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- [00:01]
State Farm Sponsor
This episode is brought to you by State Farm. Listening to this podcast instead of doomscrolling Smart Move Another smart move getting help from one of State Farm's 19,000 local agents when you choose to bundle home and auto bundling. Just another way to save with the personal price plan. Prices are based on rating plans that vary by state. Coverage options are selected by the customer. Availability, amount of discounts and savings and eligibility vary by state.
- [00:27]
Host
Everyone wants trillions of dollars to move on chain, but there's one massive problem. Public blockchains are too public. If you trade, pay someone or move capital, the whole world can potentially see what you're doing. That does not work for real finance and it definitely does not work for institutions. Zama is trying to fix that by building what could be the HTTPs layer for crypto privacy by default on public blockchains like Ethereum and Solana. Today I'm talking with Ran Hindy from zama about confidential stablecoins private DeFi.
- [00:59]
Ran Hindy
You can take your shielded confidential USDC tokens and you can earn yield on Morphovaults exactly the same way as if you would with regular non confidential USDC tokens. There is no downside. Zero. There is no downside to having your assets shielded. It's pure upside.
- [01:16]
Host
Institutional adoption.
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Ran Hindy
There is just no chance that we're going to see trillions moving on chain unless we can solve confidentiality and privacy. That's where Zama comes in. We help the EZ confidentially and why
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Host
Encryption may be the missing piece that finally brings global finance on chain. Let's go.
- [01:36]
Ran Hindy
Let's dope. That's dope.
- [01:51]
Host
So I think it's fair to say that there's been a problem in crypto where institutions who need full confidentiality have been unable to get that on private or public blockchains that accurate.
- [02:03]
Ran Hindy
I think it's even worse than this actually today if you want to use a public blockchain to pay someone, everybody knows how much you pay that person, how much they have in their bank account, how much you have in your bank account. If you want to trade, everybody knows what you're trading. They can front run you, they can copy trade you, which is huge in terms of, let's just say it creates a lot of loss opportunity for traders. But importantly, I think there's a lot of people and especially those with large amounts of money to manage, they just don't want to use a technology unless they have some level of confidentiality because they have that in tradfi. So it's not just institutions I think it's finance that requires confidentiality. And there is just no chance, no chance that we're going to see trillions moving on chain unless we can solve confidentiality and privacy.
- [03:01]
Host
Maybe it would be constructive to talk about what the Internet looked like before that existed, what was the solution and
- [03:07]
Ran Hindy
what the Internet looked like afterwards back in the 90s. I don't know if you remember, how old are you by the way?
- [03:15]
Host
I'm 49. I remember.
- [03:17]
Ran Hindy
Okay, you remember. Great, I remember too. So remember there was something called the intranets, right? So an intranet was a private network of computers connected within your organization and you could talk to your co workers and you could have like a shared database, you could exchange information. And sometimes companies would connect their intranet to other companies intranet to exchange data. This is basically how institutions have been using blockchains up until now. Every one of them has their own private chain and they talk to each other, but they're fundamentally siloed. What the Internet brought was one global public network that everybody could use. It was a way for people to, to sell products to anybody in the world as a way for people to access and share information with anybody in the world without having to have this sort of like intranet connectivity between everyone. This is what public blockchains like Ethereum and Solana are enabling for financial transactions. One global network everybody could use for transacting financially. The problem however in the Internet to the early days is if you wanted to buy something on Amazon or any e commerce website, you had to put your credit card information. Anybody on the Internet could see it. So paying something online meant revealing your credit card data and what you're purchasing to anybody in the world. This was a very big, it was preventing effectively mass adoption of E commerce and Internet. So people invented something called HTTPs, which was simply a layer of encryption on top of the Internet which allowed you to share information privately with a recipient. So when you sent your credit card information on an E commerce website, you sent an encrypted credit card number that only the E commerce website could decrypt and they could actually see it. And all of a sudden you just enabled global commerce on a single shared network. And from that we started having private communications. When you're sending a prompt to cloud today, cloud, your prompt is encrypted. People online cannot see what you're sending to cloud. So everything that we have Today, Google, Entropic, OpenAI, Amazon, all of those companies exist because we encrypted the Internet. And so now think again, a parallel to Public chains. If Ethereum and Solana are going to be the Internets of global finance, we need an HTTPs for global finance to run on those. And this is exactly where Xama actually comes in place.
