Enable cheap, private transactions with Compound using Aztec

Introduction

Aztec is dedicated to bringing programmable privacy to Web3. The team invented PLONK — the paradigm-defining universal zk-SNARK — which is now used by leading zero-knowledge scaling projects. Over 45,000 users have deposited 15,500+ ETH and $11M DAI through zk.money, a private transfer protocol built on Aztec, since launching in 2021.

The team is launching Aztec Connect, which will offer earning, lending, borrowing, and swapping with gas savings and privacy by default via Aztec’s zkrollup and bridge contracts. With Aztec Connect, users can deposit into and borrow from Compound with 95%+ gas savings compared to mainnet and benefit from privacy by default.

Proposal

Many users have been priced out of using Compound and are regularly asking for an L2 deployment. However, Compound is focused on building Gateway to offer cross-chain interest rates. Because Aztec interacts with existing L1 smart contracts, it can provide users with a scalability solution — without needing to redeploy any smart contracts or rebuild liquidity pools.

How it works: Users will deposit ERC20 into Aztec and initiate the Compound deposit or borrow request via zk.money. Aztec’s zkrollup will batch transactions across users and interact with Compound’s L1 contract via a bridge contract. Users will receive a cToken on Aztec - or whichever assets they borrowed, which can be used across other DeFi protocols on Aztec.

Aztec wants to make it seamless for users to deposit and borrow assets with Compound. Aztec is requesting a $100,000 grant to subsidize Compound deposits and loans. This subsidy will simulate the gas savings that will benefit users when the rollup is full and the gas cost associated with the rollup — kickstarting the network effects for this integration.

Aztec can drive substantial adoption and deliver an excellent ROI for Compound. With a $100,000 grant, there will be minimal transaction costs for up to 40,000 transactions on Aztec. The scenarios below show outcomes from 7-1000x ROI, depending on gas savings provided and user adoption. Importantly, the subsidy will only be spent as users adopt the network.

A successful outcome of this grant would be:

  • Reducing transaction fees by 95%+ compared to mainnet
  • Increasing Compound’s user base by 10% (30,000 users over the next 12 months)
  • Growing to >100 transactions per day so subsidy can be phased out
  • Enabling institutions to deposit/borrow from Compound privately

Timeline and milestones

In Q4 2021, Aztec collaborated with Adam Bavosa and Nick Martitsch on the spec for the Compound integration and launched its grants program to encourage community development of bridge contracts. Joe (co-founder) and Lisa (head of business development) presented on the Compound community call and met allthecolors, who built the Compound deposit bridge.

In Q1 2022, the bridge will be completed and Solidified will audit the bridge. Once the contract is audited, Aztec will integrate into zk.money on mainnet. The initial functionality will be depositing DAI.

In Q2, the borrowing contract will be completed, audited, and launched on zk.money. Aztec will also expand the scope of the grants program to encourage development of alternative interfaces with the Aztec SDK. In Q3, the team will focus on integrations with custodians and platforms focused on an institutional user base.

We propose earmarking a $100,000 budget with $50,000 distributed upfront and $50,000 released three months after launch. Aztec would like to collaborate to ensure the grant is optimally allocated across different assets and transaction types, promote the integration to users, and integrate Aztec into interfaces that provide significant volume to Compound.

Before the second tranche is released, Aztec will provide the Compound community with updates on user adoption, network performance, and subsidy spent. If the community is not satisfied with the metrics from the first three months after launch, there may be another governance vote deciding not to distribute the second tranche of funding.

Conclusion

Aztec aligns well with Compound’s current focus on strengthening its protocol on mainnet and building for new use cases, such as onboarding institutions to DeFi. Today, Compound users will benefit from the scalability benefits provided by Aztec’s rollup. Over time, we envision Aztec being a critical component of Compound’s institutional offering. This partnership will accelerate the user adoption and enable privacy as a new capability for the protocol.

We look forward to hearing your thoughts, feedback and suggestions in this forum.

