_blank" rel="noopener noreferrer nofollow" href="https://www.bis.org/publ/arpdf/ar2021e3.htm">suggesting a new mode</a>l where commercial banks' tokenized customer deposits would coexist alongside Central Bank Digital Currencies (CBDCs) on a unified ledger. By all appearances, this is a groundbreaking proposal; one with the potential to revolutionize the world financial system. However, it warrants a thorough examination before we can gauge its true merits and implications.<h1>Bearer and Non-Bearer Instrument Models</h1>In the report, BIS distinguishes between bearer and non-bearer instrument models. The bearer instrument model is akin to stable coins we're familiar with (i.e., USDT/USDC). The document states:“In the digital bearer instrument model, private money tokens represent a transferrable claim on the issuer. Their movement transfers the issuer’s liability from one holder to another. There is no need to update the issuer’s balance sheet when these tokens are transferred. It is only when a holder wishes to redeem a token for cash or a conventional deposit that off-platform balance sheets are updated. An archetypal example of a digital bearer instrument is an asset-backed stablecoin."Essentially, the value of a stable coin can diverge from the value of the underlying fiat currency due to a multitude of factors, and the KYC bracket exists outside of the issuer’s platforms. Money can change hands without the issuer (i.e., Circle for USDC) necessarily having KYC on any current set of holders.In contrast to this, we have the non-bearer instrument model. The report explains:“In the non-bearer instrument model, tokens that represent an issuer’s liability are not directly transferable to individuals who are outside the KYC boundary of the issuer. Instead, the payment process mimics the practice in the current two-tier monetary system of debiting the account of the sender and crediting the account of the receiver, together with settlement on the central bank’s balance sheet. Specifically, the payment is put into effect by reducing the sender’s token balance at their issuing institution and creating a new tokenized liability for the receiver that is issued by their institution. Meanwhile, there is a concurrent transfer of central bank money using a wholesale CBDC.”In simple terms, all settlements happen in central bank money. This ostensibly means that there is no risk other than sovereign credit risk, thus the exchange rate of such an asset will always be strictly equal to that of the underlying fiat.Projects Helvetia, Jura, Dunbar, mBridge, and Mariana are practical implementations of the aforementioned models. In the digital bearer instrument model, a transfer of the token from Alice to Bob transfers Alice’s claim on issuer 1 to Bob. Bob now holds liabilities of both issuer 1 and issuer 2 even though he is a customer of only issuer 2.<h1>Tokenization</h1><h2>Bank of International Settlements’ Proposal</h2>The crux of the BIS' proposal is the tokenization of bank deposits and their placement on the same ledger as CBDCs. The proposal argues that tokenization would be more solidly grounded if based on central bank money, which carries the trust and reliability associated (for some) with a central bank's guarantee​​. The BIS contends that compared to unstable and loosely regulated cryptocurrencies, central bank money offers a much more dependable foundation for tokenization and for moving value across blockchains​​.The concept of a 'unified ledger' in the BIS's proposal refers specifically to a model resembling a network of networks, wherein multiple ledgers — each serving a unique purpose — could coexist. These ledgers, according to the BIS, could be interconnected using APIs, and allow for potential new functions or mergers as their scopes overlap​​.While some elements of the BIS' proposal align with Galactica Network's vision, the proposal's tendency towards centralized power structures and potential infringements on privacy rights necessitates a critical examination. We argue that Web3 builders should focus on fostering balanced innovation, while prioritizing the principles of decentralization, privacy, and meritocracy to ensure a future financial infrastructure that works in favor of the common people, rather than the consolidation of power behind a few powerfully centralized entities.The rise of tokenization and its potential has been frequently recognized by traditional financial institutions and industry thought leaders. As Larry Fink, CEO of BlackRock, <a target="_blank" rel="noopener noreferrer nofollow" href="https://www.blackrock.com/corporate/investor-relations/larry-fink-annual-chairmans-letter">observed in his annual letter to investors</a>, "the tokenization of asset classes is expected to augment capital market efficiencies, streamline value chains, and optimize cost and accessibility for investors."He goes on to mention that industry forerunners like BlackRock are examining the digital assets ecosystem, with a specific focus on areas like permissioned blockchains and the tokenization of stocks and bonds. There have been numerous recent advances in TradFi, including the launch of EDX Markets, a crypto exchange backed by firms such as Citadel Securities, Fidelity Digital Assets, and Charles Schwab Corp. Meanwhile, BlackRock's plans to create a Bitcoin exchange-traded fund (ETF) helped Bitcoin reach more than a one-year high in recent weeks. Bitcoin's value increased by nearly 25%, and Ethereum rose by more than 16%.&nbsp;This perspective is assuredly shared by BIS, which emphasizes the exploration of tokenization use cases by commercial banks and private sector groups, with JPMorgan being a notable example. The BIS also proposes the idea of a “unified ledger,” which would combine tokenized forms of central bank digital currency (CBDC) with tokenized bank deposits and other tokenized claims, potentially signaling a new era in the joint development of the monetary system and the economy.<h2>In Perspective</h2>They are not alone. The World Economic Forum (WEF) and Citi have both released <a target="_blank" rel="noopener noreferrer nofollow" href="https://www3.weforum.org/docs/WEF_Digital_Assets_Distributed_Ledger_Technology_2021.pdf">reports acknowledging the potential value</a> of tokenized traditional market assets. The WEF's report suggests that almost all traditional market assets, worth an estimated $866.9 trillion, could eventually be tokenized. This projection includes various types of markets such as equity markets, debt markets, securitized products, derivatives, securities financing, and asset management/fund administration. However, it also notes that there is no agreed-upon path for market-wide adoption and that market participants are far from adopting at scale​.Likewise, a recent report from Citi states that the future of financial markets <a target="_blank" rel="noopener noreferrer nofollow" href="https://ir.citi.com/gps/MG9DEWhoYvQJVWLM9Kr3%2BZmqjoztKJcyNHr83F9Wug2pzAGHPQKfp23RAMrkNts%2FJitXoTNqufOvegUjjXh0IA%3D%3D">could be significantly influenced</a> by the tokenization of physical and financial assets, given advances in technology, market infrastructure, and regulation. It states that the potential value of tokenized assets and liabilities could amount to $24 trillion by 2030. According to the report, the tokenization of assets is still in its early stages, but rapid growth is expected, with up to 10% of global GDP potentially being on-chain by the end of this decade.<h2>Opportunities and Challenges</h2>But their way is not the only way. By applying some of the same principles of tokenization, Galactica Network offers benefits such as reduced friction and transaction costs, increased standardization and functional interoperability, improved auditability, and transparency of transactions. The following table highlights the opportunities and challenges of implementing a compliant middle ground between traditional finance (TradFi) and Web3. But to obtain these goals, we must encourage the development of platforms which bring people closer to the ideals and methodologies of Web3, rather than focus on emboldening silos of controlled power structures, as the BIS suggests.<h1></h1><img src="/upload/be7043ec-799d-48e0-b70e-74a2a5ad53db_1688493173266.jpeg"><h1>Balancing Centralization and Decentralization</h1>One critical concern with the BIS' proposal for a unified ledger is the potential centralization of power that it may entail. With tokenized customer deposits coexisting alongside CBDCs on a unified ledger, the control of financial transactions and their associated data is likely to become consolidated in the hands of a small number of centralized entities. This would have far-reaching implications for individual privacy rights and the principles of decentralization that are at the heart of Web3 technology. The report prioritizes operational efficiencies while ignoring the impairments it could yield to personal privacy. The centralized structures it advances would grant controlling entities access to a vast amount of data about individuals' financial transactions. This is an inarguable point of concern. We must not infringe on the right to financial privacy. It is a cornerstone of personal liberty and a crucial aspect of economic freedom. The BIS concept also stands to further entrench existing power structures with foreseeably disastrous effect. The proliferation of centralized control would be stifling to innovation, and is likely to further exclude those who are already marginalized from traditional financial systems. This is an abhorrent contradiction to the original vision of blockchain technology and Web3, which seeks to decentralize power, democratize finance, and — importantly — enable peer-to-peer interactions without the need for intermediaries.In contrast, the Galactica Network intends to uphold the principles of decentralization, privacy, and meritocracy. Our decentralized governance model ensures that power is distributed among the network's participants, rather than being concentrated in the hands of a few. It allows individual actors to participate in decision-making processes, fostering a more democratic and inclusive financial ecosystem. Galactica Network's approach aligns with the fundamental ethos of Web3, where platforms are designed to reduce centralized control and increase user sovereignty.To do otherwise is tantamount to the betrayal of the common man, and perpetuates the imbalances and inequities of the traditional financial system.<h1>Privacy and Compliance</h1>A unified ledger system, despite its efficiency, prompts serious questions concerning privacy and compliance. Blockchain transactions can often be traced back to their originators, particularly under the vigilant surveillance of central and commercial banks. BlackRock, one of the world's largest asset management firms, recognizes the need for oversight in the financial industry. Joseph Chalom, one of the company’s executives, <a target="_blank" rel="noopener noreferrer nofollow" href="https://www.dlnews.com/articles/markets/blackrock-exec-says-tokenisation-of-stocks-will-be-slow/">recently stated</a>, "I think it’s going to be hard for large, regulated institutions, no matter what liquidity is available, to participate [...] All I know is, we go to jail if we don’t know who we’re trading with."Galactica Network takes a different approach. By leveraging zero-knowledge cryptography, we are able to offer full compliance on-chain while keeping user privacy central to the network's design. Zero-knowledge proofs allow users to prove the validity of their transactions and interactions without revealing sensitive information. This ensures that privacy is maintained while still meeting regulatory requirements.Arthur Hayes, the co-founder of BitMEX, once <a target="_blank" rel="noopener noreferrer nofollow" href="https://blog.bitmex.com/pureevil/">referred to CBDCs as "pure evil,"</a>&nbsp; saying that these kinds of centralized mechanisms "represent a full-frontal assault on our ability to have sovereignty over honest transactions between ourselves." He noted pessimism in the centralized model, warning that it could one day be implemented in all major economies.Galactica Network's decentralized governance model and commitment to privacy and compliance stand in stark contrast to the autocratic design inherent in such centralized unified ledgers.<h1>A Call for Balanced Innovation</h1>As we navigate the path of financial innovation, it is crucial to respect the principles that have brought us to this point. While the BIS' proposal for a unified ledger system may offer certain advantages, it also carries the risk of leading the financial infrastructure in a direction that neglects the core values of Web3.Eric Hughes's Cypherpunk manifesto, written in the early days of the internet, <a target="_blank" rel="noopener noreferrer nofollow" href="https://nakamotoinstitute.org/static/docs/cypherpunk-manifesto.txt">emphasized the importance</a> of privacy as a fundamental right. The manifesto serves as a reminder that privacy is not a luxury, but a necessary component of a free and open society.In light of these considerations, we advocate for a balanced approach to financial innovation. It is essential to prioritize privacy, decentralization, and meritocracy in the design of future financial systems. Instead of pursuing autocratic goals, we should embrace permissionless innovation and empower individuals to have control over their financial lives.We echo a16z's stance on sustainable innovation, emphasizing the need to expand compliant privacy concepts. By incorporating privacy-preserving technologies and adhering to regulatory standards, we can achieve transparency and user privacy simultaneously.