- [06:04]
Host
So it's actually a simple, relatively, not technologically but conceptually, a simple idea that's been proven as one of the most impactful in history. I mean HTTPs, it's not that complicated, right?
- [06:18]
Ran Hindy
It's very simple. You encrypt the data, that's it. And that's exactly what we do for financial transaction on chain. We just encrypt them so that whenever you're paying someone on chain is private. Whenever you're transacting and buying or selling stocks or crypto assets on chain, it's private. You can have a portfolio of assets that you're managing as an asset manager. You can have a bank account on chain with our people knowing how much money you're making, what you're paying for. We can recreate all of finance completely on chain with one global network, 24 hour settlement anywhere in the world, instantaneous, with the same level of privacy as you would have in existing financial institutions.
- [07:01]
Host
It's so interesting because privacy has become one of the hot topics again, I would say, because I think in the earlier crypto days privacy was probably one of the main topics. And then we went through all these crazy bubbles and you know, people seem to have forgotten about it because I guess they were making so much money at the time. But it seems that we've come home, right? And privacy seems like you're capitalizing on the perfect moment where people are starting to really care about this again.
- [07:26]
Ran Hindy
Definitely. I've been in crypto since 2013, so you know, this is my fourth or fifth cycle like that. I don't even count cycles anymore. I'm like, sure, bitcoin dropped again. Well, see you guys in two years, you know. No, but the reality is what changed? And this was our bet at Zama, by the way. You know, when we decided to build the Zama protocol, you know, the HTTPs for on chain finance, we did it because we saw that institutions, banks that people wanted to use blockchain for finance and this was really like a missing element. So I think people are excited about privacy today, not because of the original cypherpunk ideals that we had initially, but because finance requires it and because people are excited about the prospect of having trillions moving on chain. So to be honest, I think if we do our job right, nobody cares about privacy anymore. It will not be a topic, not because we gave up. But because it'll just be by design in every blockchain. It'll just be there, it's in your browser. There is like this small lock when you connect to a website, it's there, you know, the connection is encrypted. You don't think about it. We have to do the same for blockchain transactions.
- [08:42]
Host
From a dev perspective, the Internet was the Internet for HTTPs. But now you're talking about having something that needs to effectively fit every chain, I would imagine. Right. So technologically, do you have to create something different for every single chain or is it really a one size fits all solution that you can create?
- [09:02]
Ran Hindy
It's very much a one size fits all solution. So there is a version for EVM that works with any EVM chain, Ethereum, Base, Polygon, Binance, and then there is a Solana version which works, I guess for Solana. Right, that's fine. You know, when you're building a mobile app, you build it for Android and iOS. We're building it for EVM and for SVM and with those two versions we can target effectively all of blockchain. So the protocol is designed to be cross chain. On day one, there isn't going to be like a different version in every chain. There's just going to be one encryption layer. You've got, you know, confidential assets, shielded, USDC On Ethereum, you can move it shielded to Polygon and Solana.
- [09:48]
Host
That's really interesting. It seems complicated, but it solves all the interoperability issues, even of transactions and bridges that existed just by using your layer.
- [10:01]
Ran Hindy
I think you have to, whenever you're building core infrastructure today, you have to build it cross chain. By design, liquidity is fragmented. People have money on Solana, they have money on Ethereum. If you're a trader and you want to access liquidity, there needs to be a way to do that seamlessly. And just because you're doing it confidentially shouldn't mean that you have worse access than someone who's using blockchain today. So the baseline is what people have today, on top of which we add confidentiality. We cannot make things worse than they are without confidentiality, otherwise people are just not going to use it.
- [10:38]
Host
Okay, so you kind of alluded to the fact that everybody needs this. Okay, so let's start with the individual and then we'll go to the institution. So as an individual, I want to send a transaction to somebody somewhere and it's a financial transaction that I obviously don't want people to have any visibility into does this feel to me the same as I'm used to from going into MetaMask or Phantom and typing in a wallet and sending someone a transaction? Am I using it through your. Do I have to go to a different wallet? What does this look like for me? Who wants to use it tomorrow?
