From product to adoption: how privacy becomes the default

Transcript

Okay, I guess we can get started. Thank you all so much for coming to my talk. My name is Mike McCave. As I said, I am the product lead at Privacy Pools. Yeah, we built privacy and compliance tooling and today I'm going to talk a little bit about what I think the future of privacy is going to look like especially on Ethereum. Um I'm going to talk a bit about where we are now, what the current hurdles are and yeah, how I think we can we can make privacy the default which is um the North Star.

So maybe to start off with this North Star, right? Ethereum itself the EF actually released that new mandate a straw map a whole bunch of stuff in like the last 2 weeks or month or so and for privacy especially I think this is incredibly encouraging given where we have been over like the last few years really. We have now this crops framework. We have censorship resistance open source privacy and security. And then we have the straw map which also here in the bottom left very small highlights the private L1 and so the timeline for that is 2030 plus we at Privacy Pools believe we cannot

wait that long and so that's why we're currently building privacy tooling on Ethereum and um yeah, let's take a step back from here and check where we are. Oh actually a side caveat what would privacy on the L1 actually look like? We have a few options. Obviously shielded pools as they currently exist in like for instance Zcash or Railgun or Privacy Pools or any other of the common privacy protocols out there. One thing I'm pretty excited about is the EIP 7503 which is the ZK wormholes. I don't know if anyone is familiar with that but I can go through it very quickly. Welcome everyone.

Um essentially the way that works is there's going to be a buy and mint burn and mint mechanism introduced into Ethereum where you're going to be able to send Ethereum to a random address which is not a real address and that essentially gives you a proof through which through that proof you are then able to mint ETH on a fresh address. And why this is cool is because it gives people plausible deniability. So there is like the opportunity to say, no, I just sent ETH to that address. I never actually used a privacy protocol whereas with um current privacy protocols like shielded pools, you're always going to have at least that deposit trace as a residual.

Token extensions is also maybe something that can be looked at. Solana has done some work on this. StarkNet has recently released Stark 20. It could be an option. I don't know if it's going to be in its current form or shape but that is also I mean we're talking 4 years from now. So I think there's going to be a whole lot of stuff that comes up in the meantime. But these are possibilities. Where are we now though? This is essentially the privacy ecosystem on Ethereum. We have Tornado Cash which despite being basically abandoned 4 years ago or so still has like by far the highest TVL of all privacy protocols and that's really a testament to what they built. It is truly permissionless unstoppable code which is of course

great but it has also left a stain on the privacy space as a whole, right? Then we have Railgun who is doing remarkably well. Honestly, I think they've processed something like 4 billion in volume which is incredibly impressive. They're shipping great stuff. So definitely one to keep an eye on. Aztec is an L2 so I don't know if we can really count it but it has 5 mil TVL and then Privacy Pools in number four with 2 million. So if you look at those actual numbers, right? Um 0.0 less than 0.01% of Ethereum activity is private. Um this is a sad state of affairs like we have 2.6 million daily transactions

on Ethereum. We have less than a thousand private transactions. Privacy should be the default for payments for any financial um products that you're shipping really. I mean especially in the year 2026 we are living in the cyberpocalypse. Every protocol is being exploited like AI is just destroying any kind of personal data that is published on the internet. There is no way to defend yourself unless you stay private. Um so I think privacy is incredibly important and really all volume on Ethereum should ideally be private. It should be the default but as you can see we're nowhere close.

So how do we get there? Well, I think we have three main problems in the privacy space right now. First of all we have the compliance risk. Obviously Tornado Cash has left a huge kind of like scare in the industry about privacy. Um Yeah, what happened to Roman and the like see is something that none of us want to experience ourselves and so people were being scared for a long time to build privacy tooling. Um then we have an integration friction because privacy tools I don't know if anyone has used them but they are incredibly complicated. Like you have to set up a new account and you have to give extra data save and it is honestly a real hassle and nobody wants extra hassle especially with when dealing with

blockchains which are already complicated. And then thirdly we have a huge UX gap. So privacy protocols currently are incredibly basic. They do not match standard needed for real on-chain volume and transactions and yeah, we're simply not good enough for mass adoption and volume yet. And so yeah, I'm building Privacy Pools V2. We think we address all of these things and so I'm going to I'm going to walk you through it.

