There are a couple of facts that not even Ethereum’s sternest (and we know some!) critics would deny:
One is that Ethereum is currently the king of DeFi. Whether you are a fan of the current fee spikes, burning system and the network’s culture or not, you would have to work hard to convince anyone that DeFi is not almost exclusively located within Ethereum. Through its dApps ecosystem, dedicated Layer-2 solutions and years of building network effects, the unicorn-fueled blockchain has almost completely captured the DeFi market.
The second is that however you look at it, Ethereum’s transparency features are, to say the least, brilliant. Which then, if you’re a fan of maintaining your privacy, turns into an issue.
By design, on-chain data is transparent and immutable. The radical auditability of public blockchains is therefore both a feature and a bug. Privacy is highly needed in these circumstances to avoid turning DeFi and the Web3 into a dystopia, rather than fulfilling their mission to reinvent financial systems and create an Open Internet.
Privacy in Decentralized Finance
Before we talk about how Panther is bringing interoperable privacy to DeFi, let’s go over some basics, real quick:
DeFi started as the first obvious consequence of having programmable cryptocurrencies. To achieve it, early (from times as ancient as 2018) DeFi developers used the most valuable smart-contract blockchain at hand, Ethereum. Going further back, cryptocurrencies themselves began as the first not-so-obvious consequence of combining blockchains and cryptography, along with some clever reasoning, to create digital assets that could be objectively scarce.
It’s unclear whether Satoshi didn’t care or didn’t think about chain analysis evolution. However, nowadays these tools are so advanced that Bitcoin transactions (pseudonymous, not anonymous, and very much public) are traceable enough not to be considered at all private. One could make a case that this only happened because advanced cryptography that’s unbreakable and fully private is extremely hard to achieve. Satoshi may have wanted to get his/her/their idea out as quickly as possible instead of waiting for cryptography to catch up to the challenge at hand: Putting obscuring technology (that facilitates privacy) in decentralized networks (that almost forcibly requires a level of transparency).
And hence, moon math was born
Now, “why do I want privacy in DeFi?” — you might ask?
We covered this in a previous article, so we will not spend much time talking about the need for privacy. However, as a quick recap, lack of privacy in DeFi could result in:
- Oppressive regimes targeting individuals who have transacted in or used technologies/cryptocurrencies they disapprove;
- Traders in DeFi being monitored spied on and front-run by competitors;
- P2P transactions are being used to obtain private information on users and used for nefarious purposes against them (from tailoring prices to their wealth to kidnapping).
Some blockchains, such as zCash and Monero, manage to achieve base-layer privacy as their number one target. This, however, requires highly complex mathematics and cryptography, in particular zero-knowledge proofs (ZKPs). And there is a reason why these networks have, so far, only achieved basic send/receive functionalities and nothing else.
Indeed, the exact reason why ZKPs are often referred to as moon math.
When taking highly complex technology and trying to apply it to a decentralized ecosystem that runs computation and that anyone can deploy protocols into, things get out of hand. Or, as our Senior Software Architect succinctly puts it: IT’S JUST REALLY HARD AND NO ONE HAS MANAGED TO DO IT REALLY WELL.
However, there is hope: Recent developments such as ZK roll-ups and Layer-2 roll-ups have advanced things in the right direction without achieving state-of-the-art tech yet. There is, nonetheless, an additional complexity that we need to consider.
At Layer-1 (and sometimes even Layer-2) level, current blockchains aren’t interoperable
Think about all the Bitcoin in the world and how much it is worth. Then, do the same for the whole Ethereum ecosystem. Repeat for Solana, Near, Avalanche, Flare, Binance Smart Chain, Cardano, Tezos… etc. You’ll arrive at a fundamental problem of the current blockchain ecosystem: Billions of dollars are currently stuck in protocols that cannot communicate or create synergies with each other.
This is the blockchain equivalent to having every country in the world be an incommunicable island.
Interconnecting these chains is not as easy as, say, plugging a cable or copy-pasting a message. Chains are difficult to plug into each other by design since they all have separate consensus models. They also have different ways to operate internally and, by default, are only informed by themselves, not other chains.