- [11:12]
Ran Hindy
I think we've done too good of a job to make it visible that we spent years building this technology and make it work. And now it works so well and it's so seamless that people are like, eh, it doesn't even look magic. I'm like, if you knew what went behind making this boring in a way. But boring is precisely what you want. Privacy is not what you're selling. What you're enabling is for use cases to come on chain. That would not be possible without privacy. So you can use it today with any existing wallet that you have. If you've got MetaMask, Rabi, you're using any one of those things. It works off the shelf. We are currently working on integrating those confidential tokens into every wallet, every custodian, every exchange, so that you can use it just like you use traditional ERC20 tokens. Right now we also have a zama app on app.zama.org that you can go to to manage your confidential assets, to put them in vaults, to swap them confidentially. But this user interface we created is just one way that you can interact with confidential assets. Exactly the same in the same sense that, you know, you can swap assets on the Uniswap website or you can do it from MetaMask. At the end of the day, you know, this is going to be integrated everywhere and it doesn't really matter which entry point the user is going through, it's just going to be a wallet.
- [12:44]
Host
I mean, dude, does this get to the point eventually in your mind, where it just becomes the default of every transaction that everybody does on every chain and we don't even know it. Like kind of as you're saying, like, I just go into my metamask, I send something and you guys have integrated in some way, shape or form, and I never even think about it at all.
- [13:00]
Ran Hindy
Exactly. There's a point. There's a point. And for that to happen you need two things. First of all, you need integrations. So you need this to be supported everywhere, so that you never have to think about, oh, this is shielded, it doesn't work in this wallet. So you need every wallet, every on and off ramp, every exchange, every touch point in the crypto ecosystem has to support it this is the work we've been doing this year. Really kind of like getting those integrations done. The second thing you need is utility. Great. I've got shielded usdc. What for? What do I do with it? Yeah, I can send it to people, but can I make money? Can I make yield on it? Can I swap it? So that's where you need to start integrating with the broader financial and DEFI ecosystem. And this is precisely what we launched recently with Morpho and Steakhouse. We launched the first confidential USDC vault which take house on top of Morpho. You can take your shielded confidential USDC tokens and you can earn yield on Morpho vaults exactly the same way as if you would with regular non confidential USDC tokens. So think about it for a second. You can have the same yield, actually better because we incentivize it. You can have the same yielder better with confidential assets than non confidential assets. So my question is, why not do it confidentially? There is no downside. Zero. There is no downside to having your assets shielded. It's pure upside.
- [14:34]
Host
I agree that speaks to the individual and the way that we behave with blockchains. But I've got to imagine when we start talking about the blackrocks of the world and the largest institutions, as you said, we kind of have a, have had a chicken and an egg problem. They want to bring trillions of dollars and quadrillions in volume literally into tokenized assets and settlement. But they can't do that if I can literally just go on the blockchain explorer and see what BlackRock's doing. Right. So I guess maybe speak to exactly how they do that now without the privacy layer, if they've already moved to privacy and how this will solve those problems for them.
- [15:12]
Ran Hindy
There are two sort of forces happening right now in on chain finance. We've got the DEFI native financial players, the curators like Steakhouse, the protocols like Morpho and Uniswap. They're moving progressively towards more traditional finance products as well, offering yield coming from different products than just collateralized lending. Right. So you've got this bottom up momentum that's happening going from DEFI to this sort of middle ground that we now call on chain finance. It's not defi, it's not tracfi, it's something in the middle. And at the same time you've got TradFi, the BlackRock and the other guys starting to move on chain but they still want to keep the level of compliance that they have with TradFi, the confidentiality they have with Tradfi, the, the liquidity, the access, the distribution have with ratfi and so on chain finance is where those two world meet, where Defi and Tracfi actually sort of like end up merging is on chain finance. So I think you need to serve both. I think you need to work very closely with the morphos and the curators and you need to work very closely with institutions and the blackrocks so that we can find just gigantic trillion dollar market called on chain finance.
