CEOs who have turned down plans to optimize their organization using Blockchain or Smart Contracts because of the risks they pose, need not worry as much any more. Sagewise, a Los Angeles based smart contract infrastructure startup, has raised $1.25M in seed funding to develop an SDK and a dispute resolution marketplace. Wavemaker Genesis led the round with participation from Ari Paul (Blocktower Capital), Miko Matsumura (Gumi Cryptos) and Youbi Capital among others.
A Wise Origin
The two co-founders, Amy Wan and Daniel Rice, are accomplished in their respective fields. Amy, an attorney by training, started her career with the federal government before moving into the startup world advising companies on legal and regulatory issues. Daniel Rice is a techie who has launched over 20 products and has experience in finance, distributed ledgers and cryptocurrencies.
Amy noticed that with ICOs getting hacked, founders and investors were losing money and were helpless. Both these parties accepted such events as an intrinsic problem with the Blockchain and risk of participating. It was clear to her that Blockchain would never take off as a mainstream tool if people were randomly losing money. She called up Daniel to discuss the need for dispute resolution infrastructure.
At that time, Daniel was the CTO at Totum Risk, a risk management and analysis software for financial advisors and had been working in the crypto space via a meetup he started in 2014 focusing on the development side. With his exposure to risk and Blockchain, he was parallelly thinking about the same issue from the developer’s side. Realizing they were thinking about the same problem from two different angles, they started Sagewise in 2017.
Sagewise SDK and Dispute Resolution Marketplace
Sagewise aims to create dispute resolution infrastructure in the Blockchain ecosystem. There are three parts to their services – contract notification and monitoring service, freezing of contracts and dispute resolution marketplace. They have developed a Software Development Kit (SDK) which allows smart contract creators to embed Sagewise’s services into the contract.
With the contract notification and modification service, modifications to the contract can be made with access to previous versions of the smart contract. Once both parties accept the modifications, the new contract comes into force. If a party feels the intent of the contract isn’t being met, the smart contract can be frozen. Should the parties fail to arrive at a solution, they can proceed to Sagewise’s dispute resolution marketplace.
Based on the nature of the contract, the redressal mechanism can either be automated or taken to a human arbitrator. At the beginning of the contract, the parties can choose the person to whom the details of the contract will be sent to for resolution in the event of a dispute. Certain contracts with large values may require domain specific knowledge or certain skill sets to resolve the dispute. The vision for the marketplace is to have listings like that of Yelp or Amazon of possible arbitrators such as lawyers, judges, and other professionals.
The Tech Basics and Sagewise Impact
Blockchain is essentially a method of recording transactions in a decentralized way. The rise of such recording mechanisms have given way to new types of organizations that are completely run on code (smart contracts) called Decentralized Autonomous Organizations (DAOs). Smart contracts are contracts in the form of softwares where the terms of the contract are coded and executed automatically. These methods provide a high level of security and trust due to transaction immutability. While smart contracts are gaining popularity, they are increasingly concentrated in the cryptocurrency sphere as numerous challenges prevent its mainstream adoption.
The rigidity of the system as it is coded and immutable is one of the biggest challenges preventing mainstream adoption. Issues such as coding bugs, security vulnerabilities and an inability to amend, modify or terminate contracts lead to other risks. There have been instances where contracts worth hundreds of millions of dollars have been locked up or withdrawn by hackers. In the case of an enterprise, this could mean the enterprise losing a significant amount of money. The benefits that Blockchain and smart contracts don’t outweigh the risk.
The scenario we are in is very similar to where the world was in the late 90s with the rise of e-commerce. Customers had reservations about transacting on e-commerce platforms using credit cards. Once e-commerce platforms such as eBay and Amazon brought in institutional arrangements by way of dispute resolution mechanisms, trust and confidence in the system increased.
The Blockchain ecosystem is at a similar juncture where there is a need to have governance mechanisms that help build confidence and trust in the system to help proliferation. Sagewise adds a layer of protection by enabling parties to modify contracts, freeze contracts to cope with the dynamic business environment and seek redressal in a resolution marketplace. Contracts need to be flexible enough to cope with changes in the business environment to ensure that the intention of the contract is fulfilled. In a globalized world, cross-border transactions have jurisdiction issues and the dispute resolution marketplace provides an alternative.
A Sagacious Prophecy
Sagewise is still in their development phase, beta testing with partners and rolling out additional parts of the service. The most recent roll out has been of Blokusign, a blockchain based digital signature application. The full platform is expected to be up and running by the end of the year or early next year. While Ethereum was the first platform on which Sagewise launched, they have also started working on Hedera Hashgraph and are open to other platforms as well.
While Sagewise isn’t the only startup trying to solve this challenge with the likes of Quantstamp and CertiK focusing on vulnerabilities in the smart contract, Sagewise goes beyond to create a layer of protection in the smart contract itself. Kleros is developing a ‘justice protocol’ to solve this challenge.
Sagewise is currently focusing on five use cases – supply chain, financial services, digitized assets, consumer marketplaces and ICOs. These are high impact areas where solving smart contract challenges could lead to high adoption.
Smart contracts and DAOs hoped to reduce instances of opportunism by reducing the human element. However, there is a need for human control over the system and selective human intervention (dispute resolution) to build confidence in the system for mainstream adoption. Sagewise is trying to strike a balance between the two while accommodating for transactional necessities. Platforms with embed safety nets in their architecture will differentiate themselves in the marketplace and facilitate mainstream enterprise adoption.