Galadriel: a more secure, efficient and privacy-preserving cryptographic solution for financial institutions

[manxiaqu]

Grant Type

Session 1

Email

[email protected]

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Discord/Community

manxiaqu

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Code Audit

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Project Information

1. Project Description and Objectives: Privacy and compliance are usually the concern of many traditional financial institutions when they are entering the cryptocurrency and decentralized finance (DeFi) space. Public chains like Bitcoin (BTC) and Ethereum (ETH) do not have confidential transaction mechanism, where users’ assets information and transaction amounts are logged in the decentralized ledger which is publicly accessible; on the other hand, given the audit and regulation requirements for financial institutions, it is also unacceptable to use fully encrypted and anonymous infrastructures such as Tornado and Monero where transaction parties can even deny the existing transaction.

   So is there a sweet spot between privacy and regulation where users can encrypt their transactions and smart contracts so that they can protect their information from third parties, and at the same time, centralized auditors can easily check on details on any transaction? The answer is yes; we found it.

   We proposed a new framework named ADCP which uses NIZK and ISE technologies for provable security; based on this framework, we instantiated Galadriel (a concrete instantiation was named PGC)—a new cryptographic solution using an efficient additive Homomorphic Encryption named Twisted Elgamal and Hierarchical Integrated Signature and Encryption(https://eprint.iacr.org/2019/319.pdf).

   Through Galadriel, Users can do actions follows:
   a. Confidential transactions. Galadriel protects the confidentiality of account balances, transaction amounts, and user identities, with technologies such as Homomorphic Encryption and Zero-Knowledge Proof.
   b. Auditable privacy. Galadriel enables flexible auditing rules — they can be customized by users so long as they meet linear constraints rules. With Galadriel, either party of the transaction can submit the compliance proof to a third party without the need to be agreed upon by the other. Selective disclosure is one of the use cases.
   c. "Look-through" supervision. With super key access in Galadriel, centralized regulators can draw out and audit any transaction at a granular level without the user being aware. By far, we are the only provider of such service in the industry, and we are confident to be the best even when competitors emerge in the future.

   Galadriel can addresses privacy concerns like(Proof of Reserves (PoR) for Exchanges Auditing, Privacy & Compliance for Financial Institutions, Selective Disclosure for Wallets and DAOs) with its ADCP framework, which enables confidential transactions and protects the confidentiality of transaction amounts and user identities, while any transactions can be easily audited. Through Galadriel, DAOs can protect their members’ privacy during the voting process while ensuring the righteousness and validity of the voting results.

2. Success Potential: Privacy protection and regulatory audits are the most important security and functional attributes in the financial system. However, current privacy projects can only protect users’ privacy but cannot audit or prove compliance to third parties. Our selective disclosure and "look-through" supervision auditing features make it a promising solution among all others to meet the balance of privacy and regulatory compliance.

3. Mission Alignment: We aimed to bring a more secure, efficient and privacy-preserving cryptographic solution for financial institutions, organizations, and individuals in the DeFi space and traditional fragments.

4. Innovation: Provable security: We have published high-quality peer-reviewed papers where a as strong as possible security model and as well as proof by reduction are presented, while other similar solutions occasionally miss precise security models and provable security.

   Secure "Look-through" supervision auditing: Auditors can only examine the transactions and cannot transfer any user assets.

5. Is it open source: Open sourced(https://github.com/yuchen1024/Kunlun/tree/master/adcp).

6. Free or fee-based for end users: Currently it's free, The handle fee system is work in progress.

7. Interoperability with Hashkey ecosystem: The tokens(erc20) on Hashkey ecosystem can warped into privacy-preserving token system to make confidential transactions.
   a. examples of stable coins: with GALADRIEL, Circle and other institutions can issue stable coins with central auditing capabilities, while encrypting user balances and transfer amounts.
   b. Example of anti-money laundering for large financial institutions: institutions can protect users' asset information from being made public on the blockchain, as well as better meet regulatory and anti-money laundering requirements.

Market Analysis

The first confidential transaction system that supports auditability, filling the market gap and having a broad commercial application market. Auditability is of great significance to the commercial application of digital currency. Currently, there is no confidential transaction solution with auditability in the market. Although some encrypted digital currencies have achieved confidential transactions, they do not have anti-repudiation capabilities and auditability, that is, it is impossible to open any historical transactions to provide proof of transaction amounts.

Recipient Address

0xe5572D69882359F59FFe6F0F58761229d364f2BC

Budget and Plan

1. Grant Size and Justification: The Galadriel Core Team plans to raise $1 million worth of encrypted digital currency. The financing is used to support the Galadriel project's expenditures on technology development, market expansion, office space, etc. within 12 months, including:

   • Develop confidential transaction system including overall solution design consultation and cryptography solution development, system security audit, development of official wallet, WEB, interface, etc.
   • Market development including media promotion, business development and project cooperation, etc.
   • Office space.

2. Project Execution Plan(Roadmap): Q1 2025: Launch Galadriel alpha version on HashKey. Conduct comprehensive testing of the entire functional process to ensure the normal operation of the system. Q2 2025: Launch Galadriel beta version on HashKey. Focus on the interchangeability with other tokens on Hashkey and the differences between evm chains with non-evm chains. Q4 2025 and Beyond: Release public version on HashKey. Keep on optimizing and enhancing the system based on the feedback of user and community.

3. Token Distribution(percentages and Initiatives): In the first phase, the Galadriel Core Team will develop a minimal viable version (MVP) based on the EVM smart contract to support privacy transactions in the Ethereum ecosystem, and generate 1 billion Token at one time based on the ERC20 protocol.