- [16:38]
Host
So I just want to talk, I guess a little bit more about your bill, what you've built. I'm looking at it through here. Obviously it's kind of built by Paris fhe cryptography company. Right. And so you guys are running the Zama protocol here. You raised 115 million bucks. 150 total. 57 in a Series B led by Pantera Blockchain. So at a 1 billion valuation. So just people talking about a unicorn here. This isn't some nascent idea.
- [17:09]
Ran Hindy
No, it's not. Actually. I started working on fhe in 2015. My previous company that I was running was an AI company already focusing on privacy. I sold that company in 2019. In 2015, I discovered fhe full homomorphic encryption, which is a way that you can compute unencrypted data without having to decrypt it. So think about it like end to end encryption for any kind of online service that you might want to use. Unfortunately, back in the days a decade ago, it didn't work. It was too slow, very hard to use. You could barely do things with it. So it was a good idea, but not doable in practice. When I sold my company a week later, I started Zama with my co founder, Pascal Paillet, who was one of the inventors of fhe. And we didn't really know yet what the product was going to be. We just wanted to make fhe work. So we assembled the Avengers team of cryptographers and researchers to just look, here's a bunch of money, make it work, pretty much. And a couple of years later it did start to work. And so we started looking for what does the market want to apply it for? Is it confidential AI? Is it blockchain, is it databases? And what's interesting is that when you look at cloud's applications like AI, if you trust the provider that you're working with Entropic, OpenAI, Google, and if they don't get hacked, technically your data is not public. Sure, they see it, but your neighbor doesn't and for most people, that's good enough. That's what most people are happy with. Blockchain didn't give you that opportunity. If you used a blockchain application, if you did finance on chain, the whole world, including your neighbors, would actually see what you're doing. And we looked at this, we're like, oh, wow. Our technology is a vitamin for cloud applications, but it's a painkiller for blockchain applications. How big is the market if you enable confidentiality on public networks like Ethereum? Well, if you look at how big the Internet became with HTTPs, I think it's pretty clear that blockchain and on chain finance is going to be trillions of and trillions of dollars more with confidentiality. And so a couple of years ago, we're like, you know what, let's go all in on that. Decided to refocus the entire company with one single purpose, enable confidentiality on public blockchain and drive adoption of that. So that in, let's say, four years, 95% of financial transactions on Ethereum and Solana will be encrypted using Zama. That's the goal. 95% in four years.
- [19:49]
Host
Quite a goal. So who's using it now? Obviously, I read about t Rex ledger, which 32 billion in tokenized assets. So this is very much in use already.
- [20:00]
Ran Hindy
T Rex is huge. I mean, we haven't rolled out with them yet, but we are the privacy partner for their protocol. So T Rex, the protocol that's being launched by Apex Group, apex is at $3.5 trillion. You know, asset servicing companies like, you know, one of the biggest tradfi institutions out there, they've already committed to tokenize $100 billion of assets on T Rex. To give you some sense of the scale that represents, all of RWAs on public chains today is about $25 billion. So they're one, one, one partner that TX has, Apex is going to tokenize four times more assets than all of blockchain rwas today. Okay? Of that hundred billion dollars, if only 5% is shielded using Zama. 5%. I'm not talking about 95%. 5%. It would make Zama the largest protocol in terms of value Shielded, bigger than Zcash. So one partner, 5% of one partner integration is enough to make Zama bigger than Zcash. Like that is the scale we're talking about here. Like finance is literally trillions. Defi is peanuts in comparison to the amount of money coming on chain once you have confidentiality.
- [21:23]
Host
So does this function Sort of for people who, you know, don't quite get the depth of it. Like a swap. You swap into the shielded asset and then you go about your business with the shielded asset. And basically it's, you know, it's private once you're in it. But is that how it.
- [21:41]
Ran Hindy
It's not a swap. The way it works is more like, you know, like you can have ETH and wrapped eth effectively. You know, you just send. Let's say you want to have shielded usdc. You take your USDC and you deposit it into the confidential USDC contract on Ethereum. So this is on Ethereum, you're not bridging. Right, it's on Ethereum. The confidential USDC contract will then mint the same amount that you deposited as confidential usdc. So, sure, people can see how much you deposited because by definition that's public. But from that point, every transfer you're making, every token you're receiving is shielded. So people don't know how much you're moving around, how much your balance actually ends up being, and whether you're swapping confidentially, depositing in the steakhouse morpho vault confidentially. Nobody has any idea how much money you have. But that's a beautiful thing. You're on Ethereum. You're not on a different chain. We're not asking you to use a new L1. You're on Ethereum. Your money's on Ethereum, it's shielded on Ethereum, you're swapping on Ethereum, it's Ethereum with encryption.
