Findora: ZK Powered Privacy

Key Insights

• Findora is a Layer-1 (L1) blockchain featuring a dual execution layer that combines the privacy capabilities of an unspent transaction output (UTXO) model with the enhanced programmability of an account-based model.
• Since launch, Findora network and economic activity have been relatively low. In each of its execution layers, the number of median daily active addresses is less than 100. In addition, Findora’s DeFi TVL is $220,000, ranking it 154th among all chains.
• Its upcoming technological improvements target enterprise and institutional use cases by offering privacy while ensuring auditability. The proposed solutions include a new auditable token standard and a zero-knowledge-based decentralized identity feature.
• The successful implementation of these solutions, coupled with ongoing efforts by the Findora Foundation to allocate funds and drive growth, could attract a wave of users seeking compliant privacy.

Most blockchains lack privacy and are only pseudonymous. The fully private alternatives typically struggle to gain adoption due to limited programmability and/or non-compliance with regulations. Findora seeks to offer a Layer-1 blockchain that delivers privacy without introducing the abovementioned drawbacks.

Findora merges privacy with both:

• Programmability: Findora features a dual execution layer that combines the privacy capabilities of an unspent transaction output (UTXO) model with the enhanced programmability of an account-based model.
• Auditability: Findora developer teams are building various solutions to enable auditability. These features include a new token standard that ensures transactions remain private to everyone except the asset issuer as well as a decentralized identity solution.

Since its launch in 2021, Findora has experienced relatively low network and economic activity. However, the successful implementation of its proposed solutions could attract a wave of users and institutions seeking compliant privacy.

Background

Findora was founded in 2018 by a group of entrepreneurs and academics at Stanford. Since then, various subgroups of Findora’s founding team and employees have filed lawsuits and corresponding cross-complaints against each other. Most of the lawsuits center around the rightful ownership of Findora and its IP, but there are some that also allege fraud and embezzlement, some of which are still pending. Currently, Findora is led by two core groups: Discreet Labs, a research and development company, and the Findora Foundation, a non-profit that leads growth efforts.

At the end of 2020, the Findora Foundation announced an eight-figure private funding round led by Polychain. A couple weeks later, Findora’s first public testnet launched, after four months of a private testnet. The next day, the Findora Foundation began a public token sale for FRA (Findora’s native token) which raised over $48 million in exchange for 4.08% of the token’s total supply. After a security audit of its distributed ledger and wallet from security firm Halborn, Findora’s mainnet launched on March 30, 3021.

Technology

Architecture

Findora features two execution layers that run in parallel on top of the same consensus and storage protocol. The UTXO layer launched at mainnet, featuring privacy-preserving zero-knowledge protocols. Around nine months later, an EVM layer launched to enhance Findora’s programmability. The Prism bridge, which recently upgraded to Prism++, enables atomic token transfers between the two ledgers.

Consensus

Mechanism

Findora is a Proof-of-Stake Layer-1 that uses Tendermint's BFT consensus engine, the battle-tested protocol that powers the Cosmos SDK.

In order to participate in consensus, validators must stake tokens (or have tokens delegated to them). These tokens are then subject to an unbonding period of 113,400 blocks (roughly 21-22 days, assuming an average block time of 17 seconds). Validators are chosen to produce blocks in proportion to their stake (both self-staked and delegated). However, validators cannot exceed 20% of the voting power regardless of their stake. Only the top 100 validators by stake participate in consensus.

Rewards and Penalties

Only 2% of Findora’s total supply (420 million tokens from the supply cap of 21 billion) is allocated for validator rewards, which will run out around October 2023. After that, validator rewards will need to be sustained through transaction fees. However, it is likely that governance agrees to issue more tokens for staking rewards (more details in the Tokenomics section).

Findora has two systems to reward validators:

• Block rewards are distributed to all 100 validators in proportion to their stake. Block rewards are dynamic and depend on the percentage of circulating supply staked. APY is inversely proportional to the percentage of circulating supply staked, ranging from 2% to 105%.
• Block proposer rewards are only distributed to the block proposer. The rate of this reward depends on the percentage of pre-commit votes gathered within the block.
  

Validators are subject to slashing penalties depending on the infraction:

• Double-signing incurs a slashing penalty of 5%.
• Light client attack incurs a slashing penalty of 1%.
• Inactivity incurs a slashing penalty of 0.00001 FRA per missed block.

UTXO Native Chain

The UTXO Native Chain was initially the only Findora layer at launch. As denoted by its name, this layer uses the unspent transaction output (UTXO) accounting model, rather than an account-based model.

