DeFi and Privacy
The rise of DeFi in 2020 took the financial world by storm. The Total Value Locked (TVL) surged 14 times in 2020, reaching a peak of $112.07 billion and $228.54 billion by the end of the first quarter of 2022. The growth of DeFi is evident, but the journey towards a decentralized ecosystem is not easy. As on may 2022 the total value locked dropped to a low of 87 billion due to the recent market crash. However the major hurdle toward true decentralization is to curate protocols that preserve the user’s privacy by default.
Privacy Issues in DeFi
When transaction history can be derived from the blockchain and user data can be obtained from the application, the risk of losing privacy increases. If deanonymization of users can be executed through frontal attacks over data cryptography disclosure protocols, the chances of losing privacy increase manifold.
Transactions today are private, but for algorithms and data from third parties, it is easy to spot who the person is. It will become easier as we venture into the future with more applications that are part of daily life.
Furthermore, MEV (Miner Extractable Value) bots have decimated everyday users on dApps. Publicly visible collateralized positions have elicited more prominent market makers to advantageously leverage price movements and cause mass liquidation events. The front-running of NFT marketplaces has damaged the reputation of multiple platforms.
In addition, the lack of transactional privacy has doxed various DeFi entities. For example, asset transfers are closely monitored, restricting the entity’s ability to start operating without the market being made aware.
Rise of Secret Network
The Secret Network, is a blockchain to provide data privacy by default, allowing you to build and utilize permission-less and privacy-preserving apps. This one-of-a-kind feature safeguards users, secures programmes and opens up avenues for hundreds of new Web 3 applications.
Current blockchains are public by default, but to achieve the global adoption of blockchain technology, users and organizations need complete control over how their data is used and shared – a concept called programmable privacy. This network aims to combine blockchain technology with disruptive privacy technology. It is a layer-one solution built with the Cosmos SDK leveraging proof-of-stake (PoS) consensus using Tendermint’s Byzantine fault-tolerant algorithms. Secret Contracts on Secret Network achieve data privacy for Shade Protocol using on-chain encrypted data with Trusted Execution Environments (TEEs). In addition, the Secret Network unlocks hundreds of new and powerful Web3 use cases, opening them up to everyone.
The Secret Network has the potential for immense growth, which has already picked up pace. Secret Network’s Total Bridge TVL was $48.89M on March 31, 2022. Daily transactions were counted as 2.79K on the same day. The DeFi wave and future Web3 applications need privacy-preserving ecosystems, and Secret Network is just that.
One protocol that will further boost the growth of Secret is Shade.
What is shade?
Shade Protocol is an array of linked privacy-preserving DeFi-apps built on Secret Network. Shade will build a collection of distributed and linked privacy-preserving DeFi solutions that take advantage of Secret Contracts on Secret Network’s full capabilities. These interconnected privacy-preserving DeFi solutions built on Secret Network will change DeFi, empowering the next generation of value creation and exchange.
Silk, from Shade Protocol, is Secret Network’s native privacy-preserving stablecoin that will undergird all of the other Shade Protocol applications that are created. And, the governance token for Shade Protocol ($SHD) will be integrated into all of the products that are (or are not) listed on the product roadmap. Encrypted metadata for smart contracts unlocks an entire layer of value previously inaccessible to DeFi protocols and users. Privacy integrated into Defi products protects user anonymity, positions, and value transfer.
Shade Protocol aims to fill this void and fully leverage Secret contracts enabled by the architecture of Secret Network.
IBC enables some essential features for shade protocol, such as:
- Token transfers from and to the Cosmos ecosystem
- Making Silk stablecoin flow easily to Cosmos and other ecosystems
- Other assets like OSMO, ATOM, etc., can also be received by users on the Shade protocol.
- Communicate and enable simplified swapping between different cryptocurrencies.
The main support of IBC is that it enables the Shade protocol to transfer and receive value easily from other Networks.
Features of Shade Protocol (Products)
Several decentralized applications will be integrated with Shade Protocol; we will look at the two latest protocols – Silk, the world’s first privacy-preserving stablecoin and the liquid staking protocol.
What is Silk?
Silk is built on Secret Network as a native privacy-preserving algorithmic stablecoin using the SNIP-20 token standard. The Silk architecture is designed using a dual-burn minting process for both the governance token Shade and the stablecoin Silk. Total stablecoin supply is limited by initial Shade distribution and Total Value Burned (TVB) in the minting process of both Shade & Silk (which are convertible with each other). Native AMM support in combination with Shade and Silk convertibility resolves peg disparities.
Applications of Silk
Silk aims to be a single application-layer protocol that replaces the payments value chain (credit card Networks, banks, and payment gateways). Shade Protocol and Silk are trustless, distributed, and provide transactional privacy by default. In addition, Silk and Shade transactions may be decrypted using a viewing critical unique to the address owner of the Silk; this lets users be visible by choice, which is vital for compliance and transparency.
Shade Protocol brings privacy-preserving SNIP-23 liquid staking derivatives to Secret Network! Simply purchase or mint a liquid staking derivative (such as stkd-SCRT) and immediately start to privately accumulate staking rewards while simultaneously putting your staking derivatives to work with liquidity providing, lending, trading, and more.
Shade staking derivatives (denominated as “stkd” pronounced “staked”) empower the following:
- Private staking
- Automatic reward compounding
- Compounded staking rewards without triggering a taxable event
- LP opportunities
- Reduction of validator risk by automatically spreading delegations out to multiple performant validators
Q2 2022 will see the launch of Testnet. Although this technology has promising benefits and a positive predisposition because of the privacy and confidentiality benefits, It still needs to be tested before being executed and invested. Its testnet is set to launch in the 2nd quarter. Then, during this final stage, Shade Protocol is deployed to the mainnet for users to begin using. With the mainnet, Silk becomes available to the entire world of DeFi.
The Shade Protocol will implement synthetics in Q3 2022 and empower the idea with partnerships and listings. Q4 of 2022 will see the whole application of the Shade protocol and more innovative ideas for the DeFi ecosystem.
Our investment thesis:
DeFi needs privacy-preserving protocols so that DeFi users can be guaranteed the privacy they want. Shade’s unique features are set to increase decentralization and give the users more privacy while interacting with DeFi.
Shade Protocol currently has 20+ full-time or contract developers, project coordinators, marketers, and business development experts working on all crucial primitives in development due to this fundraising, making this team of decentralized contributors one of the largest on Secret Network.
Shade is a significant step towards true decentralization. Privacy integrated into Defi products, protects user anonymity, positions, and value transfer. The TVL in DeFi will rise as more protocols such as Shade come into play to protect the privacy of DeFi users.
Users should have the right to privacy and ownership of their data. The DeFi ecosystem needs more protocols that prevent third parties from obtaining the data that can trace the owner of a wallet or its address. It is what we aim to achieve, and this is what Shade is made to fulfill.