- [22:47]
Host
So interestingly, if I have, say, shielded USDC and I want to go trade, right? What about the asset that I'm purchasing that's, I assume, not shielded if I swap into some new Altcoin or something like that, right?
- [23:00]
Ran Hindy
That's correct. That's the reason why we're adding more and more assets to the protocol so that you never have to do that.
- [23:06]
Host
So you can go from shielded asset to shielded asset, back to what's effectively your vault. And all that's ever seen is what you deposited or removed from that vault once you decide to. I guess if you decide to go out of the shielded assets, that's great.
- [23:18]
Ran Hindy
Which so interesting with our job, right? You're never going to actually unshield. Like, there's no reason for you to unshield if every wallet, every off ramp, every exchange, every swap, every lending protocol supports shilling assets. And that's the goal. That's exactly the goal.
- [23:34]
Host
Right. Which shouldn't be a problem because eventually, I mean, even if you. I'm an American. So we obviously are in a very like highly regulated and watched I would imagine as it goes less than Europe.
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1-800-Contacts Sponsor
Right.
- [23:46]
Host
If eventually, OK X or Coinbase or Kraken or all of these, you know, are accepting your shielded asset. The government will still see when I go to cash. Right. Because there's nothing I can do about that. But they won't be able to see kind of what I do in between, which I think is really the somewhat ideal version.
- [24:02]
Ran Hindy
So that actually that's interesting conversation. So, you know, compliance. People think about compliance as kyc, right. Compliance is different. Compliance is primarily about how can you make sure that people using your products are using it for legitimate reasons. So how do you make sure that North Korea is not laundering money? How do you make sure that a terrorist group is not getting funded that way? And we don't want that. I want to be very clear about something. The market for compliant finance on chain is a million times bigger than the market for illicit activity on chain. Terrorist financing, money laundering is a tiny use case in comparison to banks settling on chain, people paying for the groceries and investors putting money into all kinds of different ETFs. So we've made the position very clear. Zama will not welcome illicit activity in the protocol, period. And the way that we do that is that we enable the token issuers and the defi companies and the financial service providers to build their compliance rules directly into their confidential assets and applications in the Xama protocol. So when I'm issuing confidential USDC after someone deposited usdc, the user can see their own balance, obviously. But me as the token issuer, I can also authorize myself or my compliance officer to see all the activities of people using my assets. And so by doing that, you're kind of recreating what TRI has today. Where I see my bank accounts, my bank sees my bank account, but my
- [25:49]
Host
neighbor doesn't see your bank account.
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Ran Hindy
Yeah, right. And then compliance is just traffic compliance. You don't have to reinvent it. You know, it's just, it's the same as we've had.
- [25:57]
Host
Right. So it literally doesn't, it doesn't allow for any illicit activity. It has the same protections it just gives you. Like if I want to go to a store and pay with cash, the world doesn't need to know that I went and paid with cash.
- [26:07]
Ran Hindy
Exactly.
- [26:08]
Host
And doesn't mean I'm doing anything wrong. I'm just paying with cash.
- [26:11]
Ran Hindy
Exactly. And we've gone one way, one step further than this. We've actually we do what's called transitive compliance. So if the underlying asset is shielded, let's say if you, if you're shielding USDC into confidential usdc, if Circle freezes an address in usdc, it automatically propagates and freezes the asset in confidential USDC as well. So you don't actually have to do anything. You know, you just need Circle to do what they're doing and then it'll just propagate into confidential USDC automatically. And I really think that this is how things should be. You know, I don't think that we as the protocol should decide what assets should be frozen, but the token issuer who's issuing confidential stablecoins or whatever else, they can decide whatever they want that's right for their own business.
- [27:00]
Host
Yeah, you couldn't work with USDC and Tether if it, if that wasn't the case because they've always very transparently said, you know, we work with law enforcement, if there's a lipstick activity, they freeze things. Right. That's normal. So that has nothing to do with you.
