πŸ™†β€β™€οΈCensorship Resistance

How Synths and Smart Money Ensure Censorship Resistance

All collateral for Synths in V1 is securely held with institutional-grade "Off-Exchange Settlement" providers at all times. This ensures that at no point is the collateral deposited on any exchange, protecting it from any potential exchange failures.

Umoja leverages Off-Exchange Settlement (OES) providers for the safekeeping of assets backing Synths. This approach allows Umoja to manage collateral with centralized exchanges while minimizing the unique risks associated with each exchange.

Using OES providers introduces a technological reliance but doesn't shift the counterparty risk from the exchange to the OES provider. Typically, OES providers, especially those not employing a Multi-Party Computation (MPC) solution, secure funds in a special trust to protect them from the provider's creditors, ensuring that in the event of the provider's failure, the assets remain safe and not subject to custodian credit risk.

Umoja prefers non-US-based OES providers, considering they're a safer alternative to holding funds in exchanges, US bank accounts, or investing in treasury bonds. This choice reflects a strategic move to mitigate censorship and other regulatory risks.

The Umoja Protocol, under the governance of the Cayman-based Umoja Foundation, operates entirely offshore without US partners, prioritizing regulatory compliance and minimizing US regulatory engagement.

In essence, while relying on OES providers might seem more centralized compared to on-chain solutions, it presents a significantly lower censorship risk compared to alternatives like on-chain stablecoins backed by US Treasuries. Historically, these custody providers have been secure, without losing any user fundsβ€”a stark contrast to the billions lost in DeFi and centralized finance (CeFi) hacks in the previous cycle.

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