Confidential Tokens: The Missing Primitive for the Next Generation of DeFi

Transcript

[music] >> Let's go. Hey everyone, I'm Martin, developer relation at iExec. And you know what? I know your last transaction amount. I know your wallet balance. I know your yield strategy and I can copy it even if you spend months building it and I know what you did last summer.

I'm not a hacker. I didn't breach anything. I just open a blockchain explorer. Why? Because blockchain is transparence. Transparency. Transparency is what makes blockchain powerful, sure. But in finance, it can be it can be a problem. Maybe for retail, no. Maybe you don't care about, you know, your transaction. But for institution, when they are building complex strategy, they need a bit of privacy. And today I want to talk about something I truly believe it's in my opinion, one missing piece in RWA and DeFi ecosystem is the confidential

token. Yeah, I've got some sound effect. This is not how finance works. Traditional finance position are private, strategy are confidential, compliance is selective, but it's centralized. DeFi today, position are public, everything is transparent, strategy are exposed. And it shouldn't work that way. Why? Because transparency can create systemic issue.

Like you all know what is MEV, sandwich attack, strategy leakage, adoption ceiling. And the problem without privacy, in my opinion, it's a blocker for DeFi and RWA scale and institution and big company won't come and invest if there is not if there isn't any privacy. So, that's not a friction point, that's a hustling in DeFi adoption. And so, what's the fix?

A lot of people talk about privacy, private transaction, shielded transfer, mixing pool. But and that's that's really useful and I'm using it, too. But it's not enough. We need confidential token. We don't we we don't need to just hide the transaction. We need confidential asset. We need private asset token, private transfer, private state.

And it should be unencrypted by default. This is the missing primitive. So, how you can do that? Let's talk about the ERC-7984. You can think it as a wrapper. Like you can take an ERC-20 and wrap it. So, why I quote it? Because it's not a proper wrap. It's you will lock token and mint token with the ERC-7984. And then you can get some confidential token and then use it in an ecosystem, in a private vault. But you might think like, "Okay, Martin, but what is an ERC-7984?

Sounds a bit complex." It's pretty simple. It's an ERC-20. It's the same interface. But with unencrypted state, with a confidential utility layer inside. Like the balance of become a confidential balance of the total supply become a confidential total supply. And the transfer, you write a confidential transfer. We pass from the uint256 to a byte32. It's unencrypted.

And I you might notice this small enc handle. It state for unencrypted handle. But what is handle? It's a key element in this architecture, in this protocol. Why? Because you won't use plain text data. You won't or you could use directly unencrypted data and compute them, but it means like you should use FHE. And FHE is not really powerful, it's really expensive and it's not mature, in my opinion.

So, unencrypted handle, what is it? It's a secret. Like you all go to a club, a discotheque. And when you come to a discotheque, you can end your code to the attendant the attendant. It will get you give you back a ticket. This ticket point to your coat in the cloakroom. It means this ticket, you can know nothing about your coat. You don't know the color, the size, what is inside your coat. It's just a ticket, it's a pointer. This handle it's the same thing. It's a byte32 point on a cipher text in a really secure database. Your

secret value is unencrypted off-chain and the handle is a pointer not to the data itself. It's really important because you are manipulating um handle, not the data itself. And the compute is uh is done on handle, not cipher text. And where it's a really important part. Like where you could manipulate handle [clears throat] and cipher text in a private ecos in a private space. Yeah, TEE, trusted execution environment. It's a really important privacy technology. And specifically, Intel TDX, trust for trust

domain extension. It's a really powerful one. But I know in this room some people are thinking like, "Yeah, TEE, it's hardware. You need to trust the provider and we heard about breach of TEE." No. Honestly, it's basically impossible to break into a provider Intel TEE provider and just access the hardware, downgrade the BIOS and etc. etc. But you're right, on itself, it can be maybe not enough. So, it's why you can combine it with other privacy technologies.

For sure, for the computation, we've got the TEE. For the speed operation in millisecond, it's honestly really fast. The key management because if I'm sending you $100, I will unencrypt this data and you need we need to unencrypt it with a private key. But this private key, it can be a central point of failure. It's why we need MPC. We need we need to share uh this we need to share this private key in multiple part. It's a threshold cryptography using Shamir technology.

So, the trust no single entity hold the key. And the last one, ZK. DK technology, why? Because with TEE, you've got something called remote attestation. It's an attestation that can prove that the code and the operation and the math that happen inside the TEE are real and they happen in a TEE space. And if you want to store and make this remote attestation verifiable, it can be really expensive to store it directly in the blockchain. It's why you can use ZK technology to store a really light proof and everybody will be able to verify this proof. So, you can combine all those technology. It's

become hybrid privacy and anonymity technology. So, we don't bet on one primitive. Each technology does what it does best. So, let's talk about the C token, confidential token transfer. I should have the demo, but my computer is not working. So, I couldn't do it live. I'm not scared about the demo effect, but it's it's cable problem. So, the confidential token transfer flow, a user in the demo can just unencrypt you've got some ERC-20, you um unencrypt, I don't know, 10 USDC.

Through the process, it will be unencrypted and then wrap to an ERC-7984, become a confidential USDC. And how does it happen? We are using smart contract. It will emit an event and then the event will trigger the computation. What is this computation? It will just readjust the balance of each token. And everything happen in the TEE. Transfer, decrypt, check balance, compute new balance, re-encryption. So, everything is fully secure. And then the new balance the new handle point to the new balance are stored in a really secure database.

This is a demo. It's live. You can test it right now. But I can send you the link just after. And you know the user, you can see the public asset, confidential one. You can reveal, you can sign, we are using EIP 77 712. You can reveal the amount, you can unwrap transfer of course, and we've got selective disclosure. It's really important cuz confidential token I'm talking about institution adoption.

