Composable Labs is proud to announce it is developing an anonymity protocol called Whirlpool Cash to continue to serve the growing appetite of DeFi users in a constantly growing, privacy-aware world. Whirlpool Cash is a privacy-preserving protocol built atop Picasso while still allowing for these idle assets to be utilized for activities like yield farming, a feature lacking in other privacy-preserving protocols such as Tornado Cash. In a nutshell, Whirlpool Cash combines the powers of anonymity for transactors with an added yield earning opportunity on a single protocol.
Decentralized ledger technologies such as public blockchains have become prominent largely because they allow users to control their financial assets without the regular go-betweens such as banks. However, given the rapid global rise of blockchain technology, it has become more evident that, although it provides anonymity, blockchain does not necessarily guarantee privacy.
To resolve this limitation, several projects have developed solutions aiming to ensure privacy in the blockchain ecosystem. These solutions have been effective at attaining this goal. However, we have realized that these existing protocols do not capitalize upon their opportunity to provide users with a yield simultaneously.
To resolve this limitation, several projects have developed solutions aiming to ensure privacy in the blockchain ecosystem. These solutions have been effective at attaining this goal. However, we have realized that these existing protocols do not capitalize upon their opportunity to provide users with a yield simultaneously.
Existing examples such as Tornado Cash are representative examples of effective solutions while still giving room for more utility.
An existing privacy-preserving protocol — Tornado Cash
One of the leading protocols that affords its users privacy while carrying on-chain transactions is Tornado Cash. Tornado Cash as a decentralized, non-custodial protocol solely caters to transactions on the Ethereum network. It applies zk-SNARKs (non-interactive zero-knowledge proofs) technology to allow users to safely transfer information (financial transactions) without necessarily revealing the information itself. Tornado Cash is structured so that users generate a random key (a “note”) when depositing their Ether or any ERC-20 token into the Tornado Cash smart contract. This note is then hashed and inputted into the smart contract, serving as a private key for users to access their funds later.
Upon successful deposit, users must wait for some time before making withdrawals; this is necessary for improved privacy. At the time of withdrawal, users must provide proof to validate that their key matches one of the notes in the smart contract. Following validation, the user’s tokens are transferred to the ERC-20 address they provided.
Tornado Cash nearly breaks the direct on-chain transaction link between the source and the destination addresses. First, its smart contract accepts ETH payments that can be withdrawn to different addresses. Then, it masks users’ identities entirely by utilizing a relayer: allowing users to withdraw ETH to an address with no balance. By this, privacy is maintained as deposits cannot be linked to withdrawals.
Despite privacy being highly maintained, there are some noticeable limitations with this process utilized by Tornado Cash and other similar projects within the space.
Limitations of the Tornado Cash approach
The most significant issue with the Tornado Cash approach is that users’ funds are static during the tumbling phase. Tornado’s relayer dictates that compensation is removed from the balance before withdrawals are completed, and there is no yield farming opportunity embedded within the network. Resultantly, users have to pay for this iteration without getting returns on their assets. Furthermore, the protocol is limited in token compatibility, as it only works for ETH and ERC-20 tokens.
Our yield generating privacy solution — Whirlpool Cash
Composable Labs, the experimental research arm of Composable Finance, is developing Whirlpool Cash as a comprehensive and improved privacy solution that fixes the shortfall of other protocols like Tornado.
With the Picasso parachain integration into Kusama, Whirlpool Cash will be natively interoperable with other solutions within the Composable Finance ecosystem. This facilitates improved security, enhanced privacy, and augmented interoperability between several liquidity rich L2 solutions.
Moreso, Whirlpool cash is not constrained to a single asset type (like Tornado Cash is to ETH and ERC-20 based tokens). Instead, Whirlpool Cash will support all tokens accepted on the Picasso parachain as well as other Picasso-compatible chain tokens, thereby offering users a wide range of options and enhanced opportunities for privacy.
Whirlpool Cash will be a complete privacy solution on the blockchain, providing users with on-chain privacy while incentivizing users through yield farming deposited assets during the tumbling phase.
Furthermore, Whirlpool could be utilized with a privacy-preserving chain, such as Secret Network — the first IBC-enabled privacy-focused blockchain, as well as Composable’s very own Centauri-IBC substrate bridge. This integration would establish the first-ever private bridge, enabling users to connect directly into Whirlpool Cash via Kusama, directly from Secret Network, while maintaining utmost anonymity.
The bigger picture
Although the transparency associated with crypto transactions is largely positive, attaining privacy in transactions is ultimately the next step in promoting the global adoption of blockchain technology. Whirlpool Cash was thus created to fill in this role for all users.
Composable Finance is relentlessly developing an ecosystem that leverages Dotsama’s innate characteristics in the most efficient ways, such as lower transaction costs and faster transaction processing speeds. We are always looking to improve the experiences of the DeFi community by continually exploring ways to increase yields and believe Whirlpool Cash will be significantly beneficial to our users.
Whirlpool Cash was developed through Composable Labs, Composable Finance’s incubation and testing ground. An ideal project for the incubator, Whirlpool aligns with Composable Labs pillars: supporting projects using the Composable tech stack, and shedding light on while finding solutions to complex problems in DeFi. As Whirlpool develops further, Composable Labs will continue to play a vital role in ensuring the success of our yield-generating privacy solution.
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