Wall Street’s Needs Will Advance Ethereum’s Privacy, Says Etherealize

In brief

Wall Street will advance privacy on Ethereum, according to Danny Ryan.
Etherealize is building infrastructure for trading and settling tokenized equities.
The company plans on leveraging zero-knowledge proofs.

Privacy advocates should be cheering on Wall Street’s adoption of cryptocurrencies, according to Etherealize co-founder and President Danny Ryan.

As markets move on-chain, financial institutions are expressing a need for infrastructure that echoes elements of traditional markets, and privacy is “table stakes,” he told Decrypt.

“The market does not, and cannot, function fully in the clear,” he said. “If we’re going to onboard the world to blockchains, ‘everyone sees everything all the time’ is just not going to work.”

On Wednesday, Etherealize unveiled the closing of a $40 million funding round. The startup said it will promote Ethereum’s use by developing infrastructure for the trading and settling tokenized assets that’s based around zero-knowledge (ZK) proofs, among other tools.

When transacting on a public blockchain, users leave a trail of evidence for anyone to analyze, and elite entities may cringe at the thought of treasury operations and trading strategies taking place in the open—even if blockchains prove more efficient than legacy systems.

With the U.S. government’s prosecution of developers behind coin-mixing services like Tornado Cash and Samourai Wallet, it may feel like privacy may have become secondary, but Ryan described Wall Street’s needs as a potential Trojan horse, when it comes to sharing data on-chain. The benefits and normalization, he argued, should trickle down to average users.

“As we begin to upgrade these markets, institutions will demand privacy, and we’ll move the needle forward in terms of practical, applied and compliant privacy,” he said.

A ZK proof is a method used in cryptography to prove that something is known without revealing the known information directly. The concept powers privacy-focused cryptocurrencies like Zcash, and historically, it’s been viewed as a way to help scale Ethereum.

Ethereum’s ecosystem has poured hundreds of millions of dollars into ZK-powered networks. Although Ryan thinks that gives its developers an advantage, some companies are taking a distinct approach to privacy in creating their own blockchains.

Tempo, a blockchain incubated by payments giant Stripe and investment firm Paradigm, is set to feature built-in privacy measures. Arc, another layer-1 network that’s being developed by stablecoin issuer Circle, is expected to have “selectively shielded balances and transactions.”

That suggests widespread privacy in crypto may not be contingent on Wall Street’s participation. But in the coming years, Ryan said privacy on Ethereum will likely become more commonplace, through “bespoke applications that handle privacy in a more granular way.”