Explore the Bank of International Settlements' proposal to tokenize customer deposits alongside CBDCs on a unified ledger, its potential impact on the financial system, and the Galactica Network as an alternative that prioritizes decentralization, privacy, and user sovereignty.

A Take on Recent BIS CBDC Article

<h2>Galactica Network: The Cypher State</h2><h2> Introduction</h2>The web3 space is expanding at a rapid pace despite the global economic slowdown. Builders keep on building and today we as a community are stronger than ever. The sheer abundance of technological, financial, and institutional advancements fuels our collective drive, propelling us towards a future defined by limitless possibilities.&nbsp;The same way Bitcoin has redefined the concept of monetary institution and DeFi has changed what’s attainable in the realm of finance, The Cypher State is the first brick in the wall of the Internet of Identities - the first Web3 Nation.&nbsp;Today, we stand on the precipice of history.Galactica Network stands at the forefront of innovation, introducing a tech stack that unleashes unparalleled possibilities within the realm of web3, from undercollateralized lending to reputation-centric DAOs, and far beyond. We dare to imagine a future where the concept of a Cypher State — a new socio-political paradigm built on the principles of decentralization and empowerment — becomes a reality.We are happy to announce that we are rolling out a campaign aimed at creating awareness and stimulating the first wave of adopters to come join us on our journey. There will be challenges, puzzles and rewards - exactly like you like it, anon.<h2>Benefits of the campaign</h2><img src="/upload/abdc439d-4eb5-4d97-a066-5d14d8711ac5_1685728654346.jpg">Prepare yourself for an exhilarating adventure as you join the ranks of The Cypher State campaign—an exclusive and interconnected family that embodies the vanguard of the decentralized revolution. By becoming part of this movement, you gain access to a multitude of exclusive privileges and opportunities. While some are meticulously planned ahead, many will emerge organically as our united community forges ahead on this journey.&nbsp;But remember: the earlier you are in, the easier it will be to ascend. Before we delve into the range of benefits one can acquire by participating in the campaign, we shall explain the concept of the Galactica Network Citizenship (aka GNC).&nbsp;Technically, it is a whitelist of addresses that are eligible for benefits within Galactica. The same way as Bitcoin Blockchain rewards early participation by offering exponential benefits to miners that have joined early, Galactica Network rewards social contributions. Galactica Citizens benefit from its inflation by receiving UBI, take part in block validation and participate in governance. There are few spots early on and ascending through the ranks of the Cypher State is a way to get in early.&nbsp;All in all, the Benefits include: Galactica Network Citizenship (GNC): Successful participants can earn access to the first wave of GNC passes. Holding a GNC pass grants a range of benefits, including:<ul><li>Universal Basic Income (UBI): GNC pass holders will receive Universal Basic Income payments, distributed in a quadratic manner to benefit early adopters. This allows participants to passively earn rewards based on their level of involvement and contribution to the network.</li><li>Running a Galactica Network Validator: GNC pass holders will have the privilege to run a Galactica Network Validator. This role involves validating transactions and securing the network while earning additional rewards.</li><li>Governance: GNC pass holders gain the right to actively contribute in meritocratic decision-making processes across the network, propose and vote on protocol upgrades, and shape our decentralized future.</li></ul>Early Access: Participants gain preferential access to in-development features and tools. This includes access to DevNet/Testnet phases, allowing select candidates to experience and provide feedback on the platform's advancements.Exclusives: Participants will enjoy various program-specific raffles, competitions, and exclusive incentives. These range from unique rewards to special privileges within the Galactica Network.NFTs: Participants will receive exclusive NFTs that represent their active participation in the different phases of the program. These NFTs serve as a symbol of their commitment to shaping the future of the Cypher State.By participating in The Cypher State, you not only become an advocate for the community but also play a vital role in promoting the understanding of Galactica Network's innovative tech stack and its extensive DeFi, DePol, and DeSoc capabilities. Remember, Galactica is an entire ecosystem. Your contributions will have a wide-ranging impact, spanning across various projects within the network.&nbsp;You'll have the opportunity to connect with founding teams, foster community engagement, and contribute your expertise to the development of these projects. You’ll be there early on…But above all, you can become a Citizen.&nbsp;Participants receive the benefits outlined above by completing certain tasks. The completion of these tasks will allow community members to progress through the campaign’s six different tiers. The higher an individual's tier and level of involvement, the greater the rewards and advantages they can enjoy. Tasks encompass various actions, such as following Galactica Network's official social media channels, creating content, referring friends, joining Twitter Spaces, and more. To explore the details of each tier and find comprehensive information to guide you on your journey within The Cypher State campaign, we invite you to join our community Discord.One last thing before you begin. The Cypher State campaign serves as the bootstrapping phase of Galactica Network's governance framework. Your contributions during this campaign will have a lasting impact on your influence and weight within the Cypher State governance process. The reputation you establish as part of this campaign will become a permanent fixture of your digital identity within the Galactica Network ecosystem and beyond, helping to forever shape your role in the future of decentralized decision-making.Ok, now off we go. The button that just might change your life is right here:&nbsp;<a target="_blank" rel="noopener noreferrer nofollow" href="https://discord.gg/galactica">Join The Cypher State Discord</a>

Today we, the team behind the Galactica Network, are proud to announce the launch of The Cypher State Campaign. The Cypher State is the first Web3 Nation and today it is time to invite the first cohort of its Citizens.

Galactica Network: The Cypher State

The following document is intended to offer the first glimpse of Galactica Network’s governance system in the context of funding R&D within the ecosystem, the design of its public goods funding process, public venture funding as well as grants and other developer incentives. 

Galactica’s Academy Of Science and Governance of Ecosystem Funding

The European Digital Identity Wallet ,proposed by the European Commission, is an initiative to allow users to store and manage identity data credentials and attributes. The following article offers a summary of the initiative, as well as how Galactica Network could facilitate its implementation. 

