The vast majority of crypto protocols only provide pseudonymity, which means that transactions may often be de-anonymized by third-party companies like Chainalysis or on-chain sleuths. There are several protocols whose primary emphasis is on making cryptography more private; nonetheless, the overall privacy environment is hampered by the widespread presence of fragmentation. The following are examples of fragmentation levels:

Asset level (for example, Tornado Cash has separate shielded pools for ETH and DAI; the only way to achieve privacy with Zcash is to use ZEC).
At the application level (for example, Aztec and Tornado Cash are both built on Ethereum but have completely separate privacy configurations),
Network level (for example, the Aleo programmable network has natural privacy built in for the whole network, but it is separated from other ecosystems).

The greater the size of a shielded pool, the greater the level of privacy it provides. The current environment has a situation in which privacy mechanisms are directly competing against one another for assets.

Namada is a forthcoming Layer-1 blockchain that has the goal of providing a single, unified shielded pool for every asset type, regardless of whether it is fungible or non-fungible and regardless of the platform it was formed on. Namada is compatible with IBC and has ambitions to establish bridges to a variety of other ecosystems, starting with Ethereum. In the beginning, the bridges will be transparent, but later on, they will protect users' privacy. Privacy is something that Namada views as a public benefit, and the company plans to encourage liquidity in order to develop and maintain its privacy set. Namada's multichain, asset-agnostic shielded pool will deliver better privacy to the cryptocurrency industry in the event that it is successful.

Namada Overview

Namada is an intent-centric and privacy-preserving protocol for decentralized counterparty discovery, solution, and multichain atomic settlement. Namada is also the first fractal instance of Anoma. While Namada is focused on providing the highest level of privacy to the user of the immediate multichain, the design of Anoma will make it possible to build privacy-preserving apps that are not currently possible using other architectures. Heliax, a software development business whose primary emphasis is on privacy and public goods, is in the driver's seat when it comes to the creation of self-sovereign technologies such as Namada and Anoma.

In 2021, Adrian Brink, Awa Sun Yin, and Christopher Goes laid the groundwork for what would become Heliax. Before joining Heliax, Goes oversaw the creation of Tendermint's Inter-Blockchain Communication protocol (IBC), Sun worked as a data scientist at Chainalysis and then became a researcher at Tendermint, and Brink began his career at Tendermint as a core developer before moving on to become the head of partnerships for the company. The three individuals, in addition to their collaboration on the Cosmos stack at Tendermint, are also the founders of Cryptium Labs and Metastate, as well as board members of the Anoma Foundation, a charitable organization located in Switzerland.

On December 20, 2022, Namada successfully launched its very first public testnet. Following that, it finished its trusted setup the next day in order to establish parameters for Namada's protected pool, which had over 2,500 participants. The launch of the open-source network's Mainnet is scheduled for the second quarter of 2023.

Technology

In terms of both consensus and interoperability, the technological architecture of Namada is in line with the technologies developed by Cosmos. Namada provides multi-asset capabilities by means of a revolutionary Multi-Asset Shielded Pool (MASP) and programmable asset conversions by means of the Convert Circuit (CC). Both of these features contribute to the protection of users' privacy. The technical portion of the article discusses functions and characteristics that will be operational with the introduction of the mainnet.

Consensus Mechanism

For the purpose of reaching a consensus, Namada employs a novel kind of Bonded Proof-of-Stake (BPoS) known as Cubic PoS in conjunction with Tendermint BFT.

As is the case with Cosmos BPoS networks, validators are chosen to create and sign blocks in a manner that is proportionate to the stake they hold (both self-staked and delegated). Validators and delegators need to wait 21 epochs (one epoch is equal to around one day) after requesting to un-stake before they are able to obtain their tokens since the stake is bonded to strengthen security.

The launch of Namada is expected to include around 257 validators.

Rewards and Penalties

The incentive and penalty structures of Namada's consensus are the primary focus of the majority of its innovative features.