- [27:15]
Ran Hindy
Yeah, just do it. You know, not our problem.
- [27:18]
Host
Yeah, that makes perfect sense. Listen, I mean, I find this so absolutely fascinating. You said 95% in four years. Was that sort of the goal?
- [27:28]
Ran Hindy
That's my goal. Uh, you know, but even if we reach a fraction of that, the market for on chain finance is so huge because it's not just that the, the number of confidential transactions will be bigger in four years, it's that the amount of dollars on chain will be bigger as well. And so if you compound those two things, so the, the addressable market growing
- [27:51]
Host
ends 10% of a 10 times bigger pie.
- [27:55]
Ran Hindy
I mean, 10% of, of onchain finance in four years is 10 times bigger than all of Defi today. So it's just the reason why I'm saying 95% is because encryption technologies, HTTPs and the like have a tendency to have very strong network effects and to become a winner takes all kind of market.
- [28:14]
Host
Yeah, once it works, it works.
- [28:15]
Ran Hindy
If you're shielding your assets in Xama, they're not compatible with assets shielded in a different privacy protocol. And so you could unshield it and move it, but then you're losing privacy. So I think that there is a very strong network effect in having the liquidity before others do. And from that you can compound into
- [28:35]
Host
this 95% adoption curve there's a winner takes all situation.
- [28:40]
Ran Hindy
Winner takes all situation. And I'm very well set on being the winner in this market for sure.
- [28:47]
Host
Yeah, it Sounds that way. Because I've got to imagine there were a lot of competitors to the idea of HTTPs that we don't remember these days, honestly.
- [28:55]
Ran Hindy
You know what? I'll tell you something.
- [28:56]
Host
Or other ideas.
- [28:56]
Ran Hindy
Yeah.
- [28:58]
Host
Interesting.
- [28:59]
Ran Hindy
I've spoken to hundreds of customers, partners, everybody integrating this. I have yet to see someone else than Zama and Canton on those deals. That's it. There are two companies being considered right now. Canton for, like, intranet type privacy, and Zama for Internet type privacy. That's it.
- [29:23]
Host
Do you differentiate that as a way? Yeah. That's interesting.
- [29:26]
Ran Hindy
Yeah. Canton is intranets, and we are HTTPs. That's really how you have to both have value to be clear. And Canton is a fantastic company, and they're doing an incredible job onboarding everybody to blockchain. I think we serve a different purpose. I think if an institution wants to use Ethereum, that's where Zama comes in. Canton doesn't help them use Ethereum confidentially. We help them use Ethereum confidentially, but we don't go and deploy a chain in your organization. That's not our job. So I think we're gonna have both. There's gonna be. I think where this is going is you're gonna have Canton, like consortiums between large institutions, so banks will talk to each other. Kind of like you have interbank settlement networks.
- [30:11]
Host
Yeah, I was literally gonna say interbank settlement. Yep.
- [30:14]
Ran Hindy
Same thing. Right. And they'll use Canton for that, for sure. But then you've got, you know, E Commerce, you've got Visa, MasterCard, Swift, all of these things, you know, running on public rails. This is more of, like, where Zama is actually coming in. Yeah. Very, very big.
- [30:33]
Host
Yeah. Is there anything else that I missed here? Because, you know, I feel like I have a good grasp of it and the audience will too, but that doesn't mean that I asked every question that I should have asked.
- [30:44]
Ran Hindy
I think it's pretty good.
- [30:46]
Host
Awesome, man. Really impressive. It really is. And I think I've never heard anybody address the problem holistically. It seems like you kind of get a solution to each tiny problem, but as you said, that seems like it will be so disjointed, and there's no way that wins. So I give you all the credit in the world for. For being the winner takes all here.
- [31:11]
Ran Hindy
You're a good host. You're a good host.
- [31:13]
Host
I appreciate it, man. Thank you so much, Rand.
- [31:15]
Ran Hindy
Thank you for having me. Close your eyes.
- [31:18]
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- [31:19]
Ran Hindy
Feel your body relax.
- [31:21]
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- [31:32]
Ran Hindy
And breathe.
- [31:34]
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