With UTXO, each token and its balance represent an unspent output. For example, if Findora user Alice has a UTXO worth 4 FRA and wants to send 3 FRA to Findora user Bob, the 4 FRA will be split into a 3 FRA UTXO to Bob, a 0.01 FRA UTXO for a transaction fee, and a 0.99 FRA UTXO back to Alice. Once consumed, the original UTXO can never be spent again.

While a UTXO model is less intuitive than an account-based model for programmability, it is much better for enabling privacy. Findora’s UTXO layer combines several zero-knowledge cryptographic building blocks to anonymize transactions, including Bulletproofs, Pedersen commitments, Delegated Schnorr, TurboPLONK, and more.

At the moment, the UTXO layer enables confidential transfers that mask both the amount and type of an asset. In the near future, Findora’s Triple Masking feature will also mask the sender and recipient. Triple Masking is currently live on Findora’s testnet.

At the moment, users can only stake toward consensus on the UTXO layer, but a future upgrade will enable staking on the EVM layer as well.

EVM Smart Chain

Findora launched the EVM Smart Chain at the beginning of 2022 to bring better programmability to Findora. Compared to the UTXO model, the account-based model in EVMs functions more like a standard bank account, where each address stores its balance of tokens.

The EVM chain brings to Findora all the familiarity of EVM-compatible blockchains with infrastructure and tooling such as MetaMask, Truffle, Remix, ERC token standard equivalents, and more. Developers have been working to optimize the EVM layer and have claimed a TPS of 150 in testing last August.

Interoperability: Prism

Prism is a bridge that launched in Q1’22. It connects the UTXO and EVM chains, allowing users to benefit from the EVM-compatible programmability of the EVM chain and the privacy of the UTXO chain. The bridge operates via a mint-and-burn mechanism. Because the two chains share the same set of validators, bridging between the two only requires trusting the single validator set. Furthermore, bridge transfers are bundled in a single transaction, where either the entire transfer process is executed or none of it is (i.e., it’s atomic).

The bridge recently upgraded to Prism++, allowing any FRC-20, FRC-721, and FRC-1155 (equivalent to their ERC counterparts) to be transferred. Before mainnet launch, Prism++ launched on Findora’s testnet in March 2023, with $10,000 in prizes for testnet users.

Tokenomics

Findora’s native token FRA is used for network security and transaction fees. The team plans to deploy an on-chain governance system for FRA holders in 2023. FRA has a capped supply of 21 billion, subject to governance, and all transaction fees are currently burned.

Initial Distribution

At launch, 21 billion FRA tokens were minted, and no tokens were originally allocated for staking rewards. In October 2021, 420 million tokens were minted to be distributed over two years as staking rewards. In order to not exceed the original supply cap, the Findora Foundation plans to burn 420 million tokens from the “Institutional Partnerships” distribution, if its proposal passes through the governance process. Assuming it does, the initial distribution breakdown is as follows:

• Ecosystem Development (40.42% of the total supply): The Findora Foundation custodies and distributes tokens toward each of the three ecosystem subsections:
  • Research and Development Grants: Allocated 21.42% of the total supply with a one-year lockup followed by a 4.5-year vesting period.
  • Institutional Partnerships: Allocated 11% of the total supply with a 3-year lockup followed by a 2.5-year vesting period. This allocation is technically 13%, but 2% of the total supply will be burned to account for the addition of the staking rewards, subject to governance. The Findora Foundation defines Institutional Partnerships as “non-commercial organizations” such as universities and other institutions of higher learning.
  • DeFi Incubation: Allocated 8% of the total supply with a one-year lockup and a 4.5-year vesting period.
• Team & Advisors (20% of the total supply): 18% of the total supply is allocated to the team and 2% of the total supply is allocated to advisors, both with a 1-year lockup and a 4.5-year vesting period.
• Foundation (18% of the total supply): The Findora Foundation is allocated 18% of the total supply with a 1-month lockup followed by a 23-month vesting period. The Foundation uses its reserve to fund protocol development and ecosystem growth.
• Private Sale (15.5% of the total supply): Tokens were sold to private investors in two rounds. Round 1 investors received an allocation of 13% of the total supply with a six-month lockup followed by a 26-month vesting period. Round 2 investors received 2.5% of the total supply with a six-month lockup followed by an 18-month vesting period.
• Public Sale (4.08%): The Findora Foundation conducted a public sale beginning at the end of 2020 split into three tranches:
  • Option A: 0.1% of the total supply was sold at $0.036 per token with a two-year vesting period.
  • Option B: 1.48% of the total supply was sold at $0.04 per token with an 18-month vesting period.
  • Option C/D/E: 2.5% of the total supply was sold at an average price of $0.067 per token with no lockup or vesting period.
• Staking Rewards (2% of the total supply): 2% of the total supply is allocated toward staking rewards over a two-year period starting on October 27, 2021.

