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A Framework for a Privacy Preserving Automated Market Maker (AMM)

A Framework for a Privacy Preserving Automated Market Maker (AMM)

I would like to first thank Ethan Kravitz from AGE Crypto for sharing this idea.

I would like preface this article with what I think is the 3 areas of focus from Satoshi in the original Bitcoin paper.

  • 1. Privacy
  • 2. Decentralization and democratization
  • 3. Replacement/substitute for fiat

“We must defend our own privacy if we expect to have any. We must come together and create systems which allow anonymous transactions to take place. People have been defending their own privacy for centuries with whispers, darkness, envelopes, closed doors, secret handshakes, and couriers. The technologies of the past did not allow for strong privacy, but electronic technologies do.” Cypherpunk’s Manifesto

I first read the Cypherpunk’s Manifesto at around 8 years old – at a very idealistic and moldable age. It was floating around in various IRC channels on EFnet (before The Great Split. It stuck with me ever since.)

With all the recent advances in DeFi, it lacks innovation in privacy.

Where is our second generation privacy focused protocols? (first generation being Monero and Grin to a certain extent).

There is Tari and Oasis. But how can they integrate in with existing DeFi?

The main thing we are missing in DeFi is permissionless, non-custodial anonymous transactions. Specifically, integrations with liquidity pools like Uniswap/Balancer/Curve/Compound etc.

Proposal for an Anonymous AMM that integrates into existing Liquidity Pools.

  • 1. Fork Tornado Cash (and make sure there is no exploit/bugs in the code)
  • 2. Some form of implementation of cryptography like zkSnarks with the creation of a token.
  • 3. Focus first on stable coins like DAI/USDC/USDT etc.
  • 4. Integrate with Curve.fi to start with.

This system essentially solves two of the largest problems with Anonymous transactions.

1. It creates a large liquidity pool to draw from, so there should be little no waiting unlike Tornado cash/Wasabi wallet. Essentially mixing it in a larger pool, which should theoretically provide more anonymity?

2. It will allow one to do conversions. For example, convert DAI into USDC completely anonymously. Eventually this will scale to all ERC20s, and even protocol tokens when wrappers/bridges are built.

See Also

Since it sits on top of Curve, people providing liquidity to this anonymity pool will receive both the pool token as well as yield from Curve. Double yield for all you degen DeFi farmers out there.

Another functionality could be also to split up transactions. For example, send in 100 DAI but you only want to convert to 50USDC for now. With the remaining 50USDC 6months from now.

As for Oasis, their EVM is compatible with Ethereum, so this could be potentially work. There is also Tari and Keep.Network. Would need a cryptographer to figure out the actual math/logistics (there are a few people that mentioned a cryptographer might not even be needed).

Lastly, could use something like NXM to insure against exploits or failures in privacy preservation. 

If someone wants to or currently working on this system, please email me at Richard@Certus.One

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