Findora CEO Charles Lu and CSO John Powers were invited back to the EEA Financial Services Group to give a presentation on Findora’s solutions for bringing confidentiality to blockchain, and how these solutions are bridged to real world financial services.
Charles founded the Stanford Blockchain Club in 2014 and previously worked at Binance, Citadel. Facebook and Amazon. He is currently on leave from his PhD in Computer Science at Stanford in order to focus on Findora.
John is the former head of the $25 billion Stanford endowment fund and led its turnaround efforts after the 2008 financial crisis. Prior to that John was the co-head of hedge funds at Credit Suisse and was a managing director at the renowned technology investment bank Robertson Stevens. This has granted him invaluable experience as a principal investor, advisor and agent.
After a great presentation from the Depository Trust & Clearing Corporation (DTCC) on two of their blockchain initiatives, Charles and John discussed some of the major pain points in finance and the capabilities that allow Findora to solve them. The major pain points covered are:
- Lack of transparency
Classical blockchain architectures offer some solutions but introduce new ones at the same time.
Blockchains solve fraud and the lack of transparency in largely the same way. Through having a shared history and ledger state, anyone can verify that data are in order and compliant with respect to a specified policy. However, this also means that there is a complete lack of privacy for any data stored on the blockchain.
Inaccessibility is solved by having a standardized, interoperable ledger that avoids problems with inefficient transactional systems (such as financial transactions being conducted on paper, or taking several days to settle). Existing blockchain architectures fail to scale, however, making the open nature meaningless when they can’t handle real world use. Certain financial services will also be unable to run on a blockchain, because this open and transparent nature makes it impossible for them to comply with regulations.
Many financial applications require confidentiality. Businesses need to keep their competitive advantage, investment funds need it to keep their positions a secret, and most importantly, individuals need it to protect their privacy.
We are building Findora to solve these problems. We have developed a custom suite of tools that allow for what we call ‘cryptographic transparency’, running on a highly scalable network.
Cryptographic transparency means that data can be fully auditable while remaining confidential on the blockchain. At the heart of this cryptographic transparency are a number of tools based on zero-knowledge proofs developed by Findora. Zero-knowledge proofs, or ZKPs, allow someone to prove a statement is true without revealing anything about that statement.
An example: There’s a door with a keypad lock next to it. If I use the correct combination to open the door I can convince someone on the other side of the door that I know the correct code to open the lock, without having to reveal the actual code to them. So I have proven my knowledge of the correct code without revealing the actual code; all I gave is a really compelling argument that I know it. Translated to finance, this means we can prove many complex statements to be true or false without revealing their content. This allows us to achieve cryptographic transparency. In Findora, we use these type of zero-knowledge arguments to offer both privacy and compliance tools. The following privacy tools are used by Findora:
- Confidential transfer: hide the details of a transaction while still enabling the network to confirm its validity.
- Private multi-source transfer: hide from recipient the amounts from each source, revealing only the aggregate amount.
- Confidential assets: hide the type of assets in a transaction or account.
- Privacy-preserving computation: sealed-bid auctions, fair lotteries, order-book matching (dark pools and anti-front-running), and more!
The following tools are used for compliance:
- Proof of solvency: prove the value of an asset sheet exceeds a certain volume while keeping the contents of the sheet confidential.
- Balance range proofs: prove that a confidential transfer or account balance is within a certain range.
- Proof of whitelisted assets: prove that the issuer/type of a confidential asset is whitelisted.
- Capability-specific audit keys: create fine-grained viewing keys that don’t control accounts but can reveal necessary information
- Confidential asset tracer: allows an asset issuer to trace all ownership transfers while remaining confidential to the public.
- Proof of compliance: prove that a transaction is compliant with the terms of a financial contract or regulation.
These tools make Findora the perfect network for confidential open finance. Many financial services that are impractical on classical blockchains can easily run on Findora’s confidential ledger.
Financial Services on Findora
Classical P2P lending markets suffer from many types of fraud. It’s very easy for borrowers to falsify loan information. It’s also impossible to know if the lending platform is actually solvent or in fact akin to a Ponzi scheme. Using Findora’s custom privacy and compliance tools we can create a P2P lending platform that doesn’t suffer from these problems, enabling a fully transparent, yet privacy-respecting platform.
Similarly, private investment funds suffer from a lack of transparency. Many of the problems plaguing them can also be solved with Findora. For instance, using our custom suite of zero-knowledge proofs we can prove that a fund manager is honest about the fee he’s taking. We can guarantee that he’s investing within his mandate and we can comply with regulations without having to reveal sensitive information.
During the call, John brought up recent changes in the regulatory landscape in the US, allowing individuals to participate in private investments. This makes transparency and efficiency more important than ever for secondary markets. Findora’s platform enables such a market by being able to work with regulators and proving compliance while maintaining user privacy.
John continued with a personal story about his time as the Stanford endowment fund’s CEO and CIO during and after the global financial crisis. He explained that perhaps his greatest achievement wasn’t making huge gains, but rather the avoidance of significant losses. He noted, however, that during this time he experienced many difficulties and inefficiencies in secondary markets, especially when seeking to exit positions. Findora is uniquely positioned to combat these problems thanks to its properties that allow for far greater efficiency in markets and settlement.
Users will be able to access services on Findora using their digital wallet. This is where a user locally stores all their relevant data. From here, they can interact with the network without having to reveal private data besides the necessary proofs required. The user is in complete control of the data stored in their wallet, reducing the risk from being a victim of corporate data-breaches.
This is what enables our vision: one global financial network, protocol, infrastructure, and standard. A perfect balance between privacy and auditability. An “Internet for Finance” connecting an ecosystem of cryptographically transparent ledgers. A network where the individual user has more control over their personal data and that respects their privacy. Welcome to Findora.