With chains remaining disconnected from each other, every consequent protocol that gets introduced broadens this problem.
For DeFi to achieve its true potential and touch all aspects of our economy (not only remaining a “decentralized casino” or a circular economy), we need to turn the movement into a joint force instead of a collection of separate fronts.
Panther’s solution to privacy and interoperability in DeFi
Now we’ve arrived at the bottom of our issue. At this level, we can find three predominant factors that influence the way we interact with DeFi and that at some level, prevent its growth. These factors, at their worst, can remain unsolved, affecting every user. They are:
- A well-established trend of innovation moving at unforeseeable speed and attracting new people to the space every day. Having to scrap this progress could set the DeFi space back by years or even a decade.
- A base layer that makes privacy incredibly difficult to achieve due to the inherent nature of the technologies that make privacy possible.
- Lack of interoperable solutions that keep existing protocols apart from each other.
Panther is working to achieve a solution to all these problems. By creating an arrangement of peerchains (chains that host the protocol), bridges (which allow existing blockchains to effectively connect via the Panther protocol) and shielded pools, we surpass the need to replace existing systems.
We, instead, allow users to insert privacy into their assets, shielding them from their inherent faults.
Before, we’ve covered zAssets, how to mint and burn them. zAssets are shielded tokens that users can transact within the private Panther Pools and withdraw into stealth addresses/wallets, giving users the option to (even retrospectively) disclose their DeFi history. Since these stealth or temporary addresses will be one of the first integrations present in our MVP, let’s look into how they enable private interactions with ERC-20 DeFi.
How Panther’s MVP allows for Privacy in DeFi
Panther’s shielded Pools are critical for users to interact with the protocol and achieve a level of privacy in DeFi. To avoid diving into technical nuances, and for the purposes of this article, let’s simply assert that:
- Pools allow users to achieve privacy through encryption (in particular zero-knowledge proofs) and sophisticated shielding techniques. By depositing tokens into a Pool, a user is accessing the DeFi equivalent of, say, emptying a cup (or bucket, or tequila shot glass!) of water into a literal pool. A user can deposit any amount of tokens and withdraw them at any time.
- Users can participate in the Panther protocol and earn rewards by adding tokens to Pools, helping others in the process by increasing the Pool’s size and its mixture of assets. By having a larger set of assets in a pool (and since at withdrawal assets are selected randomly from it) the resulting privacy is improved. Conversely, small pools are problematic for the same reason, hence the need to reward users for adding tokens. Note that transactions from and to the Pool are privately visible, but the private transactions happening within it aren’t. Therefore, the larger the pool, the harder it is to connect the dots on deposits and withdrawals.
At MVP stage, Pools will be one of the first features to be available for users.
Within them, at the time of withdrawal, a user can choose whether to receive their zAssets’ collateral in a wallet of their preference or generate a temporary address. Should they choose the latter, at this stage, when a user withdraws the ERC-20 collateral for a zAsset, Panther will generate an ERC-20 address exclusively for this purpose and send the tokens there. From this temporary address, users can do anything they want with their tokens, including using them as effectively private assets within normal DeFi protocols and sending them back into a Pool.
As you can see, adding Pools and stealth addresses as additional steps within ERC-20 “traditional” DeFi can obscure the operations of a user within DeFi protocols, making it impossible for others to track them. At later stages of our development, we expect to replicate this system for every peerchain compatible with Panther.
As you can see, Panther’s eliminates the need for Layer-1 privacy in blockchain protocols by separating itself into a system that’s also interoperable.
By joining Panther, you’re helping DeFi users everywhere gain control of their data and protect themselves from the shortcomings of our very nascent ecosystem. If you enjoyed this article and made it this far, we’d love for you to continue learning about our project!
We’ll see you next time.
Panther is a decentralized protocol that enables interoperable privacy in DeFi using zero-knowledge proofs.
Users can mint fully-collateralized, composable tokens called zAssets, which can be used to execute private, trusted DeFi transactions across multiple blockchains.
Panther helps investors protect their personal financial data and trading strategies, and provides financial institutions with a clear path to compliantly participate in DeFi.