Overview of the European Digital Identity Wallet & Initiative

<h2>The foundations of Galactica Network</h2>During the development of Galactica Network, it has been crucial to consider the desirable characteristics of a blockchain when determining the substrate on which we built such an ambitious protocol. These characteristics enable us to form a foundation for hosting a meritocratic decentralized society and providing compliant-privacy on-chain.With the need for such unique features, this decision was essential to the functionality and future-proofing required by the network. We compared the most promising platforms to aid the decision-making process and weighed them for suitability using metrics specific to Galactica Network’s needs.After deep consideration, we ended up with several platforms on our shortlist, which included:<ol><li><a href="https://ethereum.org/en/" rel="noopener noreferrer" target="_blank" style="color: inherit;">Ethereum</a></li><li><a href="https://polygon.technology/" rel="noopener noreferrer" target="_blank" style="color: inherit;">Polygon</a></li><li><a href="https://v1.cosmos.network/sdk" rel="noopener noreferrer" target="_blank" style="color: inherit;">Cosmos SDK</a></li><li><a href="https://substrate.io/" rel="noopener noreferrer" target="_blank" style="color: inherit;">Substrate</a></li></ol>Our internal research and the debates that followed were suitably robust — comparing the minutiae of each platform in detail to inform our decision. Ultimately, we chose the&nbsp;Cosmos SDK&nbsp;as the base upon which to build Galactica Network for its synergy with our unique technology stack, reliable consensus mechanism, modular architecture, and EVM compatibility.To provide some context into our decision-making process, we will now dive into the many factors we considered when building Galactica Network.<h2>Filtering candidates — the shortlist</h2>The success of any protocol relies on the underlying technology that makes up its foundations. In the case of Galactica Network, and its entirely unique requirements, its foundations’ importance can not be understated. With so many platforms available on the market, it was a daunting task to filter the array of quality options available and select the one that best fitted the specific needs of the Galactica Network.To aid in this process, we compiled a shortlist of platforms that might have been capable of supporting our innovative feature set. The table below is a simplified dataset derived from several of our internal research documents. Our research spanned the key features and benefits applicable to Galactica Network for each target platform and was utilized to make the most informed decision possible.<img src="/upload/610ce12f-56f0-484e-9e0b-e91d69ab2329_1680002749835_1_v99I15HjhdMKrA3IRf1k3g.jpg">Figure 1, Summary of shortlisted candidates in the context of suitability for Galactica NetworkDenotes a field in which Galactica Network’s implementation within the framework determines its strength.** Score supported via the presence of EVMOS’ EVM modulePlease note:&nbsp;Dozens of platforms were initially considered, encompassing the entire spectrum of the crypto space. Galactica Network, with its unique compliant-privacy and reputational features, has highly specific requirements which are reflected in our suitability ratings. Our shortlist is by no means an exhaustive ranking of the general merits of these protocols.While this table gives us a good overview, in the following sections we would like to provide you with a more detailed understanding of our requirements, processes, and ultimately our decision to build upon the Cosmos SDK.<h2>What makes a good Blockchain?</h2>The first question we had to ask ourselves was, ‘What properties do we want Galactica Network to have?’ as its answer would considerably impact how we built the protocol.Firstly and most importantly, Galactica Network must be decentralized and permissionless — this is critical to our mission and the success of blockchains in general. This decentralization must remain intact in conjunction with security robust enough to withstand failures and attacks from malicious actors.Beyond these basic requirements, there were many essential metrics to consider when determining the scope of Galactica Network, some of which we will summarize here from a document penned by our engineers at the protocol’s inception.<h2>Governance</h2>Decisions should be made via community consensus, with experts’ involvement to present the pros and cons of each option. When considering the fundamental structure of any substrate we might have built upon; governance was one of our most important considerations due to the presence of zkID-centric voting that was to be available on Galactica Network.<h2>Infrastructure</h2>We require a large set of validators, geographically diverse hosting, and independent operators. It is essential to avoid centralization by not having all validators on a single cloud provider, such as AWS. Instead, we prioritize open-source, transparent, and community-driven systems.<h2>Tokenomics</h2>Wealth must be spread among many parties, with fair distribution, and limited supply.<h2>Security</h2>We prioritize security with a secure code base for the consensus algorithm, nodes, smart contract language, peer-to-peer networking, and wallets. Code will be audited and formally verified, and based on sound cryptography principles — it will also be resistant to&nbsp;Sybil, denial of service, and brute force attacks.<h2>Upgradability</h2>We require systems that allow us to evolve the technology to improve scalability, features, etc. We also prioritize being fork-resistant, preventing the network from being split by incompatible upgrades.<h2>Developers</h2>Maintaining and incentivizing a solid developer community is crucial for a successful blockchain, with a strong core team working on improvements and a broad base of developers able to deploy products. We also prioritize an ecosystem that offers various products and possibilities to use the chain for different purposes.<h2>Smart contracts</h2>Contracts should support a Turing-complete language to be expressive enough for use by all application types, be compatible with existing applications, and efficiently support zero-knowledge primitives.<h2>Scalability</h2>We need to support a high number of transactions per second, with on-chain data storage and sufficient support for complex applications.<h2>Tooling</h2>Provision of extensive documentation is needed, in addition to an informative block explorer, node interfaces, IDE integration, and educational resources.<h2>UX</h2>Galactica Network must feature fast settlement, low transaction costs, 100% uptime, and support for as many wallets as possible. We also prioritize privacy and enabling compliant, private transactions on-chain.During the development process, we considered the above characteristics and other metrics to create a list of requirements for any base layer we may decide to build on. By considering these factors, we can build a robust and secure platform that not only provides the features needed to build a true ‘CypherState’ on-chain, but also fosters innovation and drives adoption.<h2>All roads lead to Cosmos</h2>After much consideration, we chose the Cosmos SDK as the secure, scalable, and modular basis for Galactica Network. There are several reasons for this, but broadly Cosmos SDK provided the feature set most capable of supporting the reputationally-enhanced, compliant, and private transactions we wanted to make available to users.The Cosmos SDK provides an excellent system for building blockchains, offering the reliable Tendermint consensus mechanism and proven modules such as staking, governance, and banking. Additionally, the architectural framework of the Cosmos SDK makes it easy to add custom modules, allowing us to integrate compliant privacy, and the reputation features unique to our protocol.Compared to forking Ethereum or using Polygon PoS, the Cosmos SDK is more feasible for us to develop and maintain, ensuring the rapid implementation of fixes and features determined via Galactica Network’s governance processes. The Cosmos SDK also has a strong developer base and utilizes the Go programming language, which is modern and fast.The Cosmos SDK’s&nbsp;modularity,&nbsp;multi-chain model, and&nbsp;IBC protocol&nbsp;are the fundamental components that put the framework ahead of the competition in the context of building a protocol such as Galactica Network.A notable example that utilizes the SDK’s multi-chain components effectively is Galactica Network’s reputational framework. The Cosmos SDK allows us to efficiently bridge and communicate across chains, enabling scalability for our reputation system; essentially allowing us to outsource the potentially heavy computational work required for reputation calculations to specialized sub-chains.<img src="/upload/6879e6bc-528f-452d-ad3d-bb0aa650ac02_1680002809412_0_UVd2gNPc5Wa9aDoO.jpg">Figure 2, Galactica Network Mainnet and reputation sub-chain interactionsYou can learn more about our implementation of reputation on-chain by reading Galactica Network’s&nbsp;<a href="https://docsend.com/view/guajqmg9ebxaua2r" rel="noopener noreferrer" target="_blank" style="color: inherit;">Reputation Design Implementation</a>&nbsp;paper, or the simplified version available on our&nbsp;<a href="https://medium.com/galactica-network/galactica-network-reputation-design-implementation-df48d6e21793" rel="noopener noreferrer" target="_blank" style="color: inherit;">Medium blog</a>.Beyond reputation, the Cosmos SDK’s modularity enables us to take full advantage of the ‘hooks’ available via the EVMOS module, which assist us in our implementation of&nbsp;Contingent Transactions&nbsp;involving ERC20 tokens. The EVMOS module also allows us to tap into existing tools and infrastructure in the Ethereum ecosystem, and gain derived support from hardware wallets and Metamask.Finally, the flexibility inherent to the Cosmos SDK allows us to consider future features that might greatly increase interchain utility, such as allowing other protocols to leverage reputation data from Galactica Network to inform social-capital transactions on their own networks.<h2>Our conclusions</h2>Galactica Network’s unique value proposition comes from its combination of a viable reputation framework, and the ability to deliver compliant-privacy on-chain.The Cosmos SDK’s modular design enables us to create specialized chains that allow this unique combination to exist concisely and efficiently. Through IBC, we can leverage our zero-knowledge compliance and reputation features with liquidity from other chains, creating synergies to build a robust ecosystem.Overall, the Cosmos SDK proved an excellent choice for Galactica Network, providing the necessary scalability and finality properties while also meeting the requirements for building our reputation, privacy, and compliance features. All of this, in addition to endless possibilities for combination with other modules and integration with other chains.<h2>Afterword</h2>While we have been quietly developing Galactica Network, we have been cognisant of the need to become an active part of the Cosmos ecosystem, and during this time, we have gained the attention of several of the community’s most prolific natives. One of our earliest friends and supporters, Cosmos HOSS, had this to say regarding Galactica Network’s decision to build on the Cosmos SDK:“The bottom line is there needs to be a blockchain that leverages interoperability while being fully regulatory compliant for all citizens to feel safe, secure and at ease to participate in a truly decentralized economy.Galactica Network utilizing Cosmos and IBC offers that” —&nbsp;<a href="https://twitter.com/CosmosHOSS" rel="noopener noreferrer" target="_blank" style="color: inherit;">Cosmos HOSS</a>

The Cosmos SDK proved an excellent choice for Galactica Network, providing the necessary scalability and finality properties while also meeting the requirements for building our reputation, privacy, and compliance features. All of this, in addition to endless possibilities for combination with other modules and integration with other chains have facilitated the choice of using Cosmos SDK as the base to build Galactica Network on. 

