A new survey by Manta Network, a privacy-preserving decentralized finance stack built on Substrate, has shed further light on the need for privacy in the rapidly expanding DeFi space.
“We think one of the biggest problems that need to be tackled exists on decentralized exchanges,” said Shumo Chu, CEO and co-founder of Manta Network, in an email.
“The volume is large and increasing on decentralized exchanges, but DEXs are also a hotbed for front-running opportunities due to the transparent nature of the blockchain. Someone can see your transaction before it gets written and confirmed, and make the same transaction with a higher fee to get priority and pass that transaction before you do.”
Privacy in DeFi
According to the survey, nearly three-quarters of the 404 respondents (73.2%) “have either hesitated or completely avoided making a transaction in the past because they were worried about the privacy implications of that transaction.”
Additionally, 84% of respondents expressed concern about their wallet addresses being linked to their real identity. Part of this concern was caused due to the fact that the nature of blockchains allows people to see address balances.
In fact, over 90% of survey respondents said they’d looked up someone’s wallet address to view that person’s holdings and/or transactions.
The survey adds further weight to the notion that privacy is a central concern in the cryptocurrency space, and the Manta Network is one of a number of different projects in the DeFi space working to increase privacy functionality.
The Manta Network
The Manta Network aims to bolster privacy in DeFi, in part, by obfuscating wallet addresses, but with the overall aim of letting users transact and exchange privacy. A parachain in the Polkadot ecosystem, Manta Network’s first major project is a privacy-preserving automated market maker (AMM) DEX called MantaSwap.
The Manta Network is working to implement ZkSNARKs on the blockchain level. ZkSNARKs are a cryptographic technique that allows two entities to verify information with each other without having to share the underlying data related to it.
Think about it in the context of logging into a website, for example. The site verifies who you are without sharing your password, geolocation data or other information that can be used to figure out additional details about yourself that you aren’t aware you might be giving up.
According to Chu, Manta’s use of ZkSNARKS can bring privacy to transactions and user identity.
“While you are still able to monitor your own transactions, no one else can do so anymore,” he said. “By taking this and applying it in an interoperable manner (through Polkadot), we’re able to provide a plug-and-play solution for the entire ecosystem in the future.”
Right now though, Chu said the team is focusing on enhancing usability, given their goal is to be a plug-and-play solution. Additionally, they’re working to ensure transparency of both the code itself as well as the process.
“As part of the usability, we also want to focus on the security of the implementation, which takes time,” he said.
Why privacy matters
The implications for transparent transactions aren’t limited to someone knowing how much money is in an address. It can have tangible downstream effects, given that information is power.
In traditional finance, if you want to view your bank account information (including transactions and total cash), you have to prove that you are the owner of that account. No one else is allowed to view your information without your consent.
“It’s different on the blockchain – anyone who knows your wallet address can review your transactions, trace your transactions and see all of your assets,” said Chu.
Chu said that lack of privacy leads to a host of other issues that arise in scaling out blockchain use cases. Automated monitoring and scraping leads to unauthorized data collection, opening up potential opportunities for blackmail. In corporate use cases, trade secrets may be revealed by tracing transactions on chain.
On decentralized exchanges, that transparency leads to front-running opportunities, according to Chu. People are taking extra steps, which increases the friction of usage, just to make transactions more obfuscated.
Chu said the availability of privacy products are a secondary issue on DEXs, which is part of the reason he said he wants Manta Network to be plug and play.
“Future DEX projects don’t need to bring onboard their own cryptography team; they can use our development tools,” he said. “Other DeFi projects and general blockchain projects can do the same thing.”
Funding and the future
The Manta Network, which was previously a Web 3.0 Foundation Grant winner, closed a $1.1 million funding round, led by Polychain Capital, to build MantaSwap.
“Manta Network brings an experienced team to tackle the critical and growing issues regarding privacy on the blockchain,” said Ben Perszyk, partner at Polychain, in a statement. “Its unique approach to building as a Polkadot parachain enables them to offer plug-and-play privacy to a multitude of use cases and projects, starting with their own privacy-preserving DEX.”
The funding will jump-start Manta Network’s development. The team is currently finishing its prototype to deliver to the Web3 Foundation. Before the end of Q1, it will be delivering the first version of its test net. In future releases of the test net, it will introduce other assets as well as exchange functionality.
“Our goal is to get main net up before the end of the year, but we recognize the importance of making sure that the security aspects of our network are thoroughly tested and addressed before we make the decision to launch the main net,” said Chu.
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