Alpha Protection Through Privacy: A Web3 privacy primitive for DeFi

Alpha Protection Through Privacy: A Web3 privacy primitive for DeFi

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Did you miss Panther co-founder and CEO Oliver Gale’s presentation at last week’s ETHDam conference? Don’t worry, we have you covered. 

The session, “Alpha Protection Through Privacy: A Web3 privacy primitive for DeFi,” explored the $2.6T problem of open blockchain privacy and Panther Protocol’s solution. A recap of the presentation follows. 

Pseudonymity: A $2.6 trillion problem

Open ledgers are supposed to be a good thing. They help to ensure that users can’t commit fraud, prevent duplicate transactions, and more. All of these things are true and important, but until now, they have come at the expense of another basic human need: privacy. On pseudonymous blockchains, if a third party can link a wallet address to a user, they can follow, measure, and use the complete transaction history associated with that wallet address. Every transaction. 

This is wrong. Although we recognize blockchain technology’s enormous benefits, financial privacy should be a fundamental human right. 

And it’s a huge problem. Of the approximately $2.6 trillion invested in crypto, all but a relatively tiny amount is on public blockchains. 

Your Data is YOUR Data

The problem with pseudonymous blockchains goes beyond third parties monitoring your spending habits: your data is valuable– and it should be YOUR data. Europe’s General Data Protection Regulation (GDPR) reflects a broader shift in how we perceive ownership of information. Just as it set a benchmark for consumer privacy and control, DeFi users should have ownership of their data both as a personal matter and because there is value in your data. 

This is especially true for high-volume traders and institutions, who risk having others copy their trades, their “alpha,” and their strategy. 

The “solution” created a new problem.

The reaction to this problem to date has been the creation of privacy protocols, which sever the link between wallet and on-chain public ledger, using a variety of technologies. Unfortunately, this causes a new problem: compliance hurdles. Tornado Cash is a prototypical example of how severing the link between the public chain and wallet alone is not a viable solution to privacy. Tornado Cash has been accused of facilitating money laundering and sanctioned by the U.S. Treasury, among actions from other regulators. If DeFi is going to welcome a new era of mainstream adoption, it is clear that privacy protocols also need to enable compliance. In fact, regulators, including the U.S. Treasury have specifically called this out as a market need

Market requirements for any solution

Greenfield Capital’s Report on Reviving Transaction Privacy: Approaches To Combat Compliance And Usage Challenges covers this exact issue. In the report, they recognize the enormous potential of removing a major obstacle to mainstream DeFi adoption by enabling compliance and privacy simultaneously. They state that any such solution would need to keep bad actors from abusing the system, especially through KYC, and that it would need to navigate regulatory ambiguity, given that regulatory requirements may vary from one jurisdiction to another, giving the Travel Rule as an example. The Travel Rule is a regulatory mandate by the Financial Action Task Force (FATF), an intergovernmental organization formed by the G7 to combat money laundering and terrorism financing, which requires cryptocurrency exchanges and other virtual asset service providers to share specific transaction details of the parties involved in transfers​.

Greenfield also points out that success for any protocol hinges on: 

  • Providing sufficient value relative to any fees associated with its use (keeping gas relatively low).
  • Ensuring there is a large enough anonymity set to keep transactions private.
  • Integration with existing DeFi protocols: Users are unlikely to use protocols that don’t enable use across the most popular tokens and chains. 

Enter Panther Protocol

Panther Protocol will add a privacy layer to blockchain transactions and DeFi applications. Using advanced cryptographic techniques, including zkSNARKs, the protocol will provide users with the ability to preserve their privacy while also enabling them to disclose data to whoever they choose. Flagship features include: 

  • Preservation of privacy: Panther’s Shielded Pool technology will help to preserve your privacy by separating your transactions from the public ledger, safeguarding your identity. 
  • Control over your data: Enable KYC validations without exposing your personal details. Our Zero-Knowledge proof-based technology will let you choose exactly who can see your identity and transaction history.  
  • Panther’s DeFi adapters will facilitate seamless integration with existing DeFi protocols, ensuring privacy without sacrificing functionality and allowing users to engage with DeFi platforms while keeping their transactions private.
  • Decentralized Identity: Your zAccount will act as a decentralized ID that helps safeguard your personal details, allowing you to make crypto transactions while protecting your identity.
  • Modular and expandable: Zones will offer customization for asset lists, user lists, transaction limits, and DeFi application access.

For more detailed information about Panther Protocol, please click here

Competitive Landscape

Greenfield identifies 11 elements that can enable the solution to the issue of privacy in blockchain. Panther’s model includes all of these, with the exception of compliance committees, which is by design and not necessary for Panther’s privacy preservation and compliance enablement. 

Panther is also one of only two projects in Greenfield’s report that includes KYC in its model, which is a requirement in nearly every major jurisdiction. 

How to get involved

If you are interested in helping Panther usher in a new era of DeFi adoption where your right to privacy is respected, we would love you to join us: 

About Panther Protocol

Panther Protocol is a cross-protocol layer that uses Zero-Knowledge (ZK) technology to build DeFi solutions that aim to meet ever-evolving regulatory standards while satisfying users’ on-chain data privacy needs. Panther’s goal is to enable seamless access to DeFi via a cross-chain-supported ZK compliance protocol. The Panther Protocol offers confidentiality across transactions in shielded pools, zSwap for DeFi integrations — enabling private swaps on third-party DEXs, and zTrade for internal OTC book for trading assets privately. Furthermore, Panther Protocol’s ZK primitives are generalizable to KYC, selective disclosures between trusted parties, private ID, voting, and data verification services.

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