Author: 1912212.eth, Foresight News
No privacy protocol has been able to attract Vitalik to interact with Ethereum on a monthly basis, but Railgun has achieved this. Over the past 6 months, Vitalik has used ETH to interact with Railgun almost every month, which was later confirmed by Vitalik on Twitter and he even gave a small advertisement for Railgun. The market reacted quickly, with the price of its token RAIL soaring from around $0.8 to nearly $1.8 in a short period, more than doubling in value.
In the long history of privacy protocols, there have been countless builders, but very few privacy protocols have been able to survive due to complex factors such as policy, cost, and adoption.
In January 2022, Digital Currency Group (DCG) reached a strategic partnership with Railgun DAO to bring privacy protocols to DeFi. As part of the collaboration, DCG acquired and staked over $10 million worth of Railgun's native token RAIL and donated over $7 million in stablecoins to the project's DAO treasury.
In the first 3 months of this year, Railgun's trading volume reached over $200 million. What are the highlights that attract numerous users to it?
Railgun Introduction
Railgun is a privacy system built directly for the chain, currently supporting Ethereum, BNB Chain, Polygon, and Arbitrum. It mainly uses zero-knowledge proofs to achieve anonymization in smart contracts and DeFi. Railgun only provides logic on-chain for smart contracts, so privacy can be achieved without the need for L2 validators and vulnerable cross-chain bridges, thereby enhancing its security and decentralization. Additionally, Railgun is not an isolated ecosystem on an independent privacy chain, but can access all economic activities on Ethereum, avoiding the "ghost chain" siege.
Railgun mainly consists of two components: an integrated wallet mainly developed and built by independent community members using EVM, and a TypeScript SDK development tool used to integrate Railgun privacy into existing/new wallets or enable privacy in DAPPs.
Privacy System
In public blockchain transactions and transfers, there are generally four elements: sender, receiver, asset name, and asset amount. Therefore, achieving privacy requires anonymizing these four pieces of information. Railgun protects transaction information in the system by using private balances, which are a set of anonymous funds and users. These private balances are anonymous to external observers.
The level of anonymity of private balances in Railgun depends on three aspects:
- Individual privacy transaction volume and total number of users
- Total TVL in smart contracts
- DeFi transaction and private transfer volume
Generally, the more funds in the privacy pool, the higher the level of anonymization of the protocol, as the likelihood of a connection between depositors and assets is smaller.
In addition, Railgun also uses relays and UTXOs to enhance privacy. Transactions sent by users come from relays and cannot be traced back to public addresses. The so-called UTXO is an unspent transaction output, similar to the spending systems of BTC and Zcash, representing the right to use currency, and is implemented as a Merkle tree in Railgun (Merkle tree is an organized and encrypted data tree that allows Railgun smart contracts to track ownership and balances through encrypted proofs). The difference here is that Railgun's Merkle tree is completely anonymous and stored in smart contracts.
The last component is the SDK, used for protocol integration of private smart contract transactions and wallets. Users have a public on-chain address, namely a 0x address and a Railgun address starting with 0zk. Transactions sent from the 0zk address are completely anonymous and appear as originating from the Relayer address on blockchain explorers (such as Etherscan). Through zk-SNARK proofs, details are hidden throughout the entire process.
To provide a very illustrative analogy for readers to better understand, Railgun users are the authors of letters, ZK proofs fact-check the contents of the letters, Railgun smart contracts are sealed envelopes, and relays are the mail carriers. External observers can only see that a letter has been sent, but they cannot see the contents of the letter or who sent it.
Tokens and Governance
RAIL is the governance token of Railgun. It can be used on Ethereum. RAIL liquidity is available on SushiSwap and Uniswap, and the best routing is provided through Matcha. Staking RAIL allows voting on protocol upgrades and governance proposals such as shielding/unshielding fees. Any wallet staking RAIL becomes a member of the Railgun DAO.
Active Governance Participant Rewards
Active governance participants receive a portion of the shielding/unshielding fees. To become an active participant, four basic conditions need to be met, including fully staking and locking tokens (at least partially not exceeding the unlocking period), checking the governance portal at least once and verifying ongoing proposals, paying gas fees to claim interactions, and not delegating votes to other addresses, otherwise, the delegated address will receive the reward.
Every two weeks, 2% of the treasury is allocated to the claiming mechanism. This means that approximately 52% of the funds flow to stakers each year. Active governance participants of Railgun will receive a proportional share of the allocation based on the amount of RAIL staked. For example, if your staked RAIL share is 1% of all staked RAIL, you will receive 1% of the 2% bi-weekly allocation.
After staking tokens, there is a 30-day unlocking period during which users do not have voting rights and do not receive rewards.
Token Economics
The total supply on Ethereum is set at 100 million, on BNB Chain it is 44,546,789, and on Polygon it is 55 million. Railgun on Polygon and BNB Chain has its own independent governance DAO, thus having its own chain-specific token. RAIL (on Ethereum), RAILPOLY, and RAILBSC are different from each other as they manage and receive rewards from their respective chain deployments of Railgun.
This governance structure with a separate DAO on each chain maximizes security and decentralization as it does not rely on cross-chain bridging, and each DAO can vote on chain-specific issues.
V3 Upgrade
It is worth mentioning that Railgun is about to undergo a V3 upgrade to enhance privacy performance by changing the architecture. Specifically, optimizations will be made in 5 aspects. One of them is to use modular design to significantly reduce gas fees, allowing for individual upgrades and customized protocol design (reducing DeFi transaction costs by 50%-60%).
Secondly, new options will be introduced for Relayers, allowing transactions to have their own alternative mempool to achieve cheaper, more stable, and reliable transactions.
Thirdly, it supports "intent" design, where users specify the desired outcome and the resolver can execute the best transaction path across various protocols. It improves user experience by providing better prices and protection against MEV, while reducing complexity.
Fourthly, it supports NFT permission cards, allowing users to interact with leveraged DeFi protocols such as perpetual contracts, borrowing, and collateral-based stablecoin minting. This permission NFT card allows users to interact and provides additional features such as one-click interaction.
Fifthly, it supports the Connect feature, similar to WalletConnect, allowing users to log in to dApps without integration. It is currently under development and is expected to be updated in the second quarter.
Summary
Vitalik has also previously supported another privacy protocol, Nocturne Labs, in October 2023. However, it is regrettable that although the project went live on the Ethereum mainnet the following month, in January of this year, Nocturne announced the closure of the privacy protocol and a shift towards application development. The official reason given was the industry's transition to L2 and AA, which took precedence over privacy. The primary concerns for users are cost and user experience, with privacy issues temporarily taking a back seat.
This inevitably brings to mind the history of internet development, where HTTP was also in a state of nakedness in terms of privacy protection for a long time, as the protocol itself did not provide encryption. It was not until security issues became increasingly serious and technology matured that HTTPS became popular. Initially, due to the slow operation and relative complexity of HTTPS, it was only used for credit card or banking data websites. It was only when the computational cost became low enough and websites could quickly implement HTTPS that it became the default protocol for all websites.
Privacy protocols still have a long way to go, and Railgun is making great strides on this path.
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