The rewards method that Namada employs is a modified and improved version of the F1 fee distribution mechanism that was created by Tendermint. The amount of stake a validator has determines the share of the block reward they get. Before distributing the remaining rewards to their delegators in proportion to their investment, validators decide on a commission rate, which represents the fraction of the benefits that they will retain for themselves. However, Namada's variation automatically compounds all awards, eliminating the need for validators and delegators to withdraw prizes and re-stake them. This makes Namada's variant far more convenient.

The Namada penalty system is where the term "Cubic PoS" originates from. Namada is introducing cubic slashing, which is an alternative to the more traditional linear slashing of validators. The percentage of stake that is reduced is proportionate to the cube of the total stake that was being misbehaved at the same moment (whether it was from one validator or several validators). As soon as 33% of the stake acts inappropriately, the whole amount of that stake is slashed.

The possibility of correlated errors being introduced into the protocol is included in the price of the incentive mechanism, which is how cubic slashing promotes diversity among validator configurations as well as infrastructure design.

Cryptography

Source: Namada whitepaper

The MASP (cryptography multi-asset shielded pool) was built as an expansion of Sapling, which was a circuit developed for Zcash by Electric Coin Company. In addition to that, support for arbitrary assets has been included. As shielded assets, also known as notes, migrate between shielded and transparent Namada accounts, the MASP is responsible for managing the minting and burning of these notes.

As the name suggests, Namada only uses a single shielded pool for all of its assets, both fungible and non-fungible, rather than maintaining several pools, one for each kind of asset. This promotes privacy, particularly for assets that are one-of-a-kind or have low volume and might be readily de-anonymized by monitoring entrances and exits if they had their own private pools. This is especially beneficial for assets that are low in volume.

Within the confines of the MASP, there is no way to differentiate between the various transactions. Notes may be seen after they have been created, but the senders, recipients, asset type, and amount are all hidden from view. Everything is seen in transparent accounts outside of the MASP, just as it is on other chains like Ethereum.

A zero-knowledge proof, also known as a ZKP, is used to mint a note in the MASP, and each ZKP has three values.

Type: The kind of asset, sometimes known as the asset itself (for example, ETH, NAM, or an NFT).
Amount: the total number of items that make up the asset.
Address: the owner of the asset(s).

The notes are structured similarly to UTXO in that they reflect the values of various assets. However, in contrast to UTXOs, the notes are not included in the state of the public chain. This status is only attainable thanks to the fact that each note on the blockchain is represented by a pair of Merkle trees called a commitment tree and a nullifier tree. One may spend a note by:

Demonstrating that it is included by showing that it is included in the commitment tree. This stage verifies that the note indeed exists, that the person who is spending it has authority over it and that the balance of the transaction has been maintained (no assets have been produced or destroyed as a result of the transfer).
Bringing to light a nullifier that has not been previously discovered in the nullifier tree. This action assures that each note may only be spent once, hence preventing the occurrence of duplicate spending.

Convert Circuit (CC)

The CC is a distinct circuit that cooperates with the MASP circuit in order to function properly. It permits programmed asset conversions, which are made possible by a predetermined conversion table and a mint-and-burn mechanism. These functions work together to ease the conversion of assets. Conversions make it possible to add functionality that, in any other scenario, would need assets to be removed from the MASP in the first place ("internal programmability").

Source: Namada

The basic objective of the CC is to incentivize MASP depositors with NAM in a discrete manner. When an asset is added to the MASP, it is given a tag corresponding to the epoch. The asset with the old epoch is changed to the asset with the new epoch if a user seeks to reclaim an asset they previously owned. The user is then shielded from any and all details by this system, which is able to ascertain the amount of time an asset was kept in the pool. Users are rewarded in NAM in proportion to the item they possess, the quantity of that asset they hold, and the length of time they utilize it in the pool. The bonded consensus process that NAM uses for the whole network is not liquid, therefore, assets in the shielded pool may be freely transferred even while still getting shielded set rewards. In contrast, the shielded pool assets are liquid.

Voting, prediction markets, and protected borrowing and lending are some of the other uses of the CC.