First of all, the compliance risk. I mean we have seen a major major shift in attitude and tone towards privacy over the last year or so. I think this all kind of started with Zcash coming back into the spotlight deservedly so and suddenly like privacy was the next big thing, right? Like suddenly everyone was talking about privacy again which well, was great. I mean it's amazing to to see to be validated and to see the the interest reigniting. Um everyone like there is so many new privacy protocols spinning up and it is so great to see and everyone is now kind of like talking about compliant privacy.

We have kind of figured out ways to to keep bad actors out of privacy tooling right and so we do not have to be as scared of the consequences of shipping privacy tooling anymore and to take it one step further. I don't know if anyone has seen this but the European Central Bank released a roadmap for their API program which is yeah some stuff about tokenization and DLT. Whatever that means. But they have like one uh strict requirement in there which I found interesting which is like it has a requirement of privacy.

Who would have thought the ECB talking about privacy on blockchains? Um I think the compliance risk is is largely solved. We have good enough tooling to be able to say confidently build them now. So that is one thing. Then we have the integration gap. Um so currently privacy protocols are standalone applications. I don't need to download a separate wallet which is really cumbersome and slow and complicated to use or you need to keep like your secret stored in like a standalone web app or whatever. It is just a hurdle to use privacy currently and that is something that's going to be changed. So currently Kohaku is being developed. We

are developing our own SDK as well. I think what you're going to see in the next few years is that wallets are going to be integrating privacy natively into their wallet. So you're going to have a public balance and a private balance and you're going to be able to switch between those with one click basically. And so users care about privacy but they don't care so much that they're going to go and download a separate wallet where they then keep their separate funds and it takes them like 30 minutes to to load it and it's just a hassle but if it's one click I think I think that 0.01% of current Ethereum volume is going to rise and it's going to rise significantly.

Um so I think that is really a game changer for for the next few years and yeah, really one of the things that is that is going to help us make privacy the default. Finally, features. If you look at Privacy Pools V1, it is essentially almost the same as Tornado Cash, right? Like there is hardly any innovation in the actual privacy functionality and use cases in there. You deposit, you withdraw, you even pay a 0.5% fee for it like it's not a great experience in all honesty and yeah, what we did with Privacy Pools V1 is essentially the innovation there was the compliance mechanism. So can we do

privacy compliantly and that is the model that we've been trying to validate over the last year or so which well, if you look at where we are now and the amount of other privacy companies out there. I feel we've done a good job of that. So what we're planning with V2 is actually shipping the best privacy protocol in the industry and so one thing that I'm very excited about is we're getting rid of fees because people shouldn't have to pay a 0.5% fee on their total balance when they start using a privacy protocol. This this really really sucks.

Um At the same time, we are a company and we have people working for the company, so we need some form of revenue, right? So, what we figured out for this is we're going to be working with like Aave and Morpho and we're going to be through an opt-in feature, so not everyone has to do this if they don't want to accept this kind of like counterparty risk, but we're going to be by default putting your deposits into like a lending protocol and we're going to take like 10% of your yield and that allows us to operate as a company that allows you to earn yield on your deposit and um not pay any fees. So, I'm excited for that. Um we're going to have hardware wallet support. You're going to be able to store your ZK secrets directly on your ledger devices, which is a huge game changer because like if

you want to move serious volume, you want to be safe and secure and so you need a hardware wallet and it's difficult to store your secrets on a on a hardware wallet. What we're going to we're going to figure it out and um we're going to we're we're going to ship this. We're we're pretty close. We're going to have multi-sig and saves all private as well. Uh what's that? It's okay. Um which I think is also a really neat feature and then we're also going to have stealth addresses, so along with intense compatibility, essentially what that means is that you can use your private balance to do any kind of thing in DeFi. So, you can have a private balance of let's say one ETH and you can use intense with a stealth

address to be like, "Okay, I want to open a lending position on Aave." And we use intense to take that out. I think this is my WhatsApp actually, but Sorry about that. Um yeah, so you're going to be able to to say like, "Okay, I want to open a position on Aave and take out a loan." And we do that automatically for you using intense and a stealth address and we then deposit the amount that you loan from Aave back into the pool again. And so, yeah, that's that's a great feature because it makes it compatible with DeFi in a way that, you know, people see someone from a privacy pool open a position, but they have no idea what actually happened there, who it is.

Um yeah, and then we have one one feature that I'm personally the most excited about. I think it's great. It's the private payment request. I'm going to show you this in in a little minute. Essentially, what this is is basically Venmo style payments on chain um for uh yeah, private payments. So, I have that in a little more detail here. So, these are double-blind payments. So, the person that send is sending the money doesn't know who they're sending it to. The person that's receiving the money doesn't know who they're receiving it from. This is like a UX improvement we desperately need.

