Dear Zcash community,
This is a re-edition of a previous post that went unnoticed and contained some mistakes. Here I try again to get your attention again as we come out with new ideas and proposals.
Times are maturing to actively push for Zcash adoption among institutions. Central banks all around the world are already developing their CBDC, often with privacy in mind. Also a lot of talk about stablecoin took place these days due to the Luna fiasco. Last friday Zooko was speaking in front of a crowd of bankers at the SNB-CIF conference, we should strike while the iron is hot.
Background
Last year ECC reached out to potential ZSA issuers and others that might have interest in participating in ZSA issuance and support (here). These players were Tether, USDC, Maker, Thesis and OpenSea. Basically 3 kind of answer were received:
- Positive answer / genuine interest (Maker, Thesis)
- No answer / no contact made (Tether)
- Negative Answer / No interest (Circle, OpenSea)
In particular, it was the answer of Circle that made me think a lot.
“A zUSDC token must meet regulatory requirements that may be difficult or impossible to comply with, including perceived regulatory risk, the ability to freeze funds, and the ability to blacklist addresses. Most importantly, the Circle regulatory team is unwilling to consider ZSA support at the moment.”
The above criteria are met on other public blockchains like Ethereum, can we make it possible on Zcash too?
The Central Banks
I can’t say what a Central Bank would have answered if contacted by ECC, but most certainly they would also request the ability to freeze / blacklist. But let’s remember also that the Fed itself highlighted the need for privacy for a potential US CBDC. From the Fed CBDC paper (here):
“The Federal Reserve’s initial analysis suggests that a potential U.S. CBDC, if one were created, would best serve the needs of the United States by being privacy-protected, intermediated, widely transferable, and identity-verified. As noted above, however, the paper is not intended to advance a specific policy outcome and takes no position on the ultimate desirability of a U.S. CBDC.”
Also the European Central Bank is studying a CBDC (here) which should have some added values compared to existing solutions, especially regarding privacy:
“We could also foster the adoption of a digital euro by giving it legal tender status and designing it in a way that provides more privacy than current private digital payment instruments.”
A number of Central Banks is developing their CBDC (here). My assumption is that soon or later every stablecoinCDBC issuer will follow similar guidelines in the future.
Possible Solutions
I don’t know if this is possible with the ZSAs currently under design by QEDIT (here), how easy it is to add programmability to ZSAs (like @LeCryptoMath suggested here), or if this should be done on a L2. But the goal would be to have the ZSA issuer being able to implement a set of rules. For example:
- The ZSA specific contract would allow transactions only from addresses that are whitelisted/KYC.
- The ZSA issuer could freeze assets on a certain address.
Just like it is happening on Ethereum. I would appreciate the technical members of this forum to give me a quick feedback about the feasibility of the above. Maybe it is not possible at all due to the architecture of the network and how addresses work, but in my opinion it is worth evaluating.
2nd round of talks
If we ever come up with a solution / architecture it would be possible to start a second round of talks and start to design a solution.
Imagine calling Circle and saying: “hey, we found a possible solution to your problem. With newly designed ZSAs you will be able to freeze funds and blacklist addresses, and we would like to put down other specifications with you.” Maybe the would be more interested in evaluating ZSAs. Same with other major stablecoin players in the space as Tether (USDT), Circle (USDC), Maker DAO (DAI), Paxos (BUSD, USDP), etc…
It would be also possible to contact central banks and propose a round table. Maybe first with the Fed, and then with ECB (they are already in talks for interoperability of the respective CBDCs). Which better settlement layer than a public blockchain with the best privacy tech?
But we must have a solution to propose and be pro-active defining together with the industry and institution how CBDC/stables should be and how they could fit on Zcash:
- How do they imagine a CBDC/stables running as ZSAs on Zcash?
- Which privacy features do they imagine and how should they be deployed?
- Should the emission be transparent or shielded?
- Etc…
By involving relevant actors in due time we could design programmable ZSAs in the best possible way, and have major players onboard from the beginning.
Key people
Having institutional people onboard would be of great help in putting up the talks with Fed. Chair of SEC Gary Gensler is a strong advocate of Zcash technology (here). I guess it should not be too difficult to involve him and push our case.
Regarding major stablecoin issuers, a dear friend of mine has direct contact to Paolo Ardoino (CTO of Tether), and we can provide his mobile to @thecryptomath . We don’t have contact for other mentioned stablecoin issuers but getting their attention for a business proposal shouldn’t be hard. CZ from Binance is always keen on developing the blockchain space. Maker already showed interest but I guess they probably think about a fully shielded DAI.
Risk of not acting
Competitors: awareness about the need for privacy in monetary transactions is slowly increasing and new products are going to be on the shelf. Aztec.network is releasing a permissionless private payment protocol on Ethereum, which could allow users to send tokens in a private manner directly on L1. In case major DeFi protocol would implement Aztec users would also be able to use AMM, PERPS, etc . privately. Proton.me just released a White Paper for a privacy preserving ZeroStableCoin(here).
And here I come with the second major risk for not taking action
Loss of first comer advantage: Zcash has arguably the best tech for private transaction, with the advantage of voluntary disclosure of information with the encrypted Memo feature. But it already happened in the past that projects with the greatest intuitions ahead of time have been forgotten.
For example, my friends and I closely followed Spell of Genesis (SoG), a card game based on Counterparty (a Bitcoin sidechain). BitCrystal, the game platform, conducted an ICO in 2014 to develop the card game, inventing collectibles on the blockchain, AKA NFT technology. TL;DR in 2017 Dapper Labs came with Cryptokitties and stole the scene; ERC 721 Specs were first proposed in Jan 2018. Where is SoG now? They moved to Ethereum but most of the crowd never heard about them.
If you want to read the full story, here is the research that I wrote for The Cryptonomist at the beginning of last year.
Value Creation for Zodlers only
The above suggestion is intended only to create value for Zcash hodlers and supporters. ECC or ZF could choose to develop a specific technology or add an exception for licensing. That wouldn’t clearly be in the interest of the Zcash community.
. The high level idea is to allow a third party can create sidechain-ish things that can have altered consensus rules (e.g. that allow locking of funds etc). I believe we should start researching things like this now as it may (or may not) help to bundle/overlap this kind of consensus work with the transition to POS.