Interoperability

As a result of Namada's integration with IBC, trustless interoperability may now be achieved between the Cosmos and IBC chains.

In addition, Namada is currently working on developing a native light client-based bridge to Ethereum. As an integral element of the Namada protocol, the bridge is maintained and operated by Namada validators. Validators for the Namada blockchain will operate Ethereum full nodes and keep an eye on Ethereum bridge contracts to determine when assets are being moved to the Namada blockchain.

Because Ethereum does not currently allow efficient light clients, the design of the transfer back to Ethereum is a little bit more complicated. The requests for the bridge are combined into a "mempool," which is similar to a database and saves them as a Merkle tree. After then, anybody is free to transmit to Ethereum whatever portion of the pool's requests they want. Reduced gas costs may be achieved by grouping together several bridge transactions rather than transmitting and validating each one separately. In practical terms, pooling functions similarly to a sequencer in the way that it batches transactions for a Layer-2 (L2) network. Instead of the process being held by a centralized sequencer, as it is with the majority of L2s, it allows anybody to commence the verification of pooled transactions. This is how it differentiates itself from other blockchains.

NAM token

Namada will have its own native token known as NAM, which may be used for the following purposes: Security (validator staking), Shielded pool incentives, Governance, and Public goods funding.

The specifics of the Genesis allocation have not yet been published. Having said that, the group has pledged to allocate at least 20% of the initial supply toward supporting retroactive public goods. The Namada team wishes to show appreciation to the developers, contributors, educators, and others who helped advance the company's aim of protecting users' privacy and the underlying technology that Namada uses.

The group has not yet reached a conclusion about the particular mechanism or the list of contributors. From January to March of 2023, they welcomed nominations from the general public in an effort to assist in exposing deserving contributions on their forum. The Anoma Foundation has suggested a strategic collaboration between Namada and Zcash, which would involve a NAM airdrop to holders of ZEC as well as a reward pool sponsored by NAM and devoted to the Zcash ecosystem. The proposal was made by the Anoma Foundation.

Mechanism of Inflation

PoS (validator and delegator) rewards, shielded pool rewards, and public goods funding will all be funded using inflationary tokens. Before mainnet, the team will disclose the specific inflation parameters for each bucket.

NAM will be given to validators in a manner similar to Cosmos-bonded PoS. Tokens will be created at a variable pace in order to achieve a certain percentage of the supply staked number.

Shielded pool rewards: NAM will be paid to users who store assets in the shielded pool in order to expand the privacy setting. The rewards will be determined by the item, the quantity, and the length of time it is kept in the pool.

NAM will be given as part of both proactive and retroactive public goods funding (PGF). Technical research, engineering, social research, art, and philosophy are all eligible categories, as are independent media, carbon sequestration, legal advocacy, and other disciplines. The PGF Council, whose members are chosen bi-annually by governance, will oversee the money. Members may distribute the amount using a multisig up within the spending limit. The PGF Council will also be paid a modest fraction of annual inflation as compensation for their services.

Governance

NAM coins will also be utilized for stake-weighted governance on the blockchain. There will also be an off-chain governance protocol to gain widespread agreement prior to a governance vote or hard fork or in the event that the network is unable to create blocks.

Future Developments

Despite focusing on the mainnet debut, Heliax discussed possible future protocol changes. After mainnet, each change must go via on-chain governance.

Namada will be interoperable with Cosmos chains (through IBC) and Ethereum (via its native bridge) upon launch. Future enhancements will aim to extend compatibility to other ecosystems in order to accomplish Namada's vision of a unified privacy set. Heliax has started working on an architecture for a Zcash > Namada bridge, which it has put on the Zcash forum.

Even if Namada is linked to every ecosystem, as long as the bridges remain transparent, its privacy settings will not be genuinely united with those ecosystems. Users still lose privacy while traveling between Namada and other private chains when using transparent bridges. As a result, the long-term aim is to build privacy-preserving bridges that enable all linked chains to share a private setting.