Galactica Network: Why Cosmos?

<h2>Introduction</h2>The Galactica Network Reputation Framework binds other network components, namely Reputation Root Contract and zkCertificates to create a protocol capable of expressive DeSoc primitives.It leverages Persistent Identities, which are protocol representations of humans, to quantify a multitude of users’ interactions with other users, dApps and the entirety of the ecosystem — the web3 footprint — and create a virtual correspondence to the real-world concept of reputation. dApps and other users can then use these data as inputs into their own business logic. Reputation is an immensely important social primitive — meritocratic governance, undercollateralized lending, attestations and social networks are only the tip of the iceberg of use cases it enables.This article describes the Cosmos subnet-powered implementation and also includes a brief overview of other designs that were considered but not chosen. For an elaborate investigation into the properties of these other designs an inquiring reader is kindly directed to a standalone whitepaper with the same title available in the research section on our website.Note that this is an exploratory implementation and our best shot so far, not necessarily an optimal, nor is it an exclusive solution and can be augmented with alternatives described here or those we have not considered.We warmly welcome any feedback and critique.<h2>Target Properties</h2>This document specifies an approach to measuring a user’s web3 footprint in the Galactica Network (henceforth, Galactica). It is a central component of the reputation framework as it provides specific data concerning user behavior on Galactica. EVM blockchains have no direct way to access historical transaction data from on-chain smart contracts. This makes it a difficult task to calculate the reputation based on the user’s previous behavior.A successful solution is expressive, efficient, and accurate:<ol><li>Expressive enough to provide the data needed for conceivable and reasonable reputation functions such that they can be flexible enough to be specified by users’ reputation functions (e.g. ecosystem contribution, creditworthiness, long-time loyalty);</li><li>Efficient enough in terms of storage and computation to work in a decentralized and high throughput blockchain;</li><li>Accurate enough to provide meaningful data that cannot be faked;</li><li>Requires contingency options integrated into the node to provide a blockchain-wide possibility for contingent token transfers without requiring changes to the ERC20 standard;</li><li>In the limited info stored setup, the burden of standard creation needs to be decentralized. In other words, different data feeds must be able to exist around one dApp. What to store must not be left entirely up to dApp creators;</li></ol>This article first outlines the reputation function as well as the RRC, then the approaches considered are outlined and finally the current (Sub-chains) solution is presented.<h2>Reputation function and RRC</h2>Reputation functions&nbsp;are defined by dApps and users. They can either create a custom function based on the available on-chain data or reuse such functions provided by other parties. Available inputs for reputation functions are a ZKP by the user being rated and on-chain data. The ZKP is sent to the reputation smart contract, verified for ZK validity and consistency of the Merkle roots with chain data.The&nbsp;Root reputation contract&nbsp;(RRC) is a special smart contract on the Galactica blockchain. It works as a registry for reputation requirements of contingent transactions. Every address can register a minimum score and reputation function in the form of an address to the smart contract defining the reputation function. Whenever someone wants to send funds to an address, the protocol looks up the reputation requirements in the RRC to determine if the transaction is contingent. For more information please consider the Reputation Root Contract (RRC) section in the&nbsp;<a href="https://docsend.com/view/n5nnsyraaifzpvqw" rel="noopener noreferrer" target="_blank" style="color: inherit;">Galactica Network Whitepaper</a>.<h2>Approaches Considered</h2>There are various ways to measure a user’s web3 footprint and determine their reputation. Ideally, it takes the whole transaction history into account and offers expressive reputation functions while still being efficient enough to be verified by a distributed blockchain. This is a complex task with contradictory goals (expressiveness vs efficiency).An exhaustive list can be found in Table 1 — we had to forego part of them right at the outset, as they do not possess the target properties.<img src="/upload/a94a353c-2d60-41dd-8389-c4e15fcd3040_1680002307462_1_eP1lL00-4_Qk5Ow-Kc5HgQ.jpg"><img src="/upload/f7943c25-f0b7-4d47-971e-c5a47e18ff1d_1680002335229_1_VloHY1v8VoepZSv6R6vxmA.jpg"><h2>Subchains Approach</h2>While it appears challenging to implement, as it requires node development and also every validator will have to store more than just blocks, this approach is decentralized, trustless, and easy to use for everyone. As it will become clear from the information provided further in this document, this approach furthermore addresses all of the limitations described in the previous solutions considered.<h2>Cosmos Subchains</h2>Subchain is an independent network that is connected to the mainnet. The connection usually includes a bridge and technology that allows the exchange of information between the subchain and the mainnet. In this case, the IBC protocol will be utilized, allowing synchronization between the states of EVM-compatible networks. Subchains are often used to reduce the load on a mainnet by delegating specific features to them. They receive inputs from the main network, carry out computations and send the results back.It was concluded that it is beneficial to use subchains for reputation metrics calculations. The subchain reads data from the mainnet blocks through RPC, validates block hashes, calculates reputation, then submits the calculation results back to the mainnet. The first subchain will be launched by Galactica and used to calculate the reputation metric that the governance framework will utilize to determine users’ voting power.<img src="/upload/165bfb3d-f203-48e9-b59f-c8c3a8aecca2_1680002408535_0_UVd2gNPc5Wa9aDoO.jpg">Figure 2: Galactica Mainnet and the Galactica Zones/Subchains<h2>Reputation Module</h2>The&nbsp;Reputation module&nbsp;is a typical Cosmos SDK modul and is embedded at the core of Galactica Network. The on-chain reputation calculation method utilized here allows the use of the logic present in a smart contract based on the Reputation value. This logic can be used to reach a consensus among Validators based on block production results, in addition to amending Reputation values.Each Validator calculates Reputation values independently and only validates Merkle root hashes from the data they used for calculations.The module operates in two synchronization modes:<ol><li>Sync (Historical)&nbsp;— a state in which the Reputation has not yet been calculated from historical data and the Reputation is actively indexing. In this state, the Reputation value cannot be used in other smart contracts;</li><li>Live (On-head)&nbsp;— Reputation is calculated for the head block and it is possible to use the Reputation in other smart contracts and modules.</li></ol><h2>Stages of Historical Data Synchronization</h2>During historical data indexing, a Validator performs the following actions:<ol><li>Reads the subsequent block;</li><li>Validates blockchain hashes;</li><li>For each transaction:</li></ol>a. Decodes transactions and their events;b. Carries out the formation of source data;c. Carries out data aggregation by event type or another group;d. Calculates Reputation based on aggregations calculated in the past;e. Saves the result of the Reputation calculation in a smart contract.Validators store source and aggregated data off-chain; however, they keep the Merkle root hashes of that data on-chain. To add new functions which build the source data and data aggregations, special EVM smart contracts (repositories) are provided. It makes it possible to add functions that expand the functionality of the Reputation module.Utilizing multiple intermediate steps in the indexing pipeline makes storing data off-chain possible, allowing for lower on-chain storage. The smart contract that considers the reputation value is public — anyone can observe what the reputation consists of.<h2>Live Blocks Processing</h2>Live blocks processing utilizes the same algorithm as historical processing to calculate reputation metrics in every new block. It implements EVM hooks&nbsp;PostTxProcessing&nbsp;to subscribe for incoming transactions.<h2>Contingent Transactions</h2>When the live processing module receives a transaction, a check is carried out to verify its compliance with the established reputational requirements. This includes two mechanisms:<ol><li>An address on the Galactica Network can be set up with a threshold of a minimum reputation value needed by senders to be able to send funds to this address. In case the reputation of a sender is insufficient, the transaction will fail. This will work with native asset transfers as well as with erc20, erc721, and erc1155 token standards.</li><li>A smart contract may set up reputation requirements for every public mutable method. The contract needs to have a view method, containing a dictionary of:</li></ol>a. Method id;b. Reputation metric id;c. Condition;If the executor does not meet the listed reputation requirement(s) — the transaction will fail.<h2>Calculation Process</h2>The implementation of a subchain (blockchain node) includes a special Indexer specifically for on-chain events. This Indexer can collect, store, and aggregate specific events described in a&nbsp;root on-chain contract.For example, it can store and aggregate trades from multiple DEX protocols on the mainnet. The description for such logic would resemble the following:Step 1:<ul><li>List of contract addresses of these DEXs</li><li>List of trade methods from these DEXs ABIs (a list for every DEX)</li><li>List of fields which should be stored in Indexer</li></ul>Step 2:<ul><li>Using the resulting entries and a formula compute a specific value (e.g. total volume traded, number of trades, total fees paid).</li></ul>The Reputation value, which is a result of an aggregation, will be re-calculated every block by all subchain Validators following given rules.Using the Indexer, we can calculate metrics for every address, at every block. What remains is to actually calculate the Reputation. The formula (or formulas) for calculating it are located within the&nbsp;root smart contract, and Validators of a subchain will calculate Reputation based on values obtained from the Indexer, then push those values to the mainnet using IBC.The role of subchains in this process is to avoid the overload of Indexers and only store on-chain what is required for critical calculations.<h2>Delays</h2>There is a delay between events that happen on the mainnet and those subsequently delivered to a subchain. This delay may be up to N blocks in duration (subject to further testing to estimate the exact delay), meaning that even in a subchain the Reputation is delayed, and thus, unsuitable for time-sensitive operations such as flash loans.This delay may lead to a state where certain subchains may be utilized solely by specific protocol subcategories — e.g. a dedicated subchain for lending protocols. This specialization of subchains will allow them to track the interactions of a given user among themselves without delay.For example, provide undercollateralized loans to those users who have a lot of positive activity on the mainnet (delayed info) and never failed to pay for a loan (instant data, located on a subchain). Such a hybrid Reputation metric may help lending protocols merge a user’s overall score from the mainnet, with a trustless lending rating that lives on the said subchain.<h2>GalaLend Example</h2><ol><li>Alice uses lending dApps on the Galactica Network. Some of them query her dApp-specific humanID in the smart contract to identify her uniquely. (The humanID is useful in this approach as it allows the computation of a user’s reputation when their activity is split over multiple addresses.);</li><li>The lending dApps and other Galactica services usage history is aggregated and stored by the Galactica validators. Some of them are maintaining subchains and others — the mainnet. They use this aggregated data to calculate the reputation of every humanID in line with various formulas. The result of calculation — the reputation itself stored on every change in a special smart contract in the form of a Merkle tree.</li><li>When Alice wants to present her reputation, she does it on-chain. The input is a ZKP that takes Alice’s zkKYC, her humanIDs for specific dApps, and the reputation results for these humanIDs from the smart contract mentioned in point 2. The ZKP proves Alice’s reputation score without revealing her concrete address(es), humanIDs, or intermediate ratings;</li></ol><h2>Subchain economic</h2>This will be discussed in a separate article specifically dedicated to subchain economics.

