Product insights: how Panther zAssets enhance user privacy in DeFi
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As the adoption of blockchain-based payment surges, the need for on-chain privacy is capturing the spotlight. Privacy is particularly important for institutional users and high-net-worth individuals (HNWIs). And, the problem is that any public, pseudonymous blockchain reveals transaction details.
From wallet addresses, to gas fees, to transaction value, and the tokens traded; transaction data is public. This enables transaction linkage, which exposes a huge data exhaust that may ultimately result in wallet:identity mapping. Simply attempting to make a trade can trigger MEV front-running; even price discovery can be followed. Neither privacy nor confidentiality are a feature of public ledgers.
Let’s examine how Panther’s multi-chain privacy-preserving protocol intends to offer users access to public ledger liquidity while providing transactional anonymity.
A vision for regulatory-compliant, on-chain privacy
Panther Protocol breaks the links between the wallet initiating the trade and the trade itself, i.e. it enhances transaction privacy: specifically, it preserves identity, the assets traded, and value transferred. This privacy is granted by Panther’s Shielded Pools. Shielded Pools, known in TradFi as dark pools, obscure the trade initiator whose privacy must be preserved from peer traders and external liquidity sources.
The Shielded Pool acts like a walled garden: only invited users and assets may enter. Assets are deposited in the Panther Vault, part of the Panther Smart Contract, in exchange for a zAsset, or Zero-Knowledge Asset. It’s the zAsset that masks the detail of the user’s trades from observation.
What is a zAsset?
A zAsset represents a digital asset that users may trade with anonymity within a Panther Shielded Pool. The technology underpinning the zAsset enables trades to be settled privately on a public ledger.
In essence, the zAsset, is a "mirror" asset that is printed when a digital asset is deposited in the Panther contract. It’s subsequently spent when that asset is withdrawn. Therefore, the zAsset:asset always exists in a strict 1:1 ratio. Users can send, swap, receive, and pay with zAssets within a Shielded Pool.
How does a zAsset enhance trading privacy?
A zAsset utilizes Zero-Knowledge (ZK) proofs. ZK proofs are cryptographic protocols that enable the prover to demonstrate to the verifier that something is true without revealing the underlying data required to form that proof. For example, you could prove that you are over 18 without providing the birth certificate or ID used to generate that proof, nor indeed your actual age.
zAssets represent their underlying asset in the form of UTXOs (Unspent Transaction Outputs). It’s these UTXOs that users trade within a Shielded Pool. To store UTXO data on-chain, the Protocol uses ZK-SNARK (Succinct Non-Interactive Argument of Knowledge) proofs. This allows a user’s on-chain state to be stored privately and to ensure private state changes, i.e. the UTXO data that represents the asset on-chain is condensed and encrypted. This means that asset balances and balance changes are not publicly available should a Panther account address become known to an observer.
To the observing world, the only available data that results from a trade is that a UTXO was committed to the smart contract. Only the owner of the UTXO can decrypt the proof and ascertain the value and token that the UTXO represents.
The fact that UTXOs are not all created equal adds further support to the privacy set. The number of UTXOs created as a result of trades does not map to the number of tokens that UTXO represents. Some UTXOs may not even represent an asset, they may prove a zero balance, or null data, allowing the activity level of the protocol itself to also be shielded.
Deepening privacy
Panther Protocol offers two privacy layers; one is optional, and the other is a feature of the protocol. The zAsset is the protocol’s core feature, and the Panther Relayer is a protocol service provider that adds an additional privacy-enhancing mechanism.
Panther Relayers provide an additional privacy layer by breaking the link between the initiator of the transaction and the transaction itself. These ecosystem operators charge a fee for:
- signing the transactions with their public key
- paying the gas fees
- relaying bundles of transactions to the Shielded Pool contract
Relayers, therefore, enhance privacy, since observers are unable to pinpoint the actual address that initiated the transaction because the Relayer signs the blockchain transaction with their key.
A brighter, more private, public-ledger future
Relaying alone goes a long way to confounding transaction linking by disbursing the data exhaust when compared to a peer-to-peer or peer-to-AMM transaction. Combined with zAsset trading, we believe this suite of solutions offers the most robust, and yet compliant, trading privacy mechanism created to date.
As the global economy migrates to a digital native medium that operates on public ledgers, the utility of on-chain protocols will largely hinge on how effectively they implement features that confer privacy where and when it is needed. We believe that Panther Protocol’s privacy-enhancing technology solves the public ledger privacy problem. Panther Protocol has developed a mature, considered solution set that allows institutions and end-users to balance their privacy and compliance needs.
Panther Protocol provides dedicated, customizable space, a Panther Zone, to empower institutions to trade in Shielded Pools with allowlisted assets and counterparties. Designed with the needs of compliant privacy-enabled DeFi in mind, Panther Zones deliver a chain-agnostic, fully decentralized, suite of features that provide unparalleled privacy, security, and compliance support for public on-chain transactions.
Interested in customizing your own trading Zone for privacy-enhanced trading? Reach out to us at contact@pantherprotocol.io. Want to help us develop Panther’s chain-agnostic app layer? Then join our community testers and try out the testnet dApp.
About Panther
Panther Protocol is a cross-protocol layer that uses Zero-Knowledge 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. 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 Zero-Knowledge primitives are generalizable to KYC, selective disclosures between trusted parties, private ID, voting, and data verification services.
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