Penumbra Labs Raises Seed Round To Build Private, Decentralized Exchange
The funding round was joined by strategic investors including the Interchain Foundation, Lemniscap, Robot Ventures, Volt Capital, Figment, Strangelove Ventures, Informal Systems, and ZKValidator.
Privacy is the next frontier for DeFi
Every market is also a market in information, yet existing DeFi platforms don’t allow users to control the information they disclose through their on-chain activity. As users interact on-chain, leaks of information become leaks of value, costing them real money as their transactions are frontrun, backrun, sandwiched, and otherwise exploited.
Strong, on-chain privacy offers a solution. Privacy is about control of information disclosure, so DeFi is a context where privacy technology provides concrete financial value. But privacy also poses challenges. Information disclosure at a base layer can’t be undone at a higher layer, so building private DeFi requires rethinking chain designs from the ground up. Penumbra takes the first step towards private DeFi by building a private layer 1 network with an integrated decentralized exchange: ZSwap, a new mechanism for shielded swaps combining frequent batch auctions with anonymous concentrated liquidity positions. Market-takers get better execution and long-term trade privacy, while market-makers can more efficiently deploy capital by actively managing their positions without revealing their trading strategy.
Interchain privacy
Penumbra is designed to act as a shielded zone for the entire Cosmos ecosystem, recording any kind of asset in a single shielded pool. Cross-chain IBC transfers shield value moving into the chain, and unshield value as it moves out to other transparent chains. All transactions within Penumbra are fully shielded and private-by-default, unlike other privacy-enabled chains where shielded transactions are opt-in. Of course, users retain the ability to selectively disclose their activity to third parties they authorize.
Building a fully shielded proof-of-stake chain means that staking and delegation must also be private. Otherwise, holders of the staking token would be forced to choose between maintaining privacy on the one hand and network security, governance, and staking rewards on the other. But this poses a challenge: if staking delegations are private, how can the chain issue staking rewards?
Penumbra solves this problem by creating a new staking design that provides accountability for validators and privacy for delegators. This design is based on delegation tokens representing a share of a validator’s shielded delegation pool. Rewards accrue to the pool, not the delegator, so there is no income to issue, and delegation tokens are completely fungible, allowing delegation privacy.
What’s Next
We’re incredibly excited to build the private infrastructure we think DeFi needs. Join our Discord to follow our development as we work towards our first public testnet.