Namada would first provide users with protected transfers. The CC may be used to increase internal programmability, although in general, internal programmability is restricted. Furthermore, those who wish to utilize Namada for complicated, multichain tasks (like trading on Osmosis) must do so manually. Creating an account on Namada, bridging tokens to it, moving the tokens inside the protected set, bridging back to Osmosis and switching there, and lastly, bridging the tokens to a new Namada account would be the manual method. This approach definitely does not provide the optimal user experience, and if not carried out appropriately, users may unwittingly doxx themselves.

As a result, Heliax is developing protected actions, which it intends to provide as an update to Namada. Shielded actions effectively merge the above processes into a single simple front end. Shielded actions provide multichain programmability, enabling users to interact with any linked chain as well as their dapps. Aside from DEX swaps, other possible protected operations include trading NFTs and staking ETH.

Finally, Heliax intends to suggest improvements to components of Namada's cryptography stack. It aims, for example, to convert Namada to a Halo2 circuit (created by Electric Coin Company for Zcash), which would eliminate the requirement for trusted environments.

Source: Electroncoin

Competitive Landscape

The privacy of pools using multiple protocols is highly fragmented. The fact that Namada supports numerous assets from several chains and incentivizes contributors to the privacy setting gives it a significant edge over its "competitors" in the privacy sector. As a consequence, Namada is more of a supplement to other protected pools than a competitor.

Numerous different types of privacy protocols exist across numerous networks:

Privacy is provided by scriptable settlement L1s such as Zcash and Monero inside their networks. They have a restricted use case since they are not programmable. These protocols are often fragmented, both at the asset level (since their privacy is typically confined to a single native object) and at the network level (due to their limited compatibility).

At the application level, decentralized applications (dapps) such as Tornado Cash and Privacy Pools are dispersed. Even though they are constructed on the same network, their privacy settings are distinct. Many dapps are not unified at the asset level, despite the fact that they may be. Tornado cash, for example, is fragmented at the asset and quantity levels. It features separate pools for different assets (for example, ETH and USDC), and different pools for different amounts (for example, 0.1 ETH, 1 ETH, and 10 ETH). Some privacy dapps, such as RAILGUN, provide protected interactions with other applications, but their pools remain separate.

Within their ecosystems, programmable settlement L1s like Aleo and Secret Network provide privacy and arbitrary computing. This service provides privacy for DeFi, governance, and other applications that are created on that network. Users will be able to interact in numerous apps privately after Namada provides shielded activities. They will, however, be able to engage in applications in any linked environment, not only the local ecosystem.

Aztec (zk.money) and other programmable settlement L2s allow shielded acts to engage with the current ecosystem on L1. Unlike the protocols outlined above, L2s do not need to build their own ecosystem of apps and instead provide users with familiarity. Because they are not native to the core network (underlying L1), these protocols are still fragmented at the network and application levels.

In comparison to other multichain systems, such as THORChain and Axelar, Namada distinguishes itself by providing natural anonymity. Penumbra, a private L1 and shielded DEX on Cosmos, is multichain but only connects to chains inside the Cosmos ecosystem natively. Penumbra's protected transactions and swaps services would be complimentary to Namada's.

Namada distinguishes itself as the first cross-chain privacy solution with a uniform, asset-agnostic privacy set. It provides users yield in exchange for contributing to the anonymity set in a unique way. Namada's MASP will be united at all levels if it achieves its goal.

Conclusion

Namada is a future privacy-focused L1 that is inspired by Heliax's basic ideals. It considers privacy to be a public benefit whose use should be complementary rather than competitive. The MASP, which provides a single asset-agnostic privacy set, and the Convert Circuit, which incentivizes MASP adoption, are two of Namada's key technical achievements. Namada will debut with IBC compatibility and a native Ethereum bridge, with future ambitions to link to other ecosystems, first via transparent and eventually privacy-preserving bridges. If Namada is effective, it will be able to improve current privacy mechanisms rather than compete with them.

Disclaimer:
This article is intended for and only to be used for reference purposes only. No such information provided constitutes advice or a recommendation that any investment or trading strategy is suitable for any specific name.

Namada: A Layer 1 built for privacy