Research Pulse #54 02/28/22

  1. A Short Survey on Business Models of Decentralized Finance (DeFi) Protocols
    Authors: Teng Andrea Xu and Jiahua Xu

Decentralized Finance (DeFi) services are moving traditional financial operations to the Internet of Value (IOV) by exploiting smart contracts, distributed ledgers, and clever heterogeneous transactions among different protocols. The exponential increase of the Total Value Locked (TVL) in DeFi foreshadows a bright future for automated money transfers in a plethora of services. In this short survey paper, we describe the business model for different DeFi domains - namely, Protocols for Loanable Funds (PLFs), Decentralized Exchanges (DEXs), and Yield Aggregators. We claim that the current state of the literature is still unclear how to value thousands of different competitors (tokens) in DeFi. With this work, we abstract the general business model for different DeFi domains and compare them. Finally, we provide open research challenges that will involve heterogeneous domains such as economics, finance, and computer science.


  1. How Do Smart Contracts Benefit Security Protocols?
    Authors: Rujia Li, Qin Wang, Qi Wang, and David Galindo

Smart contracts have recently been adopted by many security protocols. However, existing studies lack satisfactory theoretical support on how contracts benefit security protocols. This paper aims to give a systematic analysis of smart contract (SC)-based security protocols to fulfill the gap of unclear arguments and statements. We firstly investigate state of the art studies and establish a formalized model of smart contract protocols with well-defined syntax and assumptions. Then, we apply our formal framework to two concrete instructions to explore corresponding advantages and desirable properties. Through our analysis, we abstract three generic properties (non-repudiation, non-equivocation, and nonframeability) and accordingly identify two patterns. (1) a smart contract can be as an autonomous subscriber to assist the trusted third party (TTP); (2) a smart contract can replace traditional TTP. To the best of our knowledge, this is the first study to provide in-depth discussions of SC-based security protocols from a strictly theoretical perspective.


  1. gOTzilla: Efficient Disjunctive Zero-Knowledge Proofs from MPC in the Head, with Application to Proofs of Assets in Cryptocurrencies
    Authors: Foteini Baldimtsi, Panagiotis Chatzigiannis, S. Dov Gordon, Phi Hung Le, and Daniel McVicker

We present gOTzilla, a protocol for interactive zero-knowledge proofs for large disjunctive statements of the following format: given publicly known circuit 𝐶, and set of values 𝑌 = {𝑦1, . . . , 𝑦𝑛}, prove knowledge of a witness 𝑥 such that 𝐶(𝑥) = 𝑦1 ∨ 𝐶(𝑥) = 𝑦2 ∨ · · · ∨ 𝐶(𝑥) = 𝑦𝑛. These type of statements are extremely important for the proof of assets (PoA) problem in cryptocurrencies where a prover wants to prove the knowledge of a secret key 𝑠𝑘 that associates with the hash of a public key 𝐻(𝑝𝑘) posted on the ledger.
gOTzilla is based on the MPC in the head (MPCitH) paradigm and is based on the observation that if we restructure the proof statement to an equivalent of proving knowledge of (𝑥, 𝑦) such that (𝐶(𝑥) = 𝑦) ∧ (𝑦 = 𝑦1 ∨ · · · ∨𝑦 = 𝑦𝑛)), then we can reduce the disjunction of equalities to 1-out-of-N oblivious transfer (OT). We additionally provide a concrete, efficient extension of our protocol for the case where 𝐶 combines algebraic and non-algebraic statements (which is the case in the PoA application). We achieve an asymptotic communication cost of 𝑂(log𝑛) plus the proof size of the underlying MPCitH protocol. While related work has similar asymptotic complexity, our approach results in concrete performance improvements. We implement our protocol and provide benchmarks. Concretely, for a set of size 1 million entries, the total run-time of our protocol is 14.89 seconds using 48 threads, with 6.18 MB total communication, which is about 4x faster compared to the state of the art when considering a disjunctive statement with algebraic and non-algebraic elements.


  1. Yields: The Galapagos Syndrome Of Cryptofinance
    Authors: Bernhard K. Meister and Henry C. W. Price

In this chapter structures that generate yield in cryptofinance will be analyzed and related to leverage. While the majority of crypto-assets do not have intrinsic yields in and of themselves, similar to cash holdings of fiat currency, revolutionary innovation based on smart contracts, which enable decentralised finance, does generate return. Examples include lending or providing liquidity to an automated market maker on a decentralised exchange, as well as performing block formation in a proof of stake blockchain. On centralised exchanges, perpetual and finite duration futures can trade at a premium or discount to the spot market for extended periods with one side of the transaction earning a yield. Disparities in yield exist between products and venues as a result of market segmentation and risk profile differences. Cryptofinance was initially shunned by legacy finance and developed independently. This led to curious and imaginative adaptions, reminiscent of Darwin’s finches, including stable coins for dollar transfers, perpetuals for leverage, and a new class of exchanges for trading and investment.