   • 600 million(60%) will be awarded to angel investors in the early stage of the project
   • 80 million(8%) are used to incentivize the Galadriel Core Team. This part will be unlocked linearly within 6 months.
   • The remaining 320 million(32%) will be used to incentivize developers who build Galadriel privacy protocols in other ecosystems (Sui, Sol, etc.). At this stage, when users perform privacy transactions on a chain, they will pay a certain amount of the chain's native assets as a handling fee, which will be rewarded to the Galadriel ecosystem, and the Galadriel will be automatically recovered through the Bancor model and transferred to the destruction address.

4. Token Distribution Timeline: Q2 2025: 60% will be awarded to angel investors. Q3 2025: 8% of tokens(following a six month vesting period) will be distributed to Galadriel Core Team. Q4 2025 and Beyond: 35% of tokens will be used to incentivize developers who build Galadriel privacy protocols in other ecosystems, etc.

5. Post-Incentives Sustainability: Users need to pay some tokens to user our system to protect their privacy. These tokens will serve as the project's funding pool, and will be used to pay for users' subsequent project development, maintenance, upgrades, and other expenses to ensure the sustainability of the project.

6. Additional Accountability Info(smart Contract Address, Wallet Addresses): N/A. We will provide it after deploying the contracts to Hashkey.

Hashkey Relationship

1. Problem Solved for Hashkey: The Galadriel addresses critical challenges that have long hindered the widespread adoption of blockchain technology. One of the primary problems solved is the issue of transaction privacy. Traditional blockchain networks operate on a transparent ledger, exposing all transaction details to public scrutiny, which can be problematic for individuals and enterprises handling sensitive financial information. By deploying advanced cryptographic techniques such as zero-knowledge proofs and homomorphic encryption, Galadriel ensures that transaction amounts and participant identities remain confidential while still allowing for full auditability and compliance with regulatory requirements. This solution not only protects user privacy but also mitigates risks associated with data breaches and unauthorized surveillance.

   User can mint new privacy-enabled cryptocurrencies, or wrap their existing assets into new privacy-enabled assets and make confidential transactions on Hashkey. And When needed, institutions and User can perform some actions via our project for auditing purposes.

2. Value Proposition: Our value proposition for confidential transactions centers on delivering unparalleled privacy, security, and compliance in the digital asset ecosystem. We understand that confidentiality is not just a feature but a fundamental requirement for many users, especially institutions and enterprises handling sensitive financial data. By integrating advanced cryptographic techniques such as zero-knowledge proofs and multi-party computation, we ensure that transaction details remain private while still maintaining full transparency and auditability for regulatory requirements. This dual commitment to privacy and compliance sets us apart, allowing us to serve a broader spectrum of clients who demand both security and adherence to legal standards. Our platform empowers users to conduct transactions with confidence, knowing that their activities are shielded from unauthorized scrutiny, thereby fostering trust and encouraging wider adoption of blockchain technology. Additionally, by offering robust tools for secure and confidential transactions, we create an environment that promotes innovation and opens up new opportunities for businesses and individuals alike. In essence, Hashkey’s approach to confidential transactions enhances user experience, drives engagement, and positions us as a trusted leader in the blockchain industry.

3. Growth Potential for Hashkey: At Hashkey, we recognize that confidential transactions are a cornerstone for unlocking substantial growth potential within the blockchain and cryptocurrency industry. By prioritizing privacy and security, we cater to the needs of users who require assurance that their financial activities remain discreet and protected from prying eyes. Implementing advanced cryptographic techniques, such as zero-knowledge proofs and homomorphic encryption, enables us to offer transactional privacy without compromising on transparency or auditability, which is essential for regulatory compliance. This focus on confidentiality not only enhances user trust but also broadens our appeal to enterprises and institutions that handle sensitive information. As a result, we can attract a wider range of clients, including those in sectors traditionally wary of blockchain technology due to privacy concerns. Moreover, by fostering an environment where secure and private transactions are the norm, we stimulate greater adoption and engagement within our ecosystem. This approach positions Hashkey at the forefront of innovation, driving significant growth and establishing us as a leader in the development of privacy-preserving technologies within the digital asset space.

4. Commitment to building on Hashkey: At Hashkey, our commitment to building is rooted in a steadfast dedication to innovation, privacy-preserving, auditability, security, and community empowerment within the blockchain and cryptocurrency ecosystem. We understand that the foundation of any successful blockchain project lies in its ability to offer robust, reliable, and scalable solutions that can stand the test of time. Therefore, we prioritize the development of cutting-edge technologies that not only enhance performance but also ensure the integrity and trustworthiness of transactions. Our team of experts works tirelessly to craft platforms and tools that are both user-friendly and secure, privacy-preserving, fostering an environment where developers and users alike can thrive. Moreover, we are committed to nurturing a vibrant community by promoting transparency, collaboration, and education. Through this commitment, Hashkey aims to be at the forefront of shaping the future of decentralized finance and blockchain technology, driving positive change on a global scale.

5. Deployment Status: Currently, our system is deployed to ethereum testnet, and we are working hard on testing the system to ensure the stability, reliability, and data opacity of Galadriel. Before deploying the system to other different blockchains including HashKey, which should be in the coming months, We will first optimize the system framework, including fixing bug, adding fee base system, optimizing gas cost, etc.

Milestones

1. Milestone 1: Q1 2025: Launch Galadriel alpha version on HashKey. Conduct comprehensive testing of the entire functional process to ensure the normal operation of the system.

2. Milestone 2: Q2 2025: Launch Galadriel beta version on HashKey. Focus on the interchangeability with other tokens on Hashkey and the differences between evm chains with non-evm chains.

3. Milestone 3: Q4 2025 and Beyond: Release public version on HashKey. Keep on optimizing and enhancing the system based on the feedback of user and community.

Terms Confirmation

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• I confirm token distribution complies with legal requirements