Following OFAC sanctions around Tornado Cash, privacy has become a bigger topic than perhaps ever before in DeFi. The Aztec Network is a private ZK-rollup on ETH, aiming to give users access to their favorite ETH mainnet dApps, but from a private network.
In this episode of the Blockcrunch podcast, host Jason Choi welcomes on Aztec Co-founder, Joe Andrews and Head of Growth, Jon Wu.
Read our notes to learn more about the potential of privacy in DeFi.
What is the Aztec Network?
● L2 ZK-rollup built on ETH, the “VPN for ETH”.
● Focus on private but scalable transactions.
● Can allow users to use ETH mainnet dApps, but from private Aztec layer.
● Building a user tool for opt-in compliance.
Why Privacy Matters
● Privacy is something people naturally want.
● Privacy enhances user security.
● Privacy protects creativity.
● Without privacy, it is hard for people to have an edge over each other in capital markets.
● While Web2 has privacy issues involving collecting user data, financial information is kept mostly private.
● There is a difference between base layer and app level privacy . This also happens in Web2.
Aztec: Past, Present and Future
● Started off in 2017 with the goal of deploying corporate debt on ETH. This required a level of privacy which inspired the team to begin focusing on this aspect.
● Launched private ETH ZK-rollup in 2021, which allowed users to deposit and withdraw ETH privately.
● Launching Aztec Connect, which allows users to use any ETH dApp, but with privacy and cheap transactions on the Aztec L2.
● Aztec wants to provide privacy for DeFi users, and eventually for dApps and developers with a Rust-style programmable language called “Noir”.
How Aztec Works
● Aztec provides tools and SDKs so users can see what privacy-related choices they have to make when using a certain dApp.
● Running a ZK-proof in your browser enables privacy for users.
● When a user makes a private transaction, the Aztec network as a whole interacts with ETH L1 dApps, obscuring the user who actually initiated the interaction.
● Aztec doesn’t take liquidity away for ETH L1, unlike other rollups. Users also can use the dApps they already enjoy using.
● If privacy is opt-in, this prompts people to only use it if they are doing something suspicious. Privacy by default is a way to enable privacy for everyone.
● Aztec node aggregates many user transactions and verifies that the whole block is correct within one proof, rather than using one proof per individual user transaction.
● As Aztec is not a mixer, it can handle many different transaction sizes.
● Base layer privacy makes it difficult for Aztec node participants to censor transactions, as they just receive and send encrypted transactions without knowing their contents.
Is There Risk of Regulation for Aztec?
John Wu
● If crypto-native people build compliant tools, compliance will be more comfortable than if it was built by actual regulators.
● Tornado Cash faced sanctions not necessarily because of its privacy enabling capabilities, but because illicit funds were flowing through the protocol.
● Aztec has implemented limits on deposits, added features to make flow of illicit funds more difficult.
● User limits help network remain stable, also deter people from deploying illicit funds.
● Compliance tools were criticized by community, as they negatively affect normal users.
● Thinking about 3rd party KYC: users are verified before entering the Aztec layer, and then can make private transactions as they see fit.
Joe Andrews
● Important for privacy protocols to provide real utility right now, rather than potential use cases in the future.
● Those building privacy protocols should focus on adoption.
● Launching more Aztec bridges, including a bridge with a DCA feature.
● Most people will be satisfied with a privacy protocol that works like a CEX: a few people can see your transactions, but they are hidden from the general public.
What’s in Store for Aztec?
● Aztec is currently being used to build in-browser games, which creates a softer image.
● Privacy should be the default. When this happens, society will tolerate criminal activity on Aztec, because the value the privacy provides for everyone will outweigh the negative impacts caused by a few people.
Important Links
● Follow Revelo Intel for more notes like this
● Watch the original episode here
● Follow Joe Andrews on twitter