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It’s about time we sit down and talk about shielded pools. You see, as we have discussed in the past, current L1 blockchains are far from perfect. As much as one hates to be intolerant of imperfections (we love you all the same, Bitcoin and Ethereum!), there IS something to be said of the dangers that a lack of privacy can bring to users of non-private blockchains. In particular, the lack of interoperability and privacy in most chains are two of the greatest challenges for the crypto ecosystem to overcome, should it fulfill its mission.
We find ourselves facing a unique challenge: Creating a tool for the users of all of these blockchains to freely and privately transact.
Interoperable privacy and the need for shielded pools
You know enough to understand that, should a user of, let’s say, Ethereum wants to transact with a Bitcoin user, both are better off if the BTC user wraps their Bitcoins up in an ERC-20 token. This would allow them to transact with collateralized Bitcoins in the Ethereum network, hence giving their new wrapped Bitcoins (wBTCs) access to the beauties of the Ethereum network, such as smart contracts and (Soon™) low transaction fees.
But, what happens to our brave Bitcoin wrapper if he meets a Polkadot user? A Monero gal? A Tezos man? A zCash fan?
Many of these networks do not have wrapping capabilities. And even if they do, it’s just plain impractical for the user (or a professional asset manager, i.e., institution) to be constantly wrapping and unwrapping assets to meet all networks’ limitations.
So, what does our user do now? And, how do they protect their privacy while at that?
Pool parties as to the crypto-intellectual’s resource
In the past, we’ve talked about Panther’s Multi-Asset Shielded Pools, or simply, Panther Pools. To get you up to speed, let us break down this concept. Panther Pools are:
- Pools: If you visualize a token as a drop of water, then the “Pool” metaphor quite accurately depicts what Panther Pools are. Within a pool, users can deposit their drops of water so that they, and only they, know how much they put in and (since we’re talking smart contracts here) how much they’re allowed to withdraw. Users can even transact within the asset pool to send their tokens not to themselves but to others as well.
- Multi-Asset: Of course, not all tokens are created equal, and not all assets are the same. One of the most significant innovations that can happen to Asset Pools is to make them able to support tokens of many kinds and sources. This is a great boost to privacy since all sorts of assets, including tokens of different standards such as an NFT representing the ownership of the actual Mona Lisa, real estate, or even the the flag of the United States and tokens from a niche chain can co-exist in the asset pool. Eventually, the pool gets large enough that tracking or deanonymizing users becomes impossible, thereby granting privacy when transferring assets.
- Shielded: As you know, zero-knowledge proofs and zkSNARKs are at Panther’s heart as one of the best possible tools to achieve true privacy. Panther Pools utilize these proofs to prevent users from analyzing what’s happening within them, having transactions obscured.
The Challenges of Multi-Asset Shielded Pools
Now that you know roughly what Multi-Asset Shielded Pools are, it’s important to note the reasons we do not all enjoy and benefit from them on an almost daily basis. It is clear that having a great number of near-utopic decentralized Asset Pools that are entirely private and support all kinds of assets would be ideal for the crypto ecosystem. Then, if these Pools could interact with DeFi (as Panther intends), we might find ourselves in the presence of one of cryptography’s greatest hits.
There are, however, quite a few good reasons this hasn’t happened and the need for it doesn’t get discussed enough. We can take a look at these reasons for context:
- Building MASPs is particularly hard, although not incredibly so: From a difficulty vs potential standpoint, MASPs fall within a sweet spot in that they’re much-needed technology that does not require mind-blowing innovation to develop. As we’ll see further below, the challenges in building them are more contextual than technological. However, MASPs still have components (such as Zero-knowledge proofs) too complex to be built by amateurs. This creates a unique opportunity for Panther to seize while maintaining a hard-to-overcome threshold for other projects.
- Resources and time are scarce for public privacy-enhancing technologies: Tools like MASPs are fully decentralized and, therefore, public goods, for which it is difficult to obtain funding. In this regard, Panther is lucky that we’ve found an overlap in institutions’ interest in entering DeFi, meeting several challenges (like front-running, sandwich attacks, etc.) when participating in it, which makes them more willing to back this pursuit. DeFi and crypto development are also experiencing a gold rush, with builders dashing against the clock to launch and deliver while in positive market momentum. Amidst this craze, it’s understandable that solutions such as MASPs that enable interoperability and privacy get pushed back to develop the solutions most likely to bring economic prosperity in the shortest term.
- There is not (yet) an existing market for MASPs: As we said before, the crypto ecosystem is still at a stage where it does not demand solutions such as MASPs. This tends to make potential developers focus on other products for which there is a growing demand.
- Legal complexities involving public privacy-enhancing goods: As you would have guessed, funding, developing and promoting privacy-related products is tricky at best.
Regulators tend to raise an eyebrow and ask multiple questions whenever they feel like a project, particularly in the crypto space, can allow the general population to go in any direction that isn’t pro-surveillance/absolute control. They believe that regulatory guidance has the potential to protect long-term investors and prevent fraudulent activity, such as tax evasion. Traditionally, projects like well-known privacy coins have circumvented this by being bootstrapped without funding per se or starting as open-source passion projects. As you can imagine, however, this is not the most efficient road to development. The alternative does require ongoing legal opinions and responsiveness, though, which is a challenge many feel like they’re not suited to meet.
So, why are Multi-Asset Shielded Pools critical in Panther’s unique positioning to succeed?
Panther is creating a system that benefits users of MASPs while building an end-to-end cross-chain protocol that is composable with DeFi applications.
By allowing users of multiple kinds of assets to enter the Pool, users of every compatible chain can participate in the same mechanisms for privacy, regardless of their native chain’s liquidity and activity. While an Asset Pool for rarely-used assets would struggle to find much security due to the relatively low volume of transactions, Panther MASPs can quickly build critical speed.
Panther Pools also have built-in mechanisms to align the incentives of every user, rewarding those that contribute by adding tokens to the pool. Asset Pools are fully composable with DeFi, allowing users to deploy tokens to smart contracts seamlessly. MASPs also create a single-stop, private point of connection amongst multiple chains. By doing this, Panther aims to become the leading PriFi (Private Finance) protocol in the market.
As you can see, Panther has a significant advantage in the market by combining several PETs and crypto privacy mechanisms, such as shielded transactions, privacy assets (zAssets), private cross-chain bridging, verifiable credentials, zero-knowledge selective disclosures, game-theoretic privacy pricing, stealth addresses, and MASPs. Privacy should be granted by right for all individuals and businesses, and thanks to the efforts of the crypto community, it is multiplicative. We hope that thanks to the combination of these tools, we’ll be able to create the ultimate privacy DeFi protocol.
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.