From f47fd400b6c8e019f2e5ed4016db1c96eceb05f3 Mon Sep 17 00:00:00 2001 From: Henry de Valence Date: Fri, 1 May 2020 15:57:19 -0700 Subject: [PATCH] wip --- README.md | 215 +++++++++++++++++++++++++++++++++++++++++++++++++++++- 1 file changed, 214 insertions(+), 1 deletion(-) diff --git a/README.md b/README.md index 2e59cd0..893a5e3 100644 --- a/README.md +++ b/README.md @@ -1,4 +1,215 @@ -# Zcash/Cosmos Pegzone +# Bringing Privacy to Cosmos + +The Zcash Foundation wants to bring privacy to the Cosmos ecosystem. Zcash is +unique among privacy solutions in that it has strong network effects: new users +gain anonymity from all prior transactions of existing users, while in turn +contributing to a greater anonymity set for the entire system. Our plan is to +take advantage of these network effects by giving Cosmos users access to this +anonymity set through an IBC-enabled pegzone. This work will proceed in two +phases, with the design of the first phase enabling the features of the second +phase. In the first phase, the pegzone will provide tokens backed by ZEC in +the existing Zcash shielded pool. These tokens can be sent throughout the +Cosmos ecosystem, allowing Cosmos users to trade and use ZEC. In the second +phase, we plan to add a shielded pool to the pegzone itself, providing shielded +staking, shielded IBC assets, and shielded cross-chain transfers. This plan +provides an increasingly useful privacy layer for the Cosmos ecosystem, while +growing the anonymity set of Zcash. + +## What is a pegzone? + +[Cosmos] is designed to enable cross-blockchain asset transfers. These transfers +are accomplished by the Inter-Blockchain Communication (IBC) protocol, which +provides a standardized way to lock up assets on one chain and provide bearer +assets on another chain. + +This provides horizontal scalability by allowing different “zones” – +blockchains with sovereign consensus mechanisms – to easily interoperate, or, +as the Cosmos slogan puts it, to provide an “internet of blockchains”. + +IBC requires transaction finality on each of the chains. However, +proof-of-work systems only have probabilistic finality: if miners produce a +longer block chain, transactions could be removed. However, there's still a +conceptual gap between absolute finality required by IBC and the probabilistic +finality provided by a proof-of-work chain. + +The gap is addressed by a [pegzone], a blockchain that works as an adapter for +probabilistic finality by declaring transactions to be final after some number +of confirmations. + +## Project phasing + +Our pegzone design proceeds in two phases, providing a minimum viable pegzone +in the first phase with a path to a full privacy layer for Cosmos in the second +phase. + +- **Phase 1**. The Zcash pegzone will provide an IBC-compatible asset, called + PZEC, backed 1:1 with ZEC held in the Zcash shielded pool. PZEC can be sent + throughout the Cosmos ecosystem, traded and used in other zones, and redeemed + for ZEC on the Zcash chain. This allows Cosmos users access to the anonymity + set of the Zcash shielded pool, with PZEC in Cosmos functioning similarly to + Zcash t-addresses, while laying the groundwork for full shielding in the + second phase using a novel shielded-compatible staking mechanism described + below. + +- **Phase 2**. In the second phase, we'll add a Sapling-style shielded pool to + the pegzone itself and implement shielded staking. This allows shielded + transfers from the pegzone to Zcash and vice versa. We also intend to allow + any IBC assets to move into the pegzone's shielded pool, coordinating to + ensure that the ongoing Zcash user-defined-asset (UDA) support is + IBC-compatible. + +## Mechanism design + +The pegzone will be a proof-of-stake chain. The mechanism design for the +pegzone has three parts: the staking mechanics, the peg mechanics, and the fee +mechanics. + +### Staking mechanics + +As a proof-of-stake chain, the pegzone requires a staking token, and the +pegzone must be able to control the supply of the staking token. + +However, rather than employ staking rewards as in the Cosmos Hub, we propose a +new design based on a pair of tokens, “SZEC” and “DZEC”, with a predetermined, +time-varying exchange rate. The key advantage of this mechanism is that it is +future-compatible with shielded staking, by eliminating the requirement for +delegators to claim rewards. + +The staking token is a new token called SZEC. SZEC is obtained at a 1:1 ratio +by burning ZEC on the Zcash chain. This avoids distributional issues about the +initial holders of the staking token: all ZEC holders have the option to obtain +SZEC if they choose to do so. SZEC is always freely transferable, as it +represents an unstaked state of the staking token. + +SZEC can be converted to DZEC by delegating it with a validator, and DZEC can +be converted to SZEC by removing it from delegation. SZEC and DZEC are not +exchanged at a 1:1 rate, but at a blockheight-dependent rate `D(h) <= 1` which +measures the measures the cumulative depreciation of SZEC relative to DZEC from +genesis to blockheight `h` and decreases monotonically in `h`. + +Delegating 1 SZEC at height `h_1` results in `D(h_1)` DZEC bonded to a +particular validator. Undelegating 1 DZEC at height `h_2` results in +`1/D(h_2)` SZEC. This transaction is only settled after some unbonding period, +during which the DZEC may still be slashed in the event of validator +misbehavior. + +This can be thought of as treating all DZEC as if it had been delegated since +(pegzone) genesis, and pre-debiting the staking rewards over the period before +they began delegation, so that when they undelegate, they receive rewards only +over the delegation period. Crucially, this means that all DZEC is fungible, +removing the requirement to track how long particular