Two months ago Aztec launched zk.money, which allows users to send and receive funds privately on Ethereum, in a Venmo-like fashion. We’re now excited to share that we are actively working on bringing our private, scalable experience of Ethereum to DeFi apps. Our Private Rollup will both make transactions private and lower their cost, enabling a whole new experience for interacting with DeFi applications.
Over the next few weeks, we’ll introduce you to some of the use-cases we’ll be bringing to our Rollup service and zk.money. Before that, we begin with a general overview of what privacy on DeFi will look like, and why it’s an important element in the future of the Ethereum ecosystem.
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Why it matters
At Aztec, we believe that blockchains should be 100% private by default. No one should be able to track your financial activity on-chain; swapping, transacting, voting, lending, borrowing, and more. The issue with today’s experience on Ethereum is that all of the above actions create a public map of its users’ financial behavior. These ‘breadcrumbs’ of financial activity cause malicious activity, front-running of trades, and degrading the value of a decentralized financial system.
A recent example of such a case was Vitalik’s donation of $1B in SHIBA coin to India’s COVID relief fund. Vitalik received the coins into his wallet from the project’s founders and decided to get rid of them by sending $6B of SHIBA to a dead wallet, effectively burning a meaningful chunk of the total SHIBA supply.
SHIBA’s value dropped by 50% from ATH shortly after. Vitalik’s actions were confirmed by his Ethereum wallet, which is open for everyone to monitor.
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Enter Aztec for DeFi
Enabling the Aztec Private Rollup to interact with DeFi applications will introduce significant improvements to the user experience from various perspectives.
Privacy
In today’s DeFi jungle, no one wants to have their books open for everyone to look at. Our view is that Ethereum privacy is currently worse than in centralized finance. The Aztec Private Rollup will enable private transactions with L1 DeFi, all under a single Rollup. This privacy shield makes it impossible to track when a user trades tokens and with which protocols.
Scalability
Gas fees — especially in a market like the current one — can be a huge pain point and price out small users. The Aztec DeFi bridge is capable of batching thousands of transactions in each rollup, with a minimum of 10x saving on gas fees across various actions.
Tradeoffs
While a Private Rollup introduces significant cost optimization for transactions and a private experience on DeFi, its implementation comes with certain challenges in its initial phase. The main reason is the rollup service is dependent on the number of transactions and supplied liquidity for each action, like specific pair-swapping. Initially, we plan to focus on maximizing liquidity over trading pairs to achieve a smooth experience for the users, both from the gas-cost perspective and speed.
For the users, it initially means a smooth experience in popular markets like DAI-ETH, over trading a larger variety of markets that are less liquid. Down the road, Aztec aims to enable more possibilities for less popular trading markets
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A glimpse ahead
We’re excited to enable new possibilities for DeFi interactions like private swapping, and other types of actions like lending/borrowing, staking, voting, and more. Our goal is to work hard on enabling a better user experience on DeFi and help other protocols integrate seamlessly into existing privacy standards via Noir, our privacy smart contracts platform which will be released later this year.
As we continue to paint the picture of a private DeFi ecosystem over the summer, we’d love to have feedback from the community. If you’re a DeFi user and have been excited about privacy — please give us a shout on Discord!
We also invite you to try our live private transactions experience at zk.money
