The Ethics and Social Impact of Your DeFi Portfolio

Detailed Instructions

Begin by extracting a complete list of all smart contract addresses your wallet has interacted with over a defined period (e.g., last 90 days). This requires querying the blockchain for all transactions from your public address. Use a block explorer API or a library like ethers.js to programmatically fetch this data. The goal is to move beyond token symbols and understand the underlying protocol infrastructure.

• Sub-step 1: Export Transaction History: Use a script to call an RPC node or a service like Etherscan's API. For example, to get normal transactions for an address on Ethereum:

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const apiKey = 'YOUR_ETHERSCAN_API_KEY';
const address = '0xYourWalletAddress';
const url = `https://api.etherscan.io/api?module=account&action=txlist&address=${address}&startblock=0&endblock=99999999&sort=asc&apikey=${apiKey}`;

• Sub-step 2: Parse for Contract Interactions: Filter the transaction list for to fields that are smart contracts (non-zero code). Create a unique set of these contract addresses.
• Sub-step 3: Enrich with Protocol Data: Use a registry like DefiLlama's API or a subgraph to map each contract address to its parent protocol (e.g., Aave, Uniswap, Compound) and category (Lending, DEX, Yield Aggregator).

Tip: Consider using a portfolio tracker with an API (like Zapper or DeBank) to get a pre-aggregated view, but verify the underlying data for critical assessments.

Detailed Instructions

Governance structure is a key indicator of a protocol's resilience and ethical alignment. Investigate who controls the upgrade keys, treasury, and critical parameters. A protocol controlled by a single multi-signature wallet or a venture capital-dominated DAO poses centralization risks. Start by examining the protocol's documentation for its governance forum (e.g., Commonwealth, Discourse) and its on-chain governance contract.

• Sub-step 1: Identify Governance Contracts: Find the address of the governance or timelock controller. For example, Uniswap's main governance contract is 0x408ED6354d4973f66138C91495F2f2FCbd8724C3. Query it to see proposal thresholds and voter distribution.
• Sub-step 2: Analyze Token Distribution: Use a token holder analysis tool (like Etherscan's 'Holders' tab for the governance token) to check the concentration of voting power. Calculate the Gini coefficient or the percentage held by the top 10 addresses.
• Sub-step 3: Review Governance History: Scrape past proposals and votes from the governance subgraph or API to see if proposals from diverse community members pass, or if only core team proposals succeed.

Tip: High voter apathy (e.g., <10% token participation) can indicate a governance failure, making the protocol de facto controlled by a small, active group.

Detailed Instructions

DeFi protocols can create negative externalities that harm users or the environment. This step involves technical analysis of mechanism design and its downstream effects. For instance, liquidation engines in lending protocols can cause cascading liquidations during volatility, disproportionately affecting smaller, less sophisticated users. Similarly, proof-of-work consensus for underlying assets contributes to high energy consumption.

• Sub-step 1: Model Liquidation Scenarios: Write a script to simulate market downturns using historical price data and a protocol's liquidation parameters (e.g., LTV ratio, liquidation penalty). Estimate the price drop required to trigger liquidations for different collateral types.
• Sub-step 2: Estimate Carbon Footprint: For protocols reliant on PoW blockchains (or bridges to them), estimate energy use. Use a formula based on the average network hashrate and energy efficiency. A simple check: if a protocol primarily uses wrapped Bitcoin (wBTC) or Ethereum (pre-Merge), factor in its historical carbon cost.
• Sub-step 3: Check for Opaque Fees: Analyze transaction logs to identify hidden fee structures or MEV (Maximal Extractable Value) extraction that disadvantages regular users.

Tip: Look for protocols that publish transparent impact reports or have built-in mechanisms like socialized loss buffers to mitigate these externalities.

Detailed Instructions

Regulatory compliance and adherence to sanctions lists are baseline ethical requirements. This involves screening all identified smart contract addresses and the endpoints they interact with (e.g., cross-chain bridges, mixers) against known blocklists. Ignoring this can inadvertently fund illicit activities or violate laws. Use on-chain analytics tools to trace fund flows.

• Sub-step 1: Screen Addresses Against Blocklists: Programmatically check your list of contract addresses from Step 1 against updated sanctions lists (e.g., OFAC SDN list) and community-maintained abuse databases. You can use the Chainalysis API or a local database of flagged addresses.

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# Example using curl to check an address with a hypothetical service
curl -X GET 'https://api.sanctionscheck.example/v1/address/0xbadbeef...' -H 'Authorization: Bearer YOUR_API_KEY'

• Sub-step 2: Analyze Bridge and Mixer Usage: If your funds have passed through a privacy tool like Tornado Cash or a cross-chain bridge, investigate the destination chains and addresses for red flags using chain explorers.
• Sub-step 3: Review Protocol's Compliance Features: Check if the protocol has integrated tools like Chainalysis Oracles or TRM Labs for front-end blocking of sanctioned addresses. This shows proactive compliance.

Tip: This is a continuous process. Set up alerts or periodic scans (e.g., weekly) for new interactions with high-risk categories of protocols.

Detailed Instructions

Transform your qualitative research into a scoring framework. Assign weighted scores to key ethical dimensions: Governance Decentralization (30%), Negative Externalities (30%), Regulatory Compliance (20%), and Positive Social Impact (20%). Define clear metrics for each, such as the percentage of treasury controlled by the top 5 wallets or the existence of a public impact audit. This creates a reproducible ethical score for each protocol.

• Sub-step 1: Define Metrics and Weights: Create a JSON schema for your scoring model. For example:

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{
  "governance": {
    "weight": 0.3,
    "metrics": {
      "tokenConcentration": {"maxScore": 50, "calculation": "formula"},
      "proposalTurnout": {"maxScore": 50, "calculation": "formula"}
    }
  }
}

• Sub-step 2: Calculate Protocol Scores: For each protocol in your portfolio, run your data through the scoring model. Automate this with a script that pulls data from your earlier analysis and outputs a score (e.g., 0-100).
• Sub-step 3: Create a Portfolio-Level Dashboard: Aggregate individual protocol scores, weighted by your portfolio allocation (in USD value), to get an overall Portfolio Ethical Score. Visualize this in a dashboard using a library like D3.js or Chart.js.

Tip: Open-source your scoring framework and methodology to contribute to community standards and allow for peer review of your assumptions.