DZEC has been delegated. + +This is economically equivalent to staking rewards as used on the Cosmos Hub, +but because the staking reward is instead priced in to the SZEC/DZEC exchange +rate, there is no requirement for delegators to claim rewards, and all +delegators are rewarded at the same rate (e.g., there is no question about the +compounding interval). Removing staking rewards makes it relatively easy to +add shielded staking in phase 2 of the project, described in more detail below. + +### Peg mechanics + +The Zcash pegzone will provide an IBC-compatible asset, called PZEC, backed 1:1 +with ZEC held in the Zcash shielded pool. PZEC can be sent throughout the +Cosmos ecosystem, traded and used in other zones, and redeemed for ZEC on the +Zcash chain. + +Its validators will share control of the spend authorization key of a z-addr +using [FROST], a round-optimized threshold multi-signature scheme designed in +collaboration between the Zcash Foundation and the University of Waterloo. + +Upon receipt and confirmation of a z2z transaction on the Zcash chain, the +validators issue PZEC to a pegzone address specified in the transaction's memo +field. Pegzone users can redeem PZEC in the pegzone to obtain ZEC on the Zcash +chain, less some fees described in more detail below. + +We handle key rotation and validator set changes using a single epoch +mechanism. + +The system fixes an epoch length parameter, measured in pegzone blocks, and +chosen to be a relatively short interval (e.g., approximately one day). A +relatively short key rotation interval is preferable to a long one, because it +makes the key rotation mechanism impossible to ignore in client software, +reducing the risk of unexpected surprises. + +Validator set changes can only occur at epoch boundaries, not at every block +(as in the Cosmos Hub). Each epoch has a primary z-addr controlled by that +epoch's validator set. The previous epoch's z-addr stays active until the end +of the current epoch, and its validators are responsible for rolling any funds +sent to it by mistake to the current epoch's address, while the next epoch's +z-addr is generated at the beginning of the current epoch. This provides a +constant, pre-coördinated key rotation mechanism, without requiring precise +alignment between the pegzone blockheight and users' clocks. + +### Fee mechanics + +The security of the pegzone is provided by the strength of the validator's +incentives for correct behaviour: their stake. This means that the cost of +providing PZEC is the cost of capital staked to insure its security, integrated +over the length of time the PZEC is held in the pegzone. It's important for +the fee structure to respect that cost structure, to prevent perverse +incentives for behavior on the part of validators or pegzone users. + +As an example, someone who sends 100 ZEC to the pegzone, holds it in the +pegzone for a year, then redeems for ZEC should pay essentially the same fees +as someone who sends 100 ZEC to the pegzone and moves the corresponding PZEC +back and forth once per month. + +In particular, the fee structure should not penalize movement across the peg +and into the shielded pool, because the first phase of the pegzone is +unshielded, so PZEC will function similarly to t-addrs in Zcash, where privacy +requires careful movements into and out of the Zcash shielded pool. + +The proposed fee mechanism for PZEC is therefore similar to the staking +mechanism. Rather than a 1:1 rate, PZEC is converted to ZEC at rate `F(h) < 1`, +which measures cumulative fees from genesis to blockheight `h` and decreases +monotonically in `h`. + +Sending 1 ZEC to the pegzone at (pegzone) height `h_1` results in issuance of +`1/F(h_1)` PZEC. Redeeming 1 PZEC at (pegzone) height `h_2` results in +distribution of `F(h_2)` ZEC. + +This can be thought of as treating all PZEC as if it had been pegged since +(pegzone) genesis, and pre-crediting the user for fees up to the time of +creation. This design removes the requirement to track how long PZEC has been +held in the pegzone, while ensuring that the fees charged are related to the +cost of capital required to secure the peg. + +The excess ZEC withheld in distribution is kept by the validators and their +delegators. + +One disadvantage is that fees are not collected on an ongoing basis, but only +when assets move through the peg. However, because the fee amount is not +affected by when and how assets move through the peg, avoiding moving funds +does not help users avoid paying fees. + +The fee rate should be as low as possible (to incentivize pegzone usage), but +high enough to cover the cost of capital required for security. One mechanism +to accomplish this would be an automatic fee adjustment analogous to the one +used on the Cosmos Hub. This would fix a minimum collateralization ratio for +the pegzone, and increase the fee rate to incentivize staking as the +collateralization ratio declines towards the minimum. + + +- implementation components + - frost + - key rotation + - zebra libraries + - inspect state of the zcash chain + - watch for transactions + - send transactions to the network + - hold zec + - cosmos integration + - choice of language (go or rust) + - determine exchange rates + - consensus integration + - token issuance + - delegation mechanism + - fraud reporting + - IBC implementation + + + + This repo will eventually contain an implementation of a [Cosmos] [peg zone][pegzone] that bridges the Cosmos ecosystem to the Zcash shielded pool. @@ -104,3 +315,5 @@ their behaviour to relevant authorities. [Zebra]: https://github.com/ZcashFoundation/zebra [ivk]: https://zips.z.cash/protocol/protocol.pdf#addressesandkeys [ovk]: https://zips.z.cash/protocol/protocol.pdf#addressesandkeys + +[FROST]: https://crysp.uwaterloo.ca/software/frost/