How to build privacy-preserving DeFi based on Suterusu protocol

Suterusu provides a privacy-preserving payment functionality for the smart contract platform. Since most DeFi functionalities are built on smart contract platforms such as Ethereum, it is natural that Suterusu protocol can be directly applied to protect the payment privacy of these DeFi protocols. This is why Suterusu has great potential to become a universal plug-in protocol for privacy-preserving DeFi.

We believe that there are two categories of DeFi: a kind that leaves the data unprotected, and the other kind using Suter’s protocol, so we can have a full guarantee of the data privacy of the underlying DeFi protocol. Suterusu has collaborated extensively with the mainstream DeFi projects both in China and abroad. DeFi projects that we have been working with include waves/gravity, stpt, czz, meter, hyperdao, etc.

DeFi protocol can be divided into two categories: the project focusing on the monetary exchange itself, such as decentralized exchanges, lending, liquidity mining, etc. Since Suter’s core technical contribution is the privacy-preserving financial exchange, our technology can be seamlessly adapted to transform the privacy protection of these projects.

Another type of DeFi might be relatively far away from the monetary exchange itself, but still is very relevant to the DeFi itself, and in some cases, it is entirely possible these protocols might prove to be essential even outside of the blockchain sphere. A representative example of this category would be decentralized insurance.

We notice using blockchain technology to implement decentralized insurance has become a trend. The most notable examples in this area are NXM and Cover. NXM uses the power of Ethereum so people can share risk together without the need for an insurance company. Currently, they mostly focus on covering the secure risk introduced by the potential bugs in smart contract code, but their long-term goal is to cover risk introduced by real-world events, such as earthquakes. Cover protocol provides peer to peer coverage with fungible tokens. It lets the market set coverage prices as opposed to a bonding curve. Currently, Cover protocol also focuses on coverage for the smart contracts, but its long-term goal is also a general decentralized insurance protocol that allows anyone to buy coverage on anything. The market cap of NXM is around $109093019, and the market cap of Cover is around $37318001.

A decentralized insurance protocol such as NXM or Cover usually involves various sensitive information. How to guarantee the accuracy of the input data without violating the privacy of the data owner remains a challenge. This is where our ZK-ConSNARK comes to the rescue. As a matter of fact, zero-knowledge proof has already attracted the attention of the traditional insurance industry. For instance, a white paper (https://www.ocft.com/pdf/05.pdf) published by Ping An Insurance mentioned 3D zero-knowledge proof, which aims to prove the consistency of homomorphic operations of encrypted data. They also claim this technique has already generated profit for Ping An. I believe the same logic should also apply to decentralized Insurance.

Suter and Decentralized insurance project can at least collaborate in the following regards:

1. Suter provides privacy protection for payments involved in the decentralized insurance projects, which not only guarantees the highest degree of security, i.e., a completely transparent setup but also the optimal proof size and proof generation and verification time compared to other similar solutions. Suterusu protocol can guarantee the privacy of every transaction in a decentralized insurance project. For example, the Cover protocol involves exchanges of FT tokens. The Suter private payment scheme can be directly applied to protect the transactional privacy of these tokens.
2. Privacy-protection of insurance information: In a decentralized insurance scheme such as NXM or Cover, the insured amount is usually proportional to the covered asset balance of the concerned DeFi project. The full disclosure of an insured amount can lead to the leakage of a user’s asset information, which might be of great concern to the users. The adoption of Suter’s solution can ensure the privacy of the insured asset and hence protect the user’s private information.
3. Decentralized insurance protocols such as NXM require KYC, and users could refuse to participate in the NXM protocol for fear of leaking one’s identity information. A privacy-preserving KYC protocol can be constructed based on Suter’s ZK-ConSNARK technology which can protect individual privacy while still guaranteeing accountability when necessary.
4. In the future, one could imagine a world where the decentralized insurance scheme such as NXM is deeply linked to the real world. For instance, one could use the NXM protocol for medical insurance. Since the user information involved in this case is extremely privacy-sensitive, how to find a balance between individual privacy and data verifiability remains a challenge. Suter’s ZK-ConSNARK could become extremely helpful in this regard. As a matter of fact, the above example of proving an age belongs to a certain range can be extended to any complex NP statement. As a consequence, Suter’s ZK-ConSNARK technology can be applied to construct a universal privacy-preserving oracle for decentralized insurance.

Several more detailed examples of using the underlying technical modules of Suter protocol to improve the privacy of DeFi protocol can be found below. These examples include privacy-preserving insurance, DEX/CEX, liquidity mining, lending, decentralized oracle, etc.

The key technical modules of NXM include Stake, earn, and claim assessor voting. The following figure shows how an NXM token holder can Stake one’s NXM token privately by invoking Suter’s technical modules.

When the newly minted NXM tokens are awarded to Risk Assessors, it can be performed privately as shown in the following figure.

A claim assessor can invoke a private PoS protocol (https://medium.com/suterusu/a-short-note-on-privacy-preserving-proof-of-stake-protocols-f86daf3c23d9) based on our ZK-ConSNARK to vote for an insurance claim privately. A claim assessor can also receive the reward privately by invoking a Suter private payment module.

The Suterusu private payment module can be applied to implement privacy-preserving DEX/CEX in an almost similar manner. We divide it into two cases:

1. the exchange accepts the trading of the Suter-ERC-20 token.

2. the exchange does not, which means the user has to deposit and receive the ERC-20 token privately.

The Suterusu private payment module can also be applied to implement privacy-preserving liquidity mining. We divide it into two cases:

1. A liquidity pool accepts Suter-ERC-20 token pair as LP token.

2. A liquidity pool that does not.

Here is an example of privacy-preserving Lending (e.g. compound)

One of the most successful decentralized oracle projects Chainlink recently buys out a project providing a privacy-preserving data feed for decentralized oracle. An important idea of this work is using zero-knowledge proof to prove a certain statement about the private data source and output data feed for decentralized oracle. Our ZK-ConSNARK technology certainly can play a role in this application scenario.