Understanding Sequoia Capital's Privacy Public Chain Espresso: What is Configurable Asset Privacy?

Organizer: Nianqing, Chain Catcher

Recently, Web 3 application expansion and privacy system Espresso Systems completed a $32 million financing round, led by Greylock Partners and Electric Capital, with participation from Sequoia Capital, Blockchain Capital, and Slow Ventures.

To achieve higher throughput, Espresso Systems uses ZK-Rollups, a zero-knowledge proof-based solution that allows transactions to be processed off-chain. ZK-Rollup consolidates multiple transactions into a single proof that is easy to verify, thereby reducing the bandwidth and computational load of the consensus protocol.

However, the core of Espresso Systems' strategy focuses on privacy and decentralization. The uniqueness of its privacy system lies in its configurable asset privacy (CAPE) smart contracts deployed on Ethereum. "Configurable asset privacy," as the name suggests, allows users to customize entries such as asset quantity, type, sender, and receiver addresses. Users can choose which information to disclose and to whom.

Currently, Espresso Systems is still in the development stage. According to the roadmap released by the team, the first layer testnet of Espresso Systems is expected to launch by the end of this year.

Espresso Systems was founded by a team that has been at the center of the cryptocurrency and Web3 ecosystem for years. Many core members have backgrounds from Stanford University, with Ben Fisch, Charles Lu, and Benedikt Bünz pursuing their PhDs in the applied cryptography research group at Stanford, having previously participated in projects like Filecoin, Monero, and Chia.

In October 2020, Espresso Systems completed a seed round of financing led by Polychain, with other investors including Alameda Research, Coinbase Ventures, Terraform Labs, and others.

What is Configurable Asset Privacy?

The complete transparency of blockchain is not always positive. In certain scenarios and use cases, moderate and partial disclosure of personal data is necessary. Once our privacy is configurable, you can imagine the following scenarios:

• Stablecoin providers can allow users to trade privately, protecting user privacy while also allowing issuers to maintain real-time visibility of balances and transactions for risk management.
• Venture capital and asset management companies can maintain the ability to audit their clients' holding history while protecting their investment strategies from public view.
• With the trend of decentralized identity (DID) becoming more prevalent, individual users can display their wallet addresses as personal pages while also choosing to make personal income, investments, and donations "visible to select individuals."

On Espresso Systems, these functionalities are enabled through the Ethereum-based Configurable Asset Privacy (CAPE) application. CAPE allows asset creators to customize who can see the ownership and movement of the assets they generate. The protocol also allows asset creators to customize the data privacy of existing assets on Ethereum.

CAPE currently supports privacy for:

• Sender and receiver addresses
• Amounts of assets sent, received, and held
• Types of assets sent, received, and held

Any of these elements can be customized to be public, private, or transparent only to selected parties. CAPE enables users to understand and actively choose to join or exit the data they are sharing, as well as who can gain insight into and control their transactions.

In addition to viewing capabilities, asset creators can also define other strategies using CAPE. While CAPE is available for anyone wishing to issue or package assets, the protocol was specifically designed with stablecoin providers in mind.

Today's stablecoin providers typically want to maintain solutions for fraud, theft, and dispute resolution, requiring them to retain insight into their asset activity ledgers and controls such as freezing capabilities. Previously, asset creators found it difficult to balance customer privacy needs with institutional requirements for risk management and compliance.

Users can clearly understand in the end-user interface which data can be shared and who has viewing and control rights over their transactions. Users can also choose to join and exit data sharing at any time.

In addition to stablecoin providers, another target user for CAPE is "credential issuers." As digital credentials become increasingly popular in applications like DeFi permission pools and credit scoring, enabling credential verification without publicly disclosing complete underlying information will become increasingly important. Espresso Systems collaborates with projects like Center to adopt zk-credentials technology and jointly design decentralized identity standards.

It is reported that CAPE will be able to run on any Ethereum Virtual Machine (EVM) blockchain and will debut on the Ethereum Rinkeby testnet in the coming weeks. However, the team will ultimately deploy CAPE directly on the Espresso blockchain and interact through cross-chain bridges and Ethereum. Currently, Espresso Systems' more scalable infrastructure is still under development.

In the public chain track, Espresso Systems will not only face strong competitors like Ethereum but also compete for users with projects in the privacy public chain track such as Aleo, Nym, Secret Network, and Concordium, and its development progress is relatively lagging, so future development remains to be further observed.

Related Reading: “A Comprehensive Interpretation of the Current Status, Evolution Logic, and Typical Players in the Web3 Privacy Track”