The Galactica Network Reputation Framework binds other network components, namely Reputation Root Contract and zkCertificates to create a protocol capable of expressive DeSoc primitives.

Galactica Network Reputation Framework Implementation

In what follows we will give a brief overview of institutional arrangements that shape human society, argue that Sybil resistance is a prerequisite for web3 space to meaningfully mimic such arrangements on-chain, and give a deep dive into how Galactica Network’s stack enables an elaborate design space for social, economic and political institutions.

Galactica Network Institutions

With the right opsec, no privacy is sacrificed in the process of compliance. But is DeFi, as we know it, the endgame?

At the Intersection of Privacy & Compliance

Galactica Network has utilized Mr. Pauwels’ novel approach as the intellectual foundation for our development of zero-knowledge certificates. The following article defines the various concepts that make up the Guardian Node mechanism and the role of zkCertificates.

Technical Article #1: Guardians and zkCertificates

<h2>Overview</h2>Among Galactica Network’s primary value propositions is that of leveraging zkKYC for Sybil resistance thereby enabling meaningful modeling of real-world societal, financial, and political institutions on-chain. An extremely valuable byproduct of this setup is a protocol that enables regulatory-compliant privacy.<img src="/upload/b4f6d8bf-5eb0-4476-aa45-bd686fee7365_1679923290095_third article bw.jpg">Figure 1: Galactica Network overviewAs can be seen in Figure 1 above, the technological core enabling Galactica Network, aside from its foundation of EVM smart contracts, rests upon four key technological pillars;&nbsp;zkCertificates, the Reputation Root Contract, Contingent Transactions, and Guardians - each of which will be explained in this article.These are innovations distilled from relatively recent developments within the Web3 space, and as we’ll explain in the following sections, they are the keystones enabling Galactica Network.<h2>zkCertificates</h2>Zero-knowledge Certificates (zkCertificates) find their intellectual roots in Peter Pauwels’s whitepaper; “<a target="_blank" rel="noopener noreferrer nofollow" href="https://eprint.iacr.org/2021/907.pdf">zkKYC: A solution concept for KYC without knowing your customer, leveraging self-sovereign identity and zero-knowledge proofs</a>”&nbsp;in June of 2021, which introduced the idea that Zero-Knowledge cryptography could in fact be applied to the realm of KYC and AML/CTF. The whitepaper; “<a target="_blank" rel="noopener noreferrer nofollow" href="https://deliverypdf.ssrn.com/delivery.php?ID=301002120071071117064123071097101105032027023067011038006026015072078075068030102101021018111115103010043002026091111122097088098074087007053117102122002097003072091026021066069122022093069085070014010096003024025030070029010107091093006006081115069089&amp;EXT=pdf&amp;INDEX=TRUE">Decentralized Society: Finding Web3’s Soul</a>”, developed the link between soulbound tokens (SBTs), initially discussed by Vitalik Buterin by his blogpost;&nbsp;“<a target="_blank" rel="noopener noreferrer nofollow" href="https://vitalik.ca/general/2022/01/26/soulbound.html">Soulbound</a>”, and how they can enable forms of Sybil resistance and are instrumental to catalyzing deeper societal substrate across web3 protocols (i.e. enabling decentralized&nbsp;societal&nbsp;institutions). The whitepaper has rapidly become a principal work when discussing the future of Web3 governance and is a vital piece of literature underlying the creation of Galactica Network.Galactica Network’s zkCertificates are non-transferable NFTs with arbitrary metadata that come with an option of selectively disclosing said metadata through the use of zero-knowledge cryptography. zkCertificates can be implemented in a variety of ways, some vanilla, and some more exotic in nature, the lowest-hanging fruit being the aforementioned zkKYC.One of the key applications of zkCertificates is that of Galactica Network Citizenship; an SBT that once obtained grants the owner&nbsp;rights&nbsp;and&nbsp;responsibilities&nbsp;within the Galactica Network. The only condition that is needed to be eligible for Citizenship is obtaining a zkCertificate by passing Galactica Network’s Guardians process.Beyond Citizenship, zkCertificates can be utilized for a variety of other applications. zkCertificates can be implemented in nuanced applications such as zk-Diplomas, which can store detailed records of a student’s degree, scores, classes, and much more; all of which can be embedded into their Galactica Citizenship or another soulbound token and then selectively disclosed.Leaning into more advanced areas, the encrypting of medical data records and other forms of PII/PHI, voting data, government records, and citizen data (think taxes, property titles, etc.) via zkCertificates. It fits use cases such as machine learning algorithms that can&nbsp;verifiably&nbsp;be used and paid for directly on-chain without exposing the data sets used to train the models, nor the models themselves. zkCertificates are further explained in the Whitepaper, Appendix I —&nbsp;Galactica’s Zero-Knowledge KYC Design, in the&nbsp;Further Considerations&nbsp;section.<h2>Guardians</h2>The second technological pillar of the Galactica Network is its native Guardians, which exist to facilitate among other things KYC within the Galactica Network ecosystem. Users can submit their KYC requests, then these requests are sent to a set of Guardians that verify user documentation; either approving or disapproving their authenticity by cryptographically signing the user’s account.<img src="/upload/0666cb10-7700-4ee3-a39a-71bcf66a6c25_1679923712737_Guide.7-min (1).jpg">Figure 2: Initial KYC steps, incl. privacy aspectsThe Nodes handling these activities are whitelisted at the inception of the network and will include large institutions, such as exchanges and large wallets.The KYC data is stored in multiple locations:<ol><li>At the KYC centers’ back office systems, where the data is entirely off-chain;</li><li>And on users’ personal devices, (mobile, desktop, or otherwise);</li><li>In an encrypted manner on-chain available to the particular user.</li></ol>More importantly, however, is that by design KYC providers cannot associate a set of documents with the user’s on-chain account. In other words, while a KYC provider knows that it has checked the authenticity and veracity of KYC documents, (this much is known to anyone as every KYC provider runs its own Node), the link associating an account with an off-chain KYC record is encrypted. This result is achieved through applying MPC techniques and several custom SNARK libraries, which are open-source and are used extensively in the Galactica KYC SDK.