And if I transfer you some money, it can be shady like everything as you can see there, it's zero. Even if I'm sending you 10K USDC, it's zero. It's a confidential transfer. So, if a state come and say, "Hey guys, looks like shady. I want to access to this." Can I? Of course, you can. Because privacy does not mean opacity. We need to set in this architecture a disclosure by choice. It means if someone ask me like, "I need to see this transaction. I need to see this balance." I should be able to to reveal it. And authorize people

to access. It's why you've got through smart contract an ACL engine. It's an authorization, it's a granting authorization engine. When you can store like I can say uh if I come back to there if I click there, selective disclosure, I can select a wallet and say, "You will have access to my USDC balance." Okay, great. But, is it forever? No. You remember, a balance is a handle. A handle point to a balance. I will authorize someone to access to one handle. It means as soon as the handle change

you lose the authorization. So, it's really selective disclosure at a specific moment for a specific amount. And then you can get back your ownership. And it's really really important to be compliant if we want to scale the adoption, institution adoption. If we want to onboard the next next generation of user. So, real use case today, there is plenty of like private credit lending, stocks. Uh I think currently RWA I think in 20 in 20 27 or 30, we will have more than 30 billion

asset under management in RWA. It's why this architecture, this technology can enable that. That's pretty cool. And another pretty cool stuff because it's a lot of pretty cool things in my presentation. We are compatible. I say we because at IX Tech, we build this. It's not like a theoretical things like, "Hey, I would like to do." No, it's like it's working. We've got some builders starting to build some stuff. And it's compatible with the ERC 36 43, even the ERC 75 40.

That's pretty cool because you can mix it, you can use it with other ERC standards. From concept to reality, yeah, I don't know why it's broke, but we've got different layer. The confidential ERC 20 I talked about it's the the base, then the ERC 7984, the multi-privacy layer because just if we're talking about privacy layer just only one, it's not enough. You need to combine them. Everybody know that. Even, you know, other privacy tech company are combining with other technology. We need because it needs to be safer with privacy and selective disclosure.

DApps SDK because if you want to onboard the builders building the next DeFi unicorn application with privacy, you need something easy to integrate. A simple SDK or even just you import library solidity in your smart contract and you can just transfer the, you know, from the uint256 to byte32 and it become confidential. It's pretty easy and we even got an amazing wizard. And you can build your smart contract in a minute. Confidential compute, really important TEE-based hardware. Everything happening it and smart contract I talked I talked about it. So, Knox protocol in

a nutshell. Composable. Of course, it need to be composable because you can't work with only like, "I want to work with AAVE, but I want to work I can't work with Morpho or other protocol." You need to be composable. Easy to use as I say and simple SDK, then you can wrap, unwrap, transfer, disclose. Boom. And with my five coding it's so it takes I don't know, maybe a few hours to build your app. Trustless, for sure. You need to prove that it's running the TEE and it's why we've got the remote attestation. What we go a bit further. I don't know if you heard about proof of cloud. Proof of cloud is a way to prove that your TEE is running in provider

such Amazon, Azure, etc. So, you've got the proof that it's not a shady server far in the world. It's something legit and you can trust it. Multi-privacy, I talked about it. Scalable omnichain, it's currently we've got a we are on Arbitrum and Arbitrum Sepolia. But, you can deploy it really easily. It's kind of click and deploy. So, we could be tomorrow on your chain. We can be we can be everywhere. And selective disclosure, important piece for the institution, the big company.

Oh, already? Yeah. That's all. Thanks. >> [applause] >> Any questions? I'm sure you've got plenty of. Cuz it was an amazing presentation. Yeah, I got one. Not too complex, not too technical, please. I'm only the developer relation. Uh you did you did pretty well with the explanations. I think it's quite clear. Um the question is who has access like who can de-anonymize the transaction like this selective disclosure? Is it only the user?

>> Only you. Like you've got your balance, you've got your wallet, you've got your confidential token. I'm the state, French, I don't know, and I say, "Ah, I want to see your balance now like this transaction." You can just I send you a wallet, put your wallet, grant access, and in the demo, you have access on the list of who are granted, who are revoked. And you know, you give me access, but only for the handle. As soon as you you are doing another confidential transfer, poof. I don't have access anymore.

Yeah, that's pretty good. And that's it. Thanks. Sorry. Why shouldn't shouldn't all Ethereum transactions be this way? Oh, I I did Can you Sorry, the microphone is coming. I'm French. Sorry. Why shouldn't all Ethereum transactions be this Why should Why should not? Every transaction in an Ethereum >> Right. I mean, what Why don't we Why isn't everything like this? Oh, it's coming.

It's coming. We are building the first bricks. And I think in the coming I I would say in the coming weeks, no, but in coming months, coming year, it will become a standard. Like uh for sure, like I think we everybody is talking about privacy like, "Oh, privacy, privacy." But, honestly, who care about privacy here? Who when you are doing a transfer like, "Oh, no, I don't want you to see my transfer." You don't care. It's for institution. And now we've got big tech with big we've got institution that interested in stablecoin yield strategy more and more.

Now privacy have to become a standard. And it will. And it's exactly what we are why we are working on it. We build we started the company in 2017. We capitalize we we pass through a lot of um project. And we've got a pretty deep comprehension understanding of this ecosystem. And it's why we deeply trust in this and it will become a standard for sure. So, be reassured. Let's talk in 1 year. IX Tech everywhere.

I hope. You want more question? Let's you you can try the demo CD 5.ix.tech. It's live. Get your confidential token. You can confidentially buy me a coffee if you want after. Okay. Thank you for our presentation. >> Thank you. >> [applause] [music] [music] [music]