Taurus, the tokenization and digital asset custody technology firm, has unveiled a new open source standard for private token transactions on permissionless blockchains. It developed the open source standard for smart contracts in association with the Aztec Foundation that oversees the Layer 2 blockchain protocol, which uses zero knowledge proofs (ZKP) for privacy. Key to the token standard is the balance between privacy and compliance.
Taurus works with numerous institutions, including Deutsche Bank and State Street, so privacy is an important issue.
Apart from asset managers, many institutional blockchain activities have remained on permissioned blockchains. Privacy is one of the reasons, because enterprise blockchains are built with privacy as a core feature, whereas permissionless blockchains were developed to be transparent. Hence, privacy is an add on.
Regulators and some regulations such as the Basel crypto rules for banks have also made it unattractive for banks to use permissionless blockchains. However, even the Basel Committee published a paper on how the risks of permissionless blockchains could be mitigated.
Given the popularity of permissionless chains, many initiatives seek to address the privacy issues to smooth the path for institutional adoption. Performance is often an issue with ZKP. Brazil’s CBDC Project DREX chose Ethereum as its technology and continues to explore potential privacy solutions, several of which also use zero knowledge proofs. The Linux Foundation Decentralized Trust (formerly Hyperledger) also has multiple labs focusing on privacy, including Paladin and Zeto.
The confidential tokenization standard
The Taurus standard was designed for tokenized equities, bonds and private credit, and is based on CMTAT, the token standard developed by the Swiss industry body. It ensures that the important benefits of programmability and composability are retained.
“Tokenizing financial instruments on public blockchains unlocks immense potential,” said Taurus Chief Security Officer JP Aumasson. “By enabling private, compliant transfers, we bridge the gap between institutional needs and decentralized technologies.”
The code is available on GitHub, and the documentation highlights potential drawbacks, some of which are a little technical. Most privacy solutions have trade offs. The documentation notes that two of the feature in the CMTAT standard are not supported – upgradeability and gasless transactions.
Meanwhile, the BIS recently published a good paper exploring payment privacy from first principles, as well as potential solutions including ZKP.
