Why Wall Street Still Can’t Fully Use Ethereum

The Need for Privacy on Ethereum [00:00:00]

• Ethereum, while a strong base layer, lacks built-in privacy.
• This absence is a barrier for institutions that require confidentiality for their business and compliance.
• Privacy solutions are needed at both the base and application layers.

  "So I would say that Ethereum is great sort of technology and works great as a credibly neutral base layer, but obviously it doesn't have privacy baked in."

Institutional Demands [00:01:30]

• Institutions prioritize their business and compliance.
• Public Ethereum offers deep liquidity and new business opportunities but lacks privacy.
• Cryptography is the key to enabling institutions to access Ethereum's benefits securely.

  "And because of those two things, they kind of tend towards places that they can control."

Mo Jaleel's Background [00:02:45]

• Started in traditional finance, building algo trading systems at Goldman Sachs.
• Gained experience in the hedge fund world, observing the early days of Bitcoin.
• Joined the Ethereum Foundation to lead APAC-BD initiatives.

  "So I have a really good understanding of the kind of things that basically these kind of investment banks need."

Oscar Thorne's Background [00:04:30]

• Deeply involved in privacy research for about a decade.
• Worked at Status, developing peer-to-peer communication protocols for privacy.
• Focused on zero-knowledge proofs, tooling, and privacy strategy at the Ethereum Foundation.

  "So been sort of into protocol design and privacy and so on resistance specifically on the protocol infrastructure layer for quite a while now."

The Institutional Privacy Taskforce [00:06:30]

• Oscar Thorne initially focused on individual privacy but noticed a massive demand for institutional privacy.
• Institutions often have even greater privacy needs than individuals due to business and legal constraints.
• ETH Systems spun out after a year of development and public work.

  "I think one thing that I noticed is that there's a massive, massive demand for privacy of institutions."

ETH Systems' Foundation [00:07:30]

• The organization spun out with a year's worth of work, including market maps and research on private solutions.
• Their work spans a decade, reflecting deep engagement with privacy challenges.
• They have a year's worth of work from multiple workshops and public goods.

  "So I think for us, it was interesting. Like, yeah, like you said, the organization, like each system is less than a month old, but the work we're doing spans not just a year, but probably a decade worth of like the work that we've been looking at."

What is a Privacy Strategy? [00:08:15]

• Oscar Thorne worked on the privacy strategy at the Ethereum Foundation (EF).
• The goal was to identify and guide the EF's focus on privacy research and development.
• This involved connecting institutions with the Ethereum ecosystem's privacy solutions.

  "And I think one thing that we did is sort of move that into the Ethereum Foundation and seeing sort of what type of privacy thinks Ethereum Foundation should focus on."

Bridging Worlds: Institutions and Ethereum [00:09:30]

• The Institutional Privacy Taskforce aimed to connect institutions with the Ethereum ecosystem.
• Institutions often saw blockchains as lacking privacy, unaware of the rich ecosystem of solutions.
• The taskforce explained Ethereum's capabilities and, conversely, communicated institutional needs to protocol engineers.

  "So what we're trying to do is sort of explain to them what the space looks like and in turn also talking to various companies in the space and protocol engineers and so on and explain to them here's what these users actually are looking for."

Privacy Market Map [00:10:30]

• Developed to map specific user requirements (business, legal) to available privacy solutions.
• Involved conducting Proofs of Concept (POCs) and writing reports to highlight gaps.
• This work aimed to show how building blocks could create tailored solutions.

  "And then basically map that into sort of a set of solutions whether it's like vendors or protocols and so on."

PSE: The Ethereum Foundation's Privacy Stewards [00:11:30]

• PSE (Privacy Stewards of Ethereum) was a long-standing cryptographic research lab at the EF.
• It focused on privacy solutions for many years, predating the current hype.
• This highlights the EF's deep commitment to privacy research.

  "So I know privacy is like a really hot topic now especially last year with Zcash and all these privacy protocols but the EF has had a cryptographic research lab for seven years or so, right?"

Where Are We in the Privacy Arc? [00:12:30]

• It's a mix of existing solutions and ongoing development.
• Some solutions are known but require customization for specific institutional constraints.
• Trade-offs exist with solutions like privacy L2s, which not all institutions accept.

  "I would say that some solutions we sort of know how to do but then when it comes to specific constraints I would say we are still there's still a bit to go."

