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Private, Anonymous, Collateralizable Commitments vs. MEV: A Detailed Analysis

Core Concepts
Introducing the PACCs framework to eliminate MEV in DeFi by shifting it to censorship.
This detailed analysis introduces the Private, Anonymous, Collateralizable Commitments (PACCs) framework as a solution to eliminate maximal-extractable value (MEV) in decentralized finance (DeFi). The paper discusses the limitations of existing solutions and proposes an improved variant of single-use collateralized commitments. It outlines how PACCs can be applied effectively to shift MEV opportunities from decentralized exchanges (DEXs), liquidations, and auctions to censorship. The protocol is described with a focus on smart contract wallets and zero-knowledge proofs. The paper also provides insights into related work, cryptographic primitives, commitment mappings, relayers, and the implementation of PACCs using the Ethereum blockchain. Furthermore, it discusses the properties of PACCs and their potential applications in various scenarios such as sealed-bid auctions, decentralized exchanges, request-for-quote protocols, and automated market makers (AMMs). Index: Introduction to PACCs Framework Limitations of Existing Solutions Improved Variant of Single-Use Collateralized Commitments Application of PACCs in Eliminating MEV Protocol Description: Smart Contract Wallets and ZKPs Related Work Analysis Cryptographic Primitives Overview Commitment Mappings and Relayers Implementation on Ethereum Blockchain Properties of PACCs and Potential Applications
Miner-/maximal-extractable value losses on Ethereum are upwards of $500M. Losses across all blockchains likely amount to billions. MEV diverts funds from genuine protocol users to extractors. Existing solutions fail to provide a satisfactory decentralized solution. Zero-Knowledge Mixers hide transaction information effectively. PACCs can shift MEV opportunities from DEXs to censorship.
"PACCs allow any smart contract wallet holder to collateralize a claim in a private and anonymous manner." "PACCs can be applied effectively to eliminate maximal-extractable value (MEV) in DeFi."

Key Insights Distilled From

by Conor McMena... at 03-25-2024
Private, Anonymous, Collateralizable Commitments vs. MEV

Deeper Inquiries

How can PACCs impact the overall security and privacy landscape of DeFi platforms?

PACCs have the potential to significantly enhance the security and privacy aspects of DeFi platforms. By allowing users to commit collateralized transactions in a private and anonymous manner, PACCs can mitigate risks associated with maximal-extractable value (MEV) extraction. This shift from MEV to censorship makes it harder for malicious actors to exploit vulnerabilities in decentralized exchanges (DEXs) and auctions. The use of zero-knowledge proofs (ZKPs) in PACCs ensures that sensitive information about transactions is not leaked while still proving the validity of commitments. This level of privacy protection is crucial in safeguarding user data and preventing front-running attacks where transaction details are exploited for personal gain. Moreover, by introducing a protocol like PACCs, users can participate in sealed-bid auctions or frequent batch auctions without revealing their intentions upfront. This approach not only protects user strategies but also promotes fair trading practices within DeFi platforms.

How might the adoption of PACCs influence regulatory considerations within the DeFi space?

The adoption of PACCs could have implications for regulatory considerations within the DeFi space. While decentralized finance offers innovative solutions outside traditional financial systems, regulators are increasingly focusing on ensuring compliance with existing laws related to anti-money laundering (AML), know your customer (KYC), and other financial regulations. With PACCs enabling users to maintain anonymity while participating in transactions, regulators may express concerns about potential misuse for illicit activities such as money laundering or terrorist financing. The ability to conceal identities during transactions could pose challenges for law enforcement agencies seeking transparency in financial dealings. To address these regulatory concerns, DeFi platforms implementing PACC protocols may need to find a balance between preserving user privacy and meeting compliance requirements. Enhanced due diligence measures may be necessary to verify participants' identities without compromising their anonymity provided by technologies like ZKPs. Overall, regulators will likely monitor how PACC adoption impacts AML/KYC efforts and whether additional safeguards are needed to prevent abuse of anonymity features within decentralized finance ecosystems.

What are the potential drawbacks or risks associated with relying on relayers for posting collateral?

While relayers play a critical role in facilitating transactions through protocols like PACCs by adding commitments to the blockchain on behalf of users, there are inherent drawbacks and risks associated with this reliance: Counterparty Risk: Users entrust relayers with their collateral funds, creating counterparty risk if relayers fail to fulfill their obligations properly. Centralization Concerns: Depending heavily on specific relayers could introduce centralization issues into what should ideally be decentralized systems. Collateral Mismanagement: Inadequate management or misuse of collateral by relayers could lead to financial losses for users if commitments are not honored appropriately. Security Vulnerabilities: Relayers act as intermediaries between users and smart contracts, potentially exposing them to security vulnerabilities that hackers could exploit. Cost Implications: Users may incur additional costs when engaging with relayers who charge fees for their services beyond standard gas fees required for blockchain interactions. 6 .Regulatory Compliance: Regulatory authorities may scrutinize roles played by relayers concerning legal responsibilities regarding transaction processing accuracy or adherence