Article contributed by Xulian.
Void Protocol will be launching soon on the Terra blockchain. In this article I will breakdown: What is Void Protocol? Why is it important? And how can you benefit? I will break down how this protocol works, and if you stick around, you can read about how you might even be eligible to get some free $Void as well!
What is Void Protocol?
Void Protocol is a mixer. What is a mixer? It is a way to anonymize your tokens. Tokens are mixed with others and become difficult to track, thus providing anonymity. The important thing here is what makes the Void Protocol unique. Let’s look at their core values:
- Opportunity cost
- Interoperability / Multi-chain
I’ll highlight why someone might want to move their funds to preserve their privacy.
Maybe you are a writer and want to have a Tip Jar on Terra. However, if you share your own wallet maybe users would be less willing to tip, seeing your net-worth is big, or you simply don’t want to share your personal finances with the world. Your tip wallet could send funds to your main wallet without others being able to track you. You would be able to keep your funds anonymous without doxxing yourself to the community. Opting-in on financial privacy.
Here’s another scenario. Perhaps you are in Canada or in the EU where users are soon going to be required to use KYC on independent wallets (don’t get me started on how this can’t really be regulated), or you are in a place where the government is trying to restrict how you spend your own money. Worse, you live in a country with an oppressive government that wants to take your funds or has decided crypto is illegal. Once they have linked your Terra wallet to you via an exchange’s KYC, it’s game over.
KYC (Know your customer) is often required on exchanges to onramp fiat to crypto, however, the devil is in the details. Once a third party holds your personal information and they are subject to regulations, it does not take much for governments to go after you. Say a government suddenly decides that crypto is illegal and that they will go after everyone that has crypto. KYC is not your friend since they can easily access your information. Furthermore, let’s look at recent examples from the war. Say you are a citizen of Russia. You have nothing to do with the war, however, since your government suddenly decided to enter this conflict, the outside world can target all Russians to restrict your financial liberty, regardless of your direct involvement. Or say you are trying to flee, your government could seize your funds and might even try to take your crypto as well.
If you choose to opt-in for financial privacy, then you can protect yourself and your savings by making your finances private.
Void Protocol will become open source. Not only that but it will also transition into a full DAO structure where the $Void tokens will give voting rights to the holders to help with the decision making of the DAO. Decentralisation is a core value in the crypto space and Void is trying to honour this with its token distribution, since you can only truly have decentralised governance if you can have a fair distribution of your tokens.
As we can see from the below image, more than half of Void’s total token supply will be distributed towards community participation and incentives. 32% alone is already a big amount for protocol rewards – these will be paid to liquidity providers for the mixer. Then we also have 15% being given as an airdrop for active participants in the terra ecosystem.
The Airdrop will focus on the following criteria, with a special focus on active users:
Luna Stakers — 3.5%
ANC Stakers — 3.5%
MINE Stakers — 3.5%
Atlo Stakers — 3.5%
Galactic Punk Stakers — 1%
The opportunity cost is probably one of the aspects that makes Void protocol most unique. In many mixers and anonymisers, users lose in potential gains as they need to wait for their funds to be mixed. However, here the protocol takes on special strategies in order to earn the users an extra APR while they wait for their tokens to get mixed. Not only this, but as we saw from the above distribution, for the first 72 months there will be extra protocol rewards for participants engaging by providing liquidity so that others can anonymise.
Depending on the pool you enter (UST or Luna) you will earn a different APR depending on the strategies available for those assets.
Void Protocol is looking to build interoperability into the core functions of the protocol. Through IBC, users will be able to connect and use the protocol cross chain. This means users from across the IBC will be able to anonymise their funds safely through Void Protocol.
How does it work?
It is important to highlight how Void Protocol is able to anonymize your funds since recently, there have been breakthroughs on other mixers, specifically Bitcoin mixers to unravel and track users’ funds.
Let’s break down the science!
Void Protocol uses Zero-Knowledge Proof (Z-K proof) — wait wtf is that– Ok, let me break it down. Zero-Knowledge Proof is a way to prove something is true, without providing reasons as to why something is true.
This may sound crazy but let’s break it down some more. With Z-K proof there are typically two parties, one that holds the information and the other that is inquiring about said information. However, the party that holds the information does not wish to divulge all their information, yet it wants to prove that the information it holds is true.
We will call these parties: the Prover, and the Verifier. Here, the Prover looks to convince the Verifier that a statement is true without revealing any additional information. The idea is that the Prover is able to provide evidence that the information they hold is true, without revealing any of their secrets. This is a way to retain special information, while also providing proof that something is real. Through mathematics Z-K proof can show random bits of information in order to provide enough trust that the whole information they hold is in fact true.
On Void Protocol the use of ZK-Snarks (Zero-Knowledge Succinct Non-Interactive Argument of Knowledge) are currently carried out via smart contract. This is one of the best ways to provide decentralised, private and secure interactions.
If you still cannot wrap your head around this concept, maybe you’d enjoy this video explainer. I personally enjoyed the first 3 minutes when the scientist explains it to a toddler.
Void Protocol’s 3-step model
One of the biggest issues with other mixers is that transactions are becoming more easily tracked. The reason for this is because they can track the exact number that has entered the mixer and then follow that exact number when it exits the mixer. Say 4.23567 BTC enters a mixer, and once that exact number is withdrawn to another wallet, it is easy to see who was moving it. For this, Void has a simple yet effective solution.
The 3-step model consists of the following; Deposit, mix/earn, withdraw. There will be specific set amounts for the deposits, which are very important to keep anonymity.
Deposits are in the following structure:
UST Deposits: 100, 1000, 10000
LUNA Deposits: 10, 100, 1000
Having these set deposit sizes helps to keep anonymity, as I mentioned above, since the exact amounts or decimals can act as a way to follow your funds.
When you deposit your funds you will get access to a cryptic phrase; this is how zero-knowledge fits in. You, the user, will get access to a form of ticket that shows the proof of your deposit — a cryptic phrase. Make sure to keep this safe!
Mix/earn. When deposits are made, they are pooled together. Since deposits are of similar size (mentioned above), the longer you stay in the pool, the harder it becomes for anyone to track your funds. While your funds are getting mixed with other users’ funds, they will also be earning APR from Anchor which currently pays around 19% APR. On top of this, there will be additional incentives in the form of $Void rewards to promote users staying in the pools longer.
Withdraw. For this all you need is to add the wallet address of your choosing and then add the cryptic phrase you were provided when the deposit was made. Finally, accept the transaction! The gas owed on this transaction will be paid through a relay which means the receiving wallet is left unrelated. The funds the new wallet receives will be completely unassociated with any previous wallets, not even the gas fees!
Awesome, not only did you learn about Void Protocol but you also learned about Zero-Knowledge and how this is helping with security and privacy in your finances. Moving forward, there are a few ways you might want to get involved. Maybe you will be one of the lucky airdrop receivers; did you know this is the first protocol airdropping to specific NFT holders? But most of you will probably participate through the liquidity incentives by providing either UST or Luna and earning $Void on top of the other earning strategies the protocol employs.
Privacy is an important part of finances and moving forward, it will be increasingly important to have alternatives in order to protect your financial privacy. It is exciting to see protocols come onto Terra that can create more privacy for users.