Please describe your proposed solution
=> The Challenge of Tokenizing Real-World Assets (RWAs)
Tokenizing real-world assets (RWAs), such as real estate or commodities, introduces the possibility of fractional ownership, increased liquidity, and accessibility to broader markets.
BUT it also brings significant privacy concerns when implemented on public blockchains. When a user tokenizes an asset, information such as ownership details, transaction history, asset values, and personal information can become public knowledge, deterring both individual and institutional users who prioritize privacy.
Here, we propose to create a protocol using Zero-Knowledge Proofs (ZKPs) on Midnight to maintain the confidentiality of key information while enabling secure and verifiable transactions. ZKPs allow a party to prove that they hold valid information (such as ownership of an asset) without revealing the information itself.
=> Technical Approach
<u>1. Privacy-Preserving ZKP-Based Transactions on Midnight</u>
At the core of this solution is the use of zk-SNARKs (Zero-Knowledge Succinct Non-Interactive Arguments of Knowledge), which will enable users to:
- Prove ownership of a tokenized asset without revealing details such as the asset type, value, or personal information associated with the owner.
- Execute private transactions, allowing fractional transfers of real-world assets to be carried out securely on-chain without exposing sensitive information (e.g., transaction amounts, ownership details).
-> How it works:
- When an asset owner (e.g., Alice) transfers fractional ownership of a tokenized real-world asset (e.g., real estate), a zk-SNARK proof is generated to validate the transaction.
- This proof ensures that Alice owns the asset and that the transfer to the new owner (e.g., Bob) is valid. However, the proof does not reveal how much of the asset is being transferred or any personal details about Alice or Bob.
- The zk-SNARK proof is submitted to the blockchain along with the transaction, and the transaction is executed only if the proof is verified.
<u>2. Tokenization and Fractional Ownership of RWAs</u>
To enable real-world asset tokenization with privacy protection, we will deploy smart contracts that tokenize real-world assets and manage the issuance, transfer, and ownership of those assets. These tokens will represent fractional ownership of physical assets like real estate, enabling users to trade them freely on Cardano without revealing sensitive information.
-> Smart contract components:
- Asset Registration: The original asset (e.g., real estate) is tokenized by creating a fixed supply of tokens representing fractions of ownership.
- Ownership Verification: ZKPs ensure that only authorized parties can claim ownership or transfer tokens without revealing the underlying asset’s identity or owner’s details.
- Fractional Transfer: Users can transfer fractional ownership using ZKPs that prove the transfer is legitimate without disclosing the transaction amount or asset-related information.
<u>3. Proof of Ownership with Zero-Knowledge Privacy</u>
Ownership of a tokenized asset can be proven using ZKPs without disclosing identifying details about the owner or the asset. This feature is critical for privacy-conscious users, including high-net-worth individuals or institutions, who may not wish to publicly reveal their ownership stakes in tokenized assets.
-> Process:
- A user wishing to transfer or claim ownership provides a zk-SNARK proof showing that they have a valid claim on the asset.
- The proof demonstrates that the user possesses ownership without revealing the underlying documentation, such as property deeds or asset certificates.
- The smart contract verifies the zk-proof and processes the transaction without disclosing the owner’s identity or asset specifics on-chain.
<u>4. Non-Interactive Verification</u>
A key advantage of zk-SNARKs is their non-interactive nature. This means that once a proof is generated, it can be verified in a single step by the recipient (or smart contract), eliminating the need for multiple rounds of communication between the parties. This characteristic is ideal for blockchain applications where minimal interaction and reduced transaction complexity are essential for scalability.
=> Example Use Case: Real Estate Tokenization
Imagine Alice owns a commercial building and wants to tokenize her property to enable fractional ownership. Alice uses the protocol to issue tokens representing fractions of the building’s value. She then privately sells a portion of her tokens to Bob using zk-SNARKs. Through this process:
• Alice proves that she owns the tokens.
• Bob receives a zk-proof that verifies the token transfer.
• Neither Alice’s identity nor the value of the real estate is revealed publicly on the blockchain.
=> Why this proposal is unique:
- Full Privacy for Ownership and Transfers: Unlike traditional asset tokenization protocols, wwners can prove asset ownership and transfer tokens without revealing sensitive information, making it ideal for privacy-conscious users.
- Institutional Adoption: The protocol’s privacy features attract institutions and high-net-worth individuals, addressing concerns about public blockchain transparency.
- Easy Integration: The protocol easily integrates with existing tokenization platforms, adding a privacy layer without disrupting current systems.