While there is support for shielded transactions on Tezos, the anonymity set is tiny, which makes it ineffective.
Two things could improve this state of affairs
support staking from shielded addresses. Given how high staking rates are, there’s a high opportunity cost in staying shielded for a long time.
Supporting staking from the shielded set is surprisingly less complicated than it might seems, but its still a lot of work, requiring a rewrite of the circuit. Doing it is tedious and labor intensive, but it’s a straightforward engineering exercise.
using LB-like emission, or repurposing LB emission to incentivize use of the shielded set. That one is a much cheaper lift, couple lines of code.
Thoughts?
(Terminology N.B, it’s a shielded set, not a shielded pool)
Clearly having a “Private Proof of Stake” will be a killer feature for Tezos ! And we could use the LB emissions for 6 months as a catalyst/ bootstrap before the PPS lands.
But the real game changer will be the implementation for the private staking, not the LB move
To manage expectations, staking events would be public: it would be visible that some tez have been staked or unstaked from some baker at some time. But who staked would remain entirely private.
This should be intuitive, the consensus algorithm needs to know how much baking power each baker has.
A pool makes it sound like the assets are commingled, a set makes it clear that they are kept separately, it’s just that the amounts and identities of the owners aren’t publicly disclosed on the chain.
The distinction might impact a little bit how a lawmaker or regulator thinks about it. Not a lot, but every little bit helps so one might as well be pedantic and use the most accurate term.
The more people with tez in the set, the better the privacy. When the set is very small there’s not much privacy and therefore limited value in using the feature. Airdropping incentivizes using the set to solve the cold-start problem.
Another way to incentivize usage would be to require all rewards paid to bakers to be shielded before being spendable, but they might be unshielded immediately which limits the benefits.
Take what’s makes sense from penumbra and shield L2 deposits. Need a wallet with safe default UX that doesn’t require entering a seed phrase into a webpage. That’s not an ok thing to normalize anyone to.
We can also just shield stXTZ if we care about keeping xtz in pool long term and don’t want to miss on rewards
I’m also all in to repurpose LB to incentivize shielded set instead. It’s an elegant way to improve privacy of the pool with time
This way we also get rid of inflicting guaranteed microcut to xtzbtc pair each 6 seconds (or make it less if we use part of subsidy for shielded set). Grimoire Weiss would be happy with this outcome.
But if we add another emission thingy in addition to LB, Grimoire Weiss will be unhappy
Yes, using a set with a LST like stXTZ is the cheapest way to do this right away, but then you can’t choose your baker. The other downside is that when better solutions become available, you may have to start over with your shielded set, unless you support swaps within the set but that’s a whole other can of worms.
