PriFi Protocols Take Center Stage in the DeFi Boom
The Intelligent Insurer #58: Privacy-focused protocols are gaining traction among investors
One of the biggest appeals of the digital asset industry is the anonymity it provides to users. However, while DeFi users have been drawn to the industry’s vast array of financial products that offer high yield, privacy continues to remain a major concern. The interest in privacy has led to a massive surge in so-called PriFi protocols.
In this week’s edition of the Intelligent Insurer, we will analyze the rise of PriFi protocols and how they are satisfying investors’ privacy concerns. We will also consider some of the risks associated with these privacy projects and how investors can protect their assets. However, we will first bring you some of the latest updates from our software development team.
Insured Finance software development updates
Our next-gen digital asset insurance platform continues to take shape. Over the past week, we made massive progress to ensure the successful launch of our mainnet. We improved the draft for our business requirement document, including the business flow diagram and initial system parameters. We also assessed alternative processes for the claim assessment voting system and success metrics for the smart contract failure coverage.
This past week, we successfully executed a code audit and no vulnerabilities were found when we ran a test for reentrancy attacks. We also made a few bug fixes and feature improvements such as:
- The insufficient fund error previously shown as a “Transaction failed or timeout” popup has now been replaced with an appropriate insufficient fund message.
- The skipped steps in the token bridge on Mumbai testnet have now been rectified.
- Some of the web components, including popup, buttons, table, cards, autocomplete, chip, and dropdown, have all been centralized into a web component repository.
- We have also completed a wireframe design for some parts of smart contract failure coverage.
- Improved design for claims assessment and staking processes.
Currently, we are working on converting the draft of the business requirement document for smart contract failure coverage into a proposal as we are yet to add a rough execution timeline. Additionally, we will continue to test for 14 other classic smart contract attacks and add a wireframe design for other parts of smart contract failure coverage. Seeing as our mainnet launch is imminent, we are making conscious efforts to eliminate any possible flaw in our platform and provide users with top-notch services.
Privacy concerns rapidly rising in DeFi
Poised to disrupt the nascent DeFi industry, the private DeFi or PriFi sector is gradually taking center stage. These innovative solutions seek to bring privacy on-chain and integrate it with the robust network of rapidly developing DeFi applications.
The DeFi landscape has thus far prioritized other issues such as scalability, interoperability, security, and decentralization. The conflation of anonymity and privacy had also resulted in misconceptions since most industry participants often think anonymous transactions are automatically private.
Data is one of the most important aspects of everyday life and decentralized applications rely on them to run. Paradoxically, despite providing anonymity, the underlying technology upon which DeFi protocols are built, blockchain, is public. This makes it possible to trace every transaction contained on-chain, and with extra effort, they can be linked to the identity of the various parties involved.
Hence, as the demand for more privacy-focused DeFi protocols continues to increase, developers are introducing several projects aimed at satisfying that demand. Let’s consider two DeFi protocols that are offering users privacy-oriented services.
Eliminating front-running on Sienna Network
Sienna Network is a privacy-focused, cross-chain DeFi protocol that allows users to have a completely private lending, borrowing, and trading experience with high scalability and extremely low transaction fees. Built on the Secret Network, a blockchain network built specifically for data privacy, Sienna intends to make its privacy-first and scalable DeFi platform interoperable with some of the biggest blockchain networks. The protocol is built on programmable smart contracts that facilitate some of these unique use cases.
These contracts allow the seamless transfer of sensitive data across different decentralized networks privately. Sienna also protects sensitive user data, including wallet balance and transaction details, from any monitoring risk. These features, therefore, prevent front-running or tailgating, wherein third parties can take advantage of an investor’s trade activity by mimicking their trading patterns.
One of the protocol’s flagship products is SiennaSwap, a decentralized Automated Market Maker (AMM). SiennaSwap is designed to facilitate private, seamless, peer-to-peer, and fast token swaps. Another important product that Sienna offers is Sienna Lend, which allows users to borrow and lend both public and private digital assets.
Like every other Sienna product, this lending platform is permissionless and enables private lending and borrowing across multiple blockchain ecosystems. Sienna also has a bridge to the Ethereum network that allows users to easily convert their public ERC-20 tokens to private tokens. The protocol is currently making plans to provide support for other blockchain networks.
The Sienna ecosystem is governed by its native ERC-20 token, SIENNA. The token is awarded to users for their contribution to the growth of the protocol. The token is currently trading at $4.40.
Collateralized privacy-enhancing digital assets on Panther Protocol
Panther Protocol is another project that is driving the PriFi trend. Panther is an end-to-end privacy protocol that enables interoperable on-chain privacy for transactions between users and several DeFi applications. The protocol aims to create a balance between user privacy and compliance standards.
Panther provides DeFi users with fully collateralized privacy-enhancing digital assets, leveraging various crypto-economic incentives and the zkSNARKs technology. Panther users can create interoperable zero-knowledge assets (zAssets) by depositing any digital asset of their choice into Panther Vaults. For instance, when users deposit cryptocurrencies like ETH, BTC, or USDT, they receive zETH, zBTC, and zUSDT in return. The zAssets are fully private synthetic assets, collateralized 1:1 to the underlying assets.
Panther users enjoy private, low latency, and capital-efficient transfers across several blockchains with multi-asset anonymity pools and innovative interchain capabilities. The protocol also allows users to create zero-knowledge reports that disclose data to select counterparties.
Additionally, Panther Protocol is a fully decentralized entity, with every major decision made by its decentralized autonomous community, PantherDAO. Users can participate in the decision-making process by holding the protocol’s native token, $ZKP.
PriFi protocols pose new risks
The DeFi market continues to expand and new products are driving the ecosystem’s growth and solving pressing problems. However, DeFi has also been a victim of its success as most of these solutions pose problems that investors deal with. For one thing, despite advocating low fees on these protocols, most of the transactions are carried out on the Ethereum network, notorious for its exorbitant gas fees. With the increase of network participants, complicated transactions cost even more.
Ultimately, while these PriFi protocols claim to provide complete decentralization, security, and privacy, they are not immune to exploitation. Investors can lose their assets when these protocols are hit by cyberattacks and the privacy-oriented nature of these platforms makes it impossible to trace stolen funds.
Hence, investors must give their assets all-around protection using insurance products like those offered by Insured Finance. By using these insurance solutions, investors can rest assured that their assets are protected at all times and that they are always protected in the event of unexpected incidents.
About Insured Finance
Insured Finance is a decentralized, peer-to-peer insurance marketplace. Users can request customized insurance on a wide variety of digital assets, thereby ensuring full protection. Those fulfilling requests can earn premiums and earn a competitive return on their capital. Claims are fully collateralized and settled instantly.