<img src="/upload/1572dad4-f467-4d97-91d8-7fa015e4767d_1679923686927_Guide.7 (1)-min.jpg">Figure 3: KYC Record Creation and Verification.Documents at the KYC center and the account it belongs to are linked in such a manner that they can be decrypted through Shamir’s secret sharing scheme with at least m of n notes made available to the responsible authorities. For example, there are two notes with an account, one note with a regional enforcement agency (police department or similar), and one note with the KYC provider. There could be an account with three notes, the first two the same as in the previous example and the third with the Galactica foundation.As a final note, users’ KYC data feeds into a zkCertificate registry smart contract and zkCertificates are issued by KYC centers. As noted the KYC data is stored on the user’s device; and, after zkCertificate is created, that device can be used for ZK proof generation for selective disclosure. This is how users can interact with protocols and perform said selective disclosures to verify specific aspects of their account with the smart contract or DApp. A deeper analysis of Guardians can be found in the Whitepaper Appendix I —&nbsp;Galactica’s Zero-Knowledge KYC Design, in the&nbsp;Overview of the Technical Design&nbsp;section.Consider the example of AML proofs — quick generation of proofs that all the accounts registered under one’s name have only interacted with liquidity of KYC’ed users without revealing any other information. One can generate programmable proofs of compliance without giving up one’s privacy;<h2>Reputation Root Contract (RRC)</h2>The Reputation Root Contract (RRC) is a protocol primitive that, when fed a user-defined function that takes on-chain data as input, outputs a unique&nbsp;Reputation Score&nbsp;for every account. This contract can also take a user’s ZKP as additional input to prove statements about data hidden in zkCertificates. This ZKP is only needed as additional input if the reputation function depends on selective disclosures of personal data hidden in zkCertificates.In layman’s terms, it slices the web3 footprint of a persistent identity to generate custom user-defined (or DApp-defined) reputation scores. In this fashion, DApps (and even protocol governance itself) can be designed to reflect the&nbsp;merit&nbsp;rather than the mere number of tokens held.<img src="/upload/85e2948b-273d-40cd-ad08-b7b61e9714a7_1679923792434_Guide.7 (2)-min.jpg">Figure 4: Reputation Root ContractAn important note is that there are two distinct forms of reputation functions:<ol><li>The first type depends only on public, on-chain data, this can be calculated by everyone for anyone because it uses public data. The function works for only one address and only with the data the user has already publicly disclosed on-chain.</li><li>The second type partly depends on private data hidden in zkCertificates, it can use information hidden therein to include KYC details, education certificates, links addresses. But it can only be computed by a person for himself and needs a ZKP for on-chain verification. In other words: for reputation functions of the second type, one can not get the reputation score&nbsp;directly. Instead one has to prove their reputation score with ZKPs to keep the data private.</li></ol>Reputation is a key ingredient to Galactica Network’s value proposition. The RRC’s unique malleability affords projects the ability to cultivate a specific user base for each of their products or governance systems.<h2>Contingent Transactions</h2>With the importance and use of the RRC established, the ability to whitelist and screen users or interactions allows much greater scope for innovation in the field of user interactions; Galactica Network, and many others, denote this area as “Contingent Transactions”, and any account may utilize the output of the RRC, to create their own sophisticated rulesets when interacting with other users of Galactica Network.<img src="/upload/263b8971-28e7-4143-936c-2ed032c6f719_1679923828386_Guide.7 (3)-min.jpg">Figure 5: Example, simplified RRC interactionIn more digestible terms contingent transactions can be understood in several key ways:<ol><li>First, the output of the RRC can be used to determine whether an account is allowed to submit a transaction to another account. An example could be a KYC’ed user can interact with leveraged DEX only after proving that one is: (a) over 18 years old and (b) is not a resident of a prohibited jurisdiction.</li><li>Secondly, the inner logic of a decentralized application (DApp) can be conditioned upon the score produced by the RRC to enable specific functions, products, and more. With that in mind, scenarios where Guardians approved users are allowed to borrow at a 90% collateral ratio, while non-approved users need to post 200% collateral, become feasible.</li></ol>Contingent transactions have use cases beyond the scope of the financial interactions detailed above; they are capable of supporting extremely niche use cases creating space for more complex rules of interaction. While seemingly trivial at the outset, the significance of contingent transactions cannot be understated, especially when combined with other primitives discussed above. More details on contingent transactions can be found in the Whitepaper in the&nbsp;Contingent Transactions&nbsp;section and in Appendix II’s&nbsp;Galactica’s Reputation Framework Design&nbsp;section.As a small disclaimer for this section, Contingent Transactions are still very much WIP. The ultimate design is subject to change.The four technologies outlined in this article are both the technical basis of all mechanisms found on the Galactica Network, and the pillars upon which its institutions, derivative institutions, and ideas that guide the protocol rest. zkCertificates, the RRC, Contingent Transactions, and Guardians are the framework that will allow the teams building on Galactica Network to unlock the full potential of what the protocol has to offer.<h2>Case In Point</h2>The authors of a recent article [<a target="_blank" rel="noopener noreferrer nofollow" href="https://ramaonhealthcare.com/privacy-protecting-regulatory-solutions-using-zero-knowledge-proofs-full-paper/">1</a>] by a16z on privacy, regulation, and ZKPs note:“Reconciling the privacy needs of users and the informational and national security needs of regulators and law enforcement is both possible and necessary.” p. 2In this sense, the&nbsp;<a target="_blank" rel="noopener noreferrer nofollow" href="https://medium.com/galactica-network">articles</a>&nbsp;released so far as well as the remainder of the&nbsp;<a target="_blank" rel="noopener noreferrer nofollow" href="https://galactica.com/research">documentation</a>&nbsp;provided, hint, among others, that there is a practical possibility to meet the needs of users and satisfy the requirements of regulators alike.For example, compliant privacy roll-ups and DApps whereby users can retain the privacy of transactions without compromising compliance. If a privacy roll-up is accessible exclusively to KYC’ed users and supports the generation of arbitrary proofs about transactions settled therein (e.g. one’s only counterparties are one’s employees and all transfers are &lt;$10,000), it manifests a full privacy solution with effective AML proofs. With that in mind our&nbsp;Guardians&nbsp;solution introduces a more nuanced, pragmatic check of deposits and withdrawals. Users’ identities can be verified and cross checked with sanction lists, or rulesets that prohibit or track specific users without locking users into specific addresses. Thus they can still use fresh wallets to improve privacy while still proving compliance. The figure that follows illustrates graphically the example above:<img src="/upload/01851a71-05c8-43cd-884b-447d1125803c_1683024436383_Guide.7 (1).jpg">﻿Figure 6:&nbsp;Compliant Privacy Interaction Example.The strength of our approach is found in its generality. Our Guardians system, reputation and selective disclosures can not only be applied to the aforementioned deposits, withdrawals and retroactive transaction proofs, but also during each on-chain transaction. This can provide&nbsp;proactive compliance, even for activities that stay inside the on-chain ecosystem.

Among Galactica Network’s primary value propositions is that of leveraging zkKYC for Sybil resistance, thereby enabling meaningful modeling of real-world societal, financial, and political institutions on-chain. An extremely valuable byproduct of this setup is a protocol that enables regulatory-compliant privacy.