The Spectrum of Institutional Needs [00:13:30]

• Institutions range from highly sophisticated with large R&D teams to those seeking white-label solutions.
• Timelines and targets (scalability vs. high assurance) vary greatly.
• The specifics of the use case dictate the approach.

  "So you see this wide sort of spectrum in terms of what these users are looking for and then also different timelines and different sort of targets."

Engineering Over Research [00:15:00]

• For many current use cases, the primary challenge is engineering, not fundamental research.
• The focus is on building and implementing existing cryptographic primitives.
• This involves translating complex requirements into functional systems.

  "I think at least for the kind of use cases that we look at it's I think largely more of an engineering problem as opposed to like a research problem."

Case Study: Inter-Dealer Compression [00:17:00]

• A tier-one investment bank needed to net trades without a trusted third party.
• This process, currently costing millions annually, involves netting trades and positions between banks.
• Ethereum could offer this capability privately, avoiding the need for a central intermediary.

  "And we basically had someone that come to us and they were like well hold on a second is there any way that we could do this and this is the perfect example where a kind of like I would say foundational new technology like ethereum a shared state could give them this without this particular third party."

Case Study: Private Payments in a Specific Jurisdiction [00:19:00]

• An organization wanted to implement private payments at a national scale.
• A unique requirement for four actors (sender, receiver, auditor, government) complicated standard two-actor payment privacy.
• Previous attempts using various protocols failed due to performance or computational cost issues.

  "And the thing about a payment is that normally it only has like really two actors which is a sender and a receiver it's known as like a DDP like they usually have two actors but because of this particular country they have a relative requirement to have four actors for payments."

ETH Systems: For-Profit Entity [00:24:00]

• ETH Systems is a for-profit entity, a deliberate choice for sustainable funding.
• This structure facilitates commercial agreements and procurement processes with institutions.
• They aim to build scalable products, generalizing learnings from bespoke work.

  "The most I think cleanest way sustainably fund it is to do as a for profit entity that's one because public goods funding is extremely hard and in my opinion grants should be given to people that really need it."

Balancing Bespoke and Scalable Solutions [00:27:00]

• ETH Systems avoids purely bespoke solutions, viewing them as a bad idea.
• They focus on understanding specific use cases to create generalized, reusable solutions.
• Their approach involves open-sourcing components and building a modular stack.

  "We think that you go in and understand these highly specific use cases because if you don't really understand you can't really solve it and what you end up doing is that you can create generalized solutions that can be usable for other people."

The Future: Invisible Blockchain Infrastructure [00:35:00]

• In seven years, the optimistic case sees blockchain infrastructure becoming invisible for most users.
• The goal is to provide the benefits of DeFi and blockchain without users needing to be crypto-native.
• Trillions of dollars could be on-chain, with seamless access to various assets and financial services.

  "I think what you'd want it to be is that for the vast majority of people that are not crypto native it should be invisible like the best technologies you don't see them but you get the affordances of it."

Privacy vs. Transparency: Finding the Balance [00:38:00]

• Privacy is defined as "who can see what, when, and how," not necessarily hidden information.
• The goal is to achieve trust through selective disclosure rather than full transparency.
• This allows for aggregate metrics (like TVL, trading volume) to remain visible while individual details are private.

  "So the question I would have is like I think some people often mistake privacy to be meaning hidden I think privacy really is who can see what when and how."

Synergies Between Cypherpunks and Institutions [00:42:00]

• There's a growing alignment between the goals of cypherpunks (decentralization, privacy) and institutions (removing counterparties, control).
• Both sides are seeking similar affordances, albeit described with different terminology.
• This convergence suggests a future where both private and public blockchain systems can coexist and integrate.

  "It's kind of like the horseshoe theory where like danny's like decentralization is really important and the the inside the bank is like i want to remove all my counterparties and people like these are the same things."

How the Ethereum Ecosystem Can Help ETH Systems [00:46:00]

• ETH Systems seeks collaboration with DeFi protocols like Morpho and Aave to integrate privacy.
• They encourage contributions to their open-source repositories.
• A key ask is for the ecosystem to be open-minded about user needs and constraints, bridging the gap between institutional demands and current offerings.

  "Come to us talk to us you know let's let's look at the products let's see what we can do to work together."