  1. D-KODE: Mechanism to Generate and Maintain a Billion Keys
    Authors: Easwar Vivek Mangipudi and Aniket Kate

This work considers two prominent key management problems in the blockchain space: (i) allowing a (distributed) blockchain system to securely airdrop/send some tokens to a potential client Bob, who is yet to set up the required cryptographic key for the system, and (ii) creating a (distributed) cross-chain bridge that allows interoperability at scale by allowing a (changing) set of nodes in a blockchain to perform transactions on the other blockchain.
The existing solutions for the first problem need Bob to either generate and maintain private keys locally for the first time in his life—a usability bottleneck—or place trust in third-party custodial services—a privacy and censorship nightmare. Towards solving both problems in a distributed setting against a threshold-bounded adversary, distributed key generation (DKG) based solutions are actively employed; here, a set of servers generate the transaction keys in a distributed manner and link them to clients’ ids. Nevertheless, these solutions introduce computation and communication overhead that is linear in the number of keys and do not scale well even for a million keys, especially for proactive security against a mobile adversary.
This work presents a Keys-On-Demand (D-KODE) 1 distributed protocol suite that lets the blockchain system securely generate the public key of any Bob against a mobile, threshold adversary. Multiple servers, here, compute discrete-log private/public keys on the fly through distributed pseudo-random function evaluations on the queried public string. D-KODE also introduces a proactive security mechanism for the employed black-box secret-sharing based DKG to maintain the system’s longitudinal security. The proposed protocol scales well for a very high number of keys as its communication and computation complexity is independent of the number of keys. Our experimental analysis demonstrates that, for a 20-node network with 2/3 honest majority, D-KODE starts to outperform the state of the art as the number of keys reaches 94K. D-KODE is practical as it takes less than 100msec to generate a secret key for a single-threaded server in a 20-node setup.


  1. The Evolution of Nonfungible Tokens: Complexity and Novelty of NFT Use-Cases
    Authors: Andrew Park, Jan Kietzmann, Leyland Pitt, and Amir Dabirian

Nonfungible tokens (NFTs) have recently drawn considerable attention, highlighted by a digital art piece that sold for $69M USD in early 2021. Though they have only just started receiving coverage by traditional media outlets and interest from casual observers, the foundations of NFT technology date back to advances in computer science in the late 1970s. In this article, we examine the emergence of NFTs, from their technical origins, the introduction of blockchain technologies and the first token-based collectibles that led to modern day NFT products. We categorize the current use cases for NFTs, introduce their potential future applications, and highlight the challenges managers face in incorporating them into their existing workflows. By presenting our NFT adoption framework, we offer managers strategies for evaluating the risks and benefits of NFTs.

Link: The Evolution of Nonfungible Tokens: Complexity and Novelty of NFT Use-Cases | IEEE Journals & Magazine | IEEE Xplore

  1. Fides: Distributed Cyber-Physical Contracts
    Authors: Lars Creutz, Jens Schneider, and Guido Dartmann

Current work in the field of smart contracts is primarily aimed at developers and directly connected to an underlying cryptocurrency. Those self-enforcing contracts are suitable for financial applications, but often disregard regular agreements that do not rely on digital money or are difficult to specify in the form of program code. In order to promote social interaction and self-organization for all types of users, we present Fides, a framework for creating contracts based on natural language that focuses on security and privacy. The use of natural language, detached from the actual payment process, allows everyone to create digital contracts inside a decentralized peer-to-peer network without relying on an inefficient Blockchain solution. These agreements are not only intended for interactions between humans, but can also be established between devices by automation.



Research Pulse #54 is out!

In A Short Survey on Business Models of Decentralized Finance (DeFi) Protocols, the authors provide an interesting analysis of the economics of DeFi protocols. They dissect the embedded business models associated with Protocols for Loanable Funds (PLFs), Decentralized Exchanges (DEXs), and Yield Aggregators across the DeFi ecosystem.

In D-KODE: Mechanism to Generate and Maintain a Billion Keys, authors postulate an interesting primitive for crypto developers: the ability to seamlessly generate and maintain an enormous number of key pairs. This is a critical problem faced by the industry when it comes to key management. Beyond cryptoasset exchanges, this primitive could be useful for protocol developers, especially in the context of of DAOs.

Finally, in gOTzilla: Efficient Disjunctive Zero-Knowledge Proofs from MPC in the Head, with Application to Proofs of Assets in Cryptocurrencies, the authors provide a framework to enable proof of asset ownership. The main idea behind Proof of Assets is to enable custodians to prove that they, in fact, have the funds they claim they have without exposing critical information such as addresses.

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