Galactica Network’s Key Technological Pillars

<h2>Introduction</h2>Galactica Network is first and foremost, a Cypher State.In our previous article, we explained several primitives core to the concept of a&nbsp;Cypher State. Let’s briefly recoup.The structural fabric of human society is built around norms and institutions that all have us, humans, as agents. Concepts, such as families, communities, social clubs, celebrities, governors, employees, etc. are similar in their inherent difficulty of transcription to a virtual space. This is especially true for blockchain protocols that have pseudonymity as one of core concepts, ubiquitous across virtually any L1 protocol out there. In other words, today blockchain protocols lack a primitive or a set thereof that is capable of accurately representing the nuance, complexities, and sheer dynamism of human relationships.As a result, humans cannot be meaningfully represented on-chain.While the emergence of DeFi has been a massive leap forward, without the ability to model humans, contemporary web3 space is limited to only the most trivial societal and political institutions. Modeling many concepts, such as e.g. quadratic voting remains non-trivial to say the least and in most cases requires reliance on web2 platforms.DeSoc is the term used to denote the web3 space built around souls — web3 persistent identities each characterized by their web3 footprint.<ol><li>A human in the blockchain space could be referred to as a&nbsp;Persistent Identity.</li><li>The multitude of interactions between any such identity and the rest of the protocol could then be called one’s&nbsp;Web3 footprint.\</li></ol>It is trivial to demonstrate that persistent identities can exist on the protocols with high cost of a Sybil attack. In a self-referential relationship, persistent identities themselves will increase this cost as time goes by and their web3 footprint becomes more complex.It follows that Sybil resistance (and turing complete virtual machine) of a protocol enables persistent identities and web3 footprint which are in turn the prerequisites for complex societal concepts to be meaningfully represented on-chain.We argue that historically the most notable societal primitive defining the most meaningful and rich set of a person’s rights and responsibilities is that of the Citizenship of a nation state. A protocol sufficiently feature rich to instill meaning into the concept of Protocol Citizenship can be called a Cypher State.Before proceeding to elaborate on the nature of protocol Citizenship, we would like to introduce the content map for the first set of papers released by Galactica Foundation. The following graph is simultaneously, a schedule of the content we will be releasing in this series of articles, and a mind-map of the relationships between concepts we introduce in them. We have started by introducing the conceptual framework (leftmost part) underpinning protocol Citizenship and will eventually explain how Galactica Network approaches the practical implementation of it.<img src="/upload/6844875e-cdf5-44ea-b078-2a9265ccbbba_1679922875215_second article bw.jpg">Figure 1: Galactica Network Concepts at a glance<h2>Web2: a data dystopia</h2>Explaining the relationship between citizenship, wealth and power distribution and Web2 would require a deep inquiry into the very nature of the state. Such inquiry is available in the Cypher Capital paper published by Galactica Foundation. For the purposes of this article we will resort to a bare bones summary.<ol><li>Capitalistic economies eventually degenerate into highly concentrated power and wealth structures.&nbsp;Capitalistic economies existing within the framework of representative democracies and Web2 technological stack fall short of being meritocratic in both power and wealth distribution, and fail to be inclusive in wealth distribution.</li><li>Inflation feeds those having access to capital markets while inflating away the wealth of the people.&nbsp;The traditional monetary institutions exist within the framework of Keynesian, (i.e. inflationary) paradigm. Within most of the existing nation states, inflation is a mechanism of wealth redistribution — inflating away the real purchasing power of wages, while inflating asset prices.</li><li>Data economy, the infrastructure that ties contemporary society together data monopolies of unprecedented scale and feeds off the deprivation of privacy.&nbsp;In the Information Age we see Web2 as the underlying infrastructure that, while allowing massive informational and thus capital efficiencies, it also is an architecture that enables surveillance — eroding privacy.</li></ol><h2>Web3: a financial dystopia</h2>Current ‘decentralized’ protocols governing DeFi today are indeed elite clubs of VCs and large for-profit entities as all crypto projects today solve Sybil resistance only with capital-gating mechanisms where your vote equals your stake. It leads to the centralisation of voting power, plutocracy and indifference of communities to decision making. — Victor, Co-Founder of HumanodeWeb3 is an idea and a very powerful one — use cryptography to create the brave new world of fairer institutions, societal, economic, political and monetary. Today, however, its actual implementation is largely a parody of the ideals it is built upon.<ol><li>We know that the economic and political systems are the pillars upon which mankind’s evolution rests. We have established that in their traditional ‘physical’ implementation, capitalism and representative democracies create highly concentrated power and capital structures&nbsp;<a href="https://www.the-american-interest.com/2012/02/14/centralization-and-the-capitalist-market-economy/" rel="noopener noreferrer" target="_blank" style="color: inherit;">[1]</a>, which, when formed, lock the system in a self feeding flywheel of adverse distributional effects. What about Web3? Today, it’s mostly about DeFi.</li><li>Quoting DeSoc, “…[Web3] aspires to transform societies broadly, rather than merely financial systems. […] If Web3 eschews persistent identities, their patterns of trust and cooperation, and their composable rights and permissions, we see, respectively, sybil attacks, collusion, and a limited economic realm of wholly transferable private property — all of which trends towards hyper-financialization.”&nbsp;<a href="https://papers.ssrn.com/sol3/DisplayAbstractSearch.cfm" rel="noopener noreferrer" target="_blank" style="color: inherit;">[2]</a></li><li>Today DeFi, while arguably successful in evading explicit centralization, manifests its own dystopia, and is highly capital inefficient in that&nbsp;<a href="https://time.com/6158182/vitalik-buterin-ethereum-profile/" rel="noopener noreferrer" target="_blank" style="color: inherit;">[3]</a>. Without an explicitly modeled societal layer, DeFi is a system powered by the most predatory manifestations of capitalism with rent-seeking, collusion, and other forms of power abuse that ends up being no better than traditional markets in its tendency towards the ultimate state of monopoly.</li><li>In short, in its politeconomic properties, DeFi is largely a replica of the centralized system it’s been created to overshine and eclipse — DeFi suffers the same adversities in power and wealth distribution.</li></ol><h2>The Institute of Citizenship</h2>In the end all we have now is just a derivative of equity but in a cryptographic form where one stakeholder is able to significantly influence any decision. This is not what we envisioned in public permissionless networks open to everyone. And this is certainly not the way of decentralized coordination of public goods. — Victor, Co-Founder of HumanodeWe echo Vitalik’s DeSoc [<a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4105763" rel="noopener noreferrer" target="_blank" style="color: inherit;">4</a>] and argue that in order to skirt hyper-financialization, Web3 ecosystems need to strive to develop primitives enabling societal substrate of DeSoc. These primitives, however, will enable more than DeSoc — Reputation Augmented DeFi, Meritocratic UBI, DePol and other concepts we will explain in later articles. We argue that the institution that by its very nature is positioned on the intersection of all of them is that of Protocol Citizenship.Albeit Citizenship is a term without precise definition that has different interpretations both in time and across nation states, we will venture to give it a non-exhaustive definition that would suffice for the purposes of this article. Citizenship links “a person with the state” and gives people a universal identity — as a member of a nation — besides their identity based on ties of ethnicity or an ethnic self.As we will illustrate in what follows, Web3 protocols in the presence of persistent identities can be programmed to model the societal, political and economic fabric of a society. We argue that the institute of citizenship is instrumental in explicitly defining the modes of power and wealth distribution.When there are rights and responsibilities to enjoy and honor respectively, that come as a result of explicitly modeled institutions defining the distribution of power and wealth within a crypto-economic protocol, we can speak of the notion of Protocol Citizenship.As we have established above, Sybil resistance of a protocol enables complex societal concepts to be meaningfully represented on-chain. Historically, the most notable societal primitive defining a meaningful and rich set of a person’s rights and responsibilities is that of citizenship. A protocol sufficiently feature-rich to instill meaning into the concept of Protocol Citizenship can be called a Cypher State.Figure 2: Adequate Sybil resistance enabling the existence of Persistent Identities<h2>The Cypher State</h2>The next wave of crypto adoption needs a new narrative — more inclusive and less capital dependent. Money is just one side of the equation, participation of motivated individuals outside the core team of developers is what we lack today. — Victor, Co-Founder of HumanodeOwned and governed by its Citizens, Cypher State is a protocol with explicitly modeled social and political institutions.The definitions and principles that will be described in the following paragraphs will provide a firmer grasp and deeper understanding of the concept of the Cypher State and why it is the central building block of the Galactica Network.<h2>Definitions</h2><ol><li>Cypher Capital&nbsp;is the aggregate economic and political capital generated within and available to the agents of a decentralized technoeconomic ecosystem;</li><li>Cypher State&nbsp;is a decentralized technoeconomic ecosystem defined by a set of persistent identities, smart contracts, and their endowments where the distribution of Cypher Capital is governed by explicitly modeled societal, economic and political institutions;</li><li>Cypher State Citizens&nbsp;are persistent identities within the Cypher State that have contingent claims on the Cypher Capital generated therein;</li><li>Galactica Network is a&nbsp;Capitalistic Cypher State, characterized by a capitalistic economic setup and a laissez-faire representative meritocratic political framework, optional citizenship and hybrid (capitalistic/socialistic) institutional framework.</li></ol><h2>Cypher State Principles</h2><ol><li>Deterministic inflation and dilution by merit: Economic Cypher Capital&nbsp;distribution process integrated into a tiered inflation schedule where Citizen’s ultimate inflation induced wealth dilution is a function of one’s endowment (i.e. stake) and merit, as proxied by reputation;</li><li>Sublinear returns to wealth, linear to merit: Political Cypher Capital&nbsp;of a Citizen is driven by merit and endowment. It’s linear in merit and sublinear in endowment;</li><li>Merit as a form of Cypher Capital: Reputation, a slice of Citizen’s web3 footprint,&nbsp;is an evolving metric. Being an input into one’s&nbsp;Voting Power, Reputation is a form of Citizen’s Cypher Capital;</li><li>Non-alienation of public goods IP: Inflation-funded Public Goods&nbsp;with explicitly modeled generation of on-chain Intellectual Property (IP) and non-alienation of IP created as a result of developing public goods;</li><li>Explicit public/private goods transition:&nbsp;Explicit segregation of public and private goods, and explicit modeling of public/private goods transition. Citizens have a claim on the Cypher Capital generated by innovation through&nbsp;Universal Basic Income&nbsp;(UBI) or alternative distributional mechanisms;</li><li>Quadratic reputation-augmented UBI: UBI’s composition is a diversified innovation portfolio. Cypher Capital is strictly increasing in value in the long term, the more innovation is produced within the network. This innovation, however, needs to remain, at least partially, as the economic capital of its Citizens.</li><li>No compromise between compliance and privacy:&nbsp;Citizenship is optional to use the network. Zero-knowledge and MPC cryptography to shield sensitive information and choices of any Citizen. Cypher State is a superstructure built on top of nation states and using its infrastructure as the foundation for Sybil resistance.</li></ol>Sybil-resistance, which is the ability to define whether there is one human behind the web3 account, maintaining privacy, is the key technology to unlock decentralized societies and broader on chain coordination.We at Humanode have been building privacy enabled biometric Sybil-resistance to power blockchains free of whale control and give this tech to other projects following the thesis. Finally, the crypto industry is ready to realize the need for a change, and Galactica is among the first ones to step into the new game. — Victor, Co-Founder of Humanode

Galactica Network is first and foremost, a Cypher State.