Relevant Links

https://twitter.com/aztecnetwork

Team

Zac Williamson (cofounder, CEO) - https://www.linkedin.com/in/zachary-williamson-b02b0192/
Joe Andrews (cofounder, head of product) - https://www.linkedin.com/in/joe-andrews-2783918a/
Ariel Gabizon (chief scientist) - https://www.linkedin.com/in/ariel-gabizon-6b423a8/
Lisa Cuesta (head of BD) - https://www.linkedin.com/in/lisacuesta/
Jon Wu (head of growth) - https://www.linkedin.com/in/jonathanjwu/

14 Likes

Thanks @lisa - the opportunity to make Compound accessible again to smaller market participants is what pushed me over the edge to double down on Solidity skill-building so that I could draft this bridge. Even better, Aztec’s approach is privacy-oriented and, unlike most of the alternatives the community has discussed, it doesn’t require fragmentation of liquidity or reserves.

Folks are welcome to review the draft PR for a Compound Aztec connect bridge; please post questions, suggestions, and other feedback as comments on the PR or to the development or ecosystem channels on Discord. Insights from those who have experience deploying contracts that interact with the protocol directly will be especially helpful here.

If the community agrees to funding a bridge subsidy, what do folks think about this proposal being funded with an allocation from the ETH that Coinbase returned to the timelock after the expiry of Compound’s Coinbase Earn program? The funds will be used to pay for the bridge’s gas, so funding directly in ETH would sidestep the need for either protocol to execute a trade. At current prices, the request amounts to well under 1% of ETH sitting in the timelock.

One barrier to funding directly in ETH is that the protocol currently can’t move ETH from the timelock, as pointed out by @arr00; however, he already has a PR to correct this technicality. I’m not sure if there’s time to merge this PR before the target go-live time for the first Aztec bridges, but we could ask @cylon and the OpenZeppelin team to prioritize if we felt this was a worthwhile direction to go for this proposal. If resolving that issue is still months out, then funding in COMP remains an option.

4 Likes

good stuff. I think if we want to x scalability we should go with something privacy, don’t know enough about zk stuff to say which is better but I’m in

1 Like

Appreciate you weighing in and your contribution! As you mentioned, we’d ultimately need ETH for gas so we’d be supportive of receiving the funding in ETH or swapping COMP for ETH. In terms of timing, we’re hoping to secure the funding in the coming weeks (aiming for mid March) - so I’ll let @cylon chime in on the timing for the PR.

Hi, we’re still figuring out the appropriate pipeline for the next audits given some concerns that have come up around asset listings during our Comprehensive Protocol Audit.

The soonest we could expect to audit something next would be Mar 21st but there might be other items that will be prioritized. I’ll be sharing more in the forum this week.

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Scalable privacy! L2’s are getting interesting :slight_smile: Hoping goods thing come out of this

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Hey guys,

Callen from Wintermute here. In full support of this proposal, $100k seems insignificant in contrast to the added value to the Compound Ecosystem.

One thing I would like some clarification on is the upside for Aztec, more specifically, are there fees associated with Aztec connect? Does Aztec capture value from users routing through them? If so what do these fees or the upside for Aztec look like?

Overall, great proposal :slight_smile:

1 Like

Thanks @Callen! Appreciate the support. There are no fees with Aztec Connect specifically, beyond the gas required to interact with the L1 contract, which Aztec doesn’t capture. Users will be charged a transaction fee to cover the proportional cost of submitting their transaction to mainnet in the rollup. Our goal is to have the network be sustainable over time, meaning there are no subsidies and users are able to benefit from 95% gas savings with the throughput on the network.

1 Like

Hi Lisa,
Sounds great, win win for users and the protocol. :slight_smile:

A $100K subsidy is small in comparison to the value this could bring Compound.

I’m supportive of this and can’t wait to see it in action!

2 Likes

Blockchain@Columbia supports this grant. Before the bridge and Aztec are fully production ready, it’s important to not only advocate for the benefits of private, cheap transactions, but also show users what it’s like. We think that $100,000 is reasonable to help cover gas fees on the network and start to drive adoption. Lastly, we believe that bringing privacy to crypto (through actual “ZK” rollups like Aztec) is essential to maturing the space and pushing it forwards. Compound should be at the forefront of this as the first lending protocol to integrate with Aztec.

3 Likes