Like the previous stuff here, all the other stuff, it kind of like puts us on par with the existing ecosystem. If we want privacy to be the default, we need to make it better and that is what private payment requests do. Um yeah, so here are a little bit more details about it. Um I'm going to show you a video. I really hope this is going to work. I recorded this like an hour ago. We literally just finished shipping this, but let me let me show you. Yeah, so here we have the address, right? 0x d5c1. It doesn't have any balance in the privacy pool whatsoever currently. What I can do is I can press it and then ask for a payment.

Uh what this is going to do is it's going to trigger this window and I can insert the amount that I want to request, so 0.01 ETH in this case, and I'm going to create a request. Then I'm going to copy this pay link and now I can send this link to anyone using Telegram, WhatsApp, whatever kind of like messenger you use. In this case, I'm just doing it myself. So, here you see I have the address 0x 0x6c56. Uh from there, I post the payment request. Uh I have two options here. I can use my regular wallet, so with intense compatibility, I can pay this from any amount anywhere, but I'm going to pay directly from the privacy pool because that allows for the double-blind signing. So here, I simply click pay.

We are submitting it via the via the relayer, which ensures that we're all anonymous. And this takes a little while. I mean, we haven't solved everything yet, but like we're getting there. Um yeah, so private transfer payment sent via relay. I can now go into the explorer and I see something happened. It's a different address that submitted it, so that is where the double-blindness comes from. We use a relayer for this. Um but yeah, essentially it says something happened, but no one has any idea what happened.

And now what I do is because um what I did from this account is I spent one of my ZK proofs. So, ZK proofs are still a little bit clunky. In order to update it in new uh browser, I have to send a link back, which is like an import link, so this allows the account that didn't have any balance to receive the proof. I press receive payment, receive payment for 0.01 ETH. And I go back here and my balance is updated. I have 0.01 ETH now.

Um so, this is already kind of cool as like a standalone application in the website, but you can imagine once this gets like integrated into wallets that are commonly used, your MetaMasks, Phantoms, all this kind of stuff, like this is a great UX feature that we think is really going to help improve the privacy space and just payments on chain in general. So, how do we go from here? Just to sum it up a little bit. Um privacy pools V1 is live now. We are launching our testnet for V2 tomorrow. Some alpha there.

Uh we are launching our mainnet in May and then with the Kohaku release, which is planned for like Q2 this year, we're going to see embedded privacy in an increasing amount of applications. Um I think starting 2027, you're going to see privacy in basically every existing blockchain application. And yeah, 2030, we're going to have privacy on the L1 by default. So, I think there's very exciting times ahead. Three main pillars that I think are important, which is the compliance part, the embeddedness part, and the UX part where where we actually step up and make sure our privacy is as good as your regular tooling that is available.

Um yeah. Privacy isn't a feature you add, it is a default you restore. I mean, in TradFi, in banking, everything already is private. Well, private to not everyone. I mean, there's still like people that can see. Uh but by default, it's private and um yeah, we have currently have 500 million TVL in privacy and we have a huge chance to scale that. I mean, 0.01% is absolutely nothing. We're going to go from 1% to 5% to 10%. It's going to be an exciting few years ahead.

Uh yeah, thank you for coming to my presentation. Uh we only have one uh two more minutes. We can take one more question, one last question. If you like. No one? Any questions? Go for it. How do you handle liquidations on Aave if you shield back the collateral? Um so, that is essentially just address management on the UI side, right? Like you need to take tabs of like, "Okay, stealth address X was used to open this position. If I want to repay that

that collateral, I need to re-route it back through stealth address X." That is essentially just like a UI coordination issue. That's that's not a major difficulty. So, basically the the collateral remains on the relayer contract or something like that? No, no, no. The collateral is is So, a stealth address is essentially like a one-time use Ethereum address that you generate. Like, you know how in MetaMask like you can add account, add account, add account, add account? Um that is essentially how stealth addresses work in its most basic form. Um so, integrating stealth addresses essentially means that if we want to uh if you want to use Aave, then we open a stealth account for you, a one-time use account. Uh that opens the position and then you deposit it back in privacy

pool, so back to your private balance. Um so, repaying that is just like remembering which address was used to to create it and repaying it through that address. Wait, all right. So, the position remains on the stealth address. Yeah, yeah, yeah. Exactly. >> Thank you. So, thank you for your presentation. All right. Thank you so much for being here.