Protocol Citizenship and the Cypher State

<h2>The Bitcoin Paradigm</h2>Bitcoin is a trustless, decentralized protocol capable of settling transactions using a monetary unit with infinite divisibility, that is outside of the control of any jurisdiction, having deterministic monetary policy that makes it scarce and, ultimately, deflationary over time. Reflecting the ideas of the Austrian school in its design and challenging the Keynesian dogma of monetary interventionism, the genesis of Bitcoin has marked the beginning of one of the boldest experiments in human history — that of creating an alternative to the fiat world order.<img src="/upload/82590387-f5e4-41aa-840a-c23fb733cc56_1679922656491_IMG_20230324_155048_942.jpg">Before long, disparate people arrived at the idea that an independent transactional ecosystem has the potential to not only disintermediate the global settlement infrastructure, but ultimately disrupt the very foundations of the global political status quo. Power and capital distributions on a global scale are neatly intertwined, and both require the ability to control the monetary apparatus.In less than a decade since the genesis block, bitcoin has become the big idea, and the beating heart of financial counter culture.There has been a problem, however, that any&nbsp;contingent&nbsp;transactional logic using Bitcoin required centralized intermediaries — exchange, banking, insurance and the entire plethora of other financial institutions and instruments offered in the traditional financial system could not be replicated or utilized purely within the realm of the Bitcoin protocol. No ledger can have meaning in isolation, and so there came demand for intermediaries starting with those enabling the most essential functions of escrow and price discovery, eventually ballooning into a system of intermediaries somewhat resembling those powering the fiat-fueled global financial system.Exchanges were the trailblazers. Run on centralized servers; cryptocurrency exchanges have, in principle, contradicted the very ethos of Bitcoin, however, this has not prevented them flourishing in the decade since Bitcoin’s genesis block.And then came Ethereum, and with it the inevitable emergence of DeFi.<h2>The Ethereum Paradigm</h2><img src="/upload/255e7556-fc2b-486c-9dd8-a61d05f6b8bf_1679922683746_IMG_20230324_155048_421.jpg">Upon the integration of a Turing complete virtual machine directly into the heart of the protocol, there came Ethereum, and with it, the ability to program arbitrary transactional logic disrupting the centralized intermediaries that had been dominating the cryptocurrency space.With Ethereum, blockchain’s range of applications has transcended that of pure cash and p2p transactions. The key output of Ethereum’s immense innovation is the value chain of&nbsp;programmable&nbsp;digital money and composable open-source finance.The applications of Ethereum’s smart contracts are many and varied, however, for the purposes of this article we shall focus on the two most notable ones:a. Financial instruments: DeFi primitives: a vault, an option, a pool, a liquidity token, etc.,b. Economic and financial institutions: DeFi applications composed of the primitives and custom additional logic. Replicating and transcending the economic fabric that keeps the world turning, Ethereum’s economic and financial institutions are lending/borrowing protocols, DEX’s, yield optimizers, you name it.The ability to program custom instruments and institutions has enabled us to imagine a new global financial system: transparent and open-source, democratic and inclusive, one that would exist entirely on-chain creating alternative wealth distribution profiles and ultimately prosperity for billions of people around the world. At least that was the narrative, and without doubt, many would argue Ethereum has lived up to these lofty goals to a far greater extent than many would have expected.Today Ethereum remains the most vibrant blockchain ecosystem with arguably the most ambitious and far reaching use cases in the space, and by far the fastest pace of innovation. Other entrants into the space have mostly limited their attempts to challenging the technological design of Ethereum in an effort to capture some of its market share.Our thesis is that these efforts may simply be misguided — rather than challenging the technological foundation of Ethereum, the next wave of protocols should expand the very societal fabrique that blockchain protocols are capable of representing.<h2>The Cypher State</h2><img src="/upload/59da2fe9-979e-425b-b5e7-1cc2d312f486_1679922707280_IMG_20230324_155048_289.jpg"><h2>Societal Substrate and Sybil Resistance</h2>“Today’s societal building blocks (e.g. families, societies, social clubs, celebrities, governors, governess, employees, employers, etc) have proven to be challenging to transcribe into the virtual space (even more so for blockchains) without a primitive or a set thereof that would represent people themselves and the vast number of mutual relationships by which they are interconnected.”<a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4105763" rel="noopener noreferrer" target="_blank" style="color: inherit;">[1]</a>Protocol’s Sybil resistance are mechanisms enabling direct mapping between real world persons and internet identities.Web2 applications solved the problem of Sybil resistance by collecting users’ personal data, and imposing draconian compliance standards. An obvious requirement to impose such standards is having access to users’ data (that conveniently can be monetized and as such is the critical resource of the data economy and the fuel of bigtech business models). Thus, Web2 Sybil resistance came at the expense of extreme centralization and virtual elimination of users’ privacy.Most contemporary Web3 protocols record transactions in a pseudonymous fashion; anyone with an internet connection can create an infinite number of wallets on virtually any blockchain.&nbsp;People cannot be modeled on-chain.&nbsp;Pseudonymous by design, Web3 is fundamentally unable to model non-trivial societal primitives: celebrities, families, employers, experts, diplomats and ambassadors, criminals and citizens are all meaningless on-chain as a result.We come to a very important argument, and, so, want to summarize the last two paragraphs, highlighting the core idea: Web2 has sacrificed privacy on the altar of Sybil resistance, somewhat incentivized by the rents extracted from the data economy. Web3 has done the exact opposite. In the case of Web2, the cost is digital dictatorship, censorship and adverse status quo we all know too well from our everyday experience. In the case of Web3, the cost has been the drastically reduced complexity of societal substrate that could be modeled on-chain.&nbsp;People cannot be modeled on-chain.But if such representation came into being, what would we call it and what would be the implications? In what follows we will try to demonstrate that this rabbit hole is far deeper than it initially lets on.<h2>Persistent identities and Web3 footprint</h2>First, let us introduce some important definitions:a. Following the notation established in a better article, a human in the blockchain space could be referred to as a&nbsp;Persistent Identity.b. The multitude of interactions between any such identity and the rest of the protocol could then be called one’s&nbsp;Web3 footprint.Let’s unpack the relationships between the two. In this context, ‘persistent’ means that a protocol representation of a human, the private key, corresponds to a real world person or identity and that such on-chain identities are costly to duplicate and this cost increases over time. But why would the cost increase in time? It is one’s Web3 footprint that would define this on-chain identity and naturally, this footprint increases in size and complexity as the time passes making it harder to replicate or tamper with.Is there a more intuitive way to define the Web3 footprint? Perhaps bring it closer to something familiar from the off-chain world?There is, and it’s the concept of reputation that is semantically closest in our view.Let us reiterate: the Persistent Identity is defined by its Web3 footprint — the relationships between an account, other accounts and the system itself. Through one’s Web3 footprint, users’ impact on the network can be quantified by other users, thus defining a virtual correspondence to real-world concept of reputation.Protocol’s Sybil resistance, Persistent Identities and Web3 footprint together enable non-trivial societal institutions to exist entirely on-chain — in a similar fashion to how EVM’s arbitrary transactional logic enabled the emergence of economic institutions in what’s today known as DeFi.<h2>Citizenship and the Cypher State</h2>Sybil resistance of a protocol enables complex societal concepts to be meaningfully represented on-chain. Arguably, the most important societal construct defining the most meaningful and rich set of a person’s rights and responsibilities is citizenship. A protocol sufficiently feature rich to instill meaning into the concept of on-chain citizenship can be called a Cypher State. At least this is one of the definitions.Galactica Network is first and foremost, a Cypher State.

Sybil resistance of a protocol enables complex societal concepts to be meaningfully represented on-chain. Arguably, the most important societal construct defining the most meaningful and rich set of a person’s rights and responsibilities is the citizenship. A protocol sufficiently feature rich to instill meaning into the concept of on-chain citizenship can be called a Cypher State. Galactica Network is first and foremost, a Cypher State.