As of the end of May 2023, around 45.6% of FRA’s total supply is liquid. Most unlocks to date have gone toward the Foundation (accounting for almost 40% of the supply unlocked so far) and private sale participants (accounting for almost 32% of the supply unlocked so far). Most of the locked supply will be allocated toward Ecosystem Development (accounting for over 66% of the remaining unlocks) and the Team & Advisors (accounting for over 31% of the remaining unlocks) buckets. By the end of September 2026, FRA will be 100% liquid.

Note that the liquid supply curve above assumes that governance will vote to burn 2% of the total supply from the Institutional Partnerships allocation. The Findora Foundation has also noted that it plans to propose additional staking rewards issuance beyond the 2% already implemented. The proposal will include an option to once again burn an equal amount of tokens from the Institutional Partnerships allocation to offset any inflation.

Network Activity

Usage

Network usage figures of the UTXO layer throughout its entire existence are as follows:

• Median daily transactions: 1,054
• Median daily active addresses: 45
• Median daily new addresses: 3

Since March 2022, the number of median daily transactions has grown to 2,629. The increase was likely driven by several project launches on the EVM layer, including the Rialto Bridge and FairySwap DEX (more details in the Ecosystem section).

The network activity on Findora’s EVM layer follows a similar pattern as on the UTXO layer. Network usage figures of the EVM layer throughout its entire existence are as follows:

• Median daily transactions: 2,105
• Median daily active addresses: 89
• Median daily new addresses: 8

Both the UTXO and EVM layer featured several large spikes in network activity which were cut off in the above charts:

• Spike on May 3, 2022: Increased activity was likely driven by FairySwap’s launch of yield farming.
• Spike on December 22, 2022: Increased activity was likely driven by an exploit on FairySwap.

Validators

Findora supports a maximum of 100 validators in each consensus round, up from 58 in the December 2022 V0.3.35 upgrade.

The top 100 validators currently stake (both self-staked and delegated) a combined 1.545 billion FRA ($3.6 million as of May 24, 2023). This represents around 17% of the total supply eligible to be staked. The largest validator by voting power stakes 136 million FRA (less than 9% of the total supply staked), well below the 20% voting power limit. The smallest active validator by voting power stakes 55,000 FRA (0.004% of the total supply staked).

On average, each validator in the top 100 receives delegation from around 45 unique delegates. The validator network has a Nakatomo coefficient of 6, slightly below the median of chains.

Ecosystem

DeFi

Findora is currently ranked 154th among all chains with $220,000 in DeFi TVL. That said, Findora’s DeFi TVL (USD) peaked in early September 2022 at almost $1.6 million. Its TVL denominated in FRA peaked a couple of weeks later at over 327 million FRA. Since their respective peaks, TVL has fallen 86% denominated in USD and 66% in FRA. A significant portion of Findora’s DeFi TVL comes from the FRA token, whose price has decreased by 56% since mid-September 2022. Although some of the decrease in Findora TVL (USD) can be attributed to the fall in FRA’s price, it is also a result of net capital outflow. 

Findora’s TVL is composed of four protocols:

• Forlend is a lending protocol forked from Compound with $115,000 in TVL. Its biggest lending pool is for FRA, with $90,000 in TVL.
• FairySwap is a DEX forked from Uniswap V2 with $50,000 in TVL across its V1 and V2 implementations. From May 15 to 22, 2023, FairySwap averaged $142 in daily trading volume. As mentioned above, FairySwap V1 suffered an exploit near the end of December 2022, which drove the significant decrease in TVL, both in USD and FRA, in the above chart.
• VeniceSwap is also a DEX forked from Uniswap V2 with $33,000 in TVL. Venice launched a $10 million liquidity program at the end of 2021, with incentives coming from Findora’s larger $100 million ecosystem program (see below for details). From May 15 to 22, 2023, Venice averaged $373 in daily trading volume.
• Futureswap is a stablecoin minting and trading protocol. Users can trade bridged versions of BUSD, USDT, and USDC for Future USD (USDF). The protocol uses its native token to incentivize staking USDF. As of June 29, 2023, USDF’s market cap is $10,800.

At the end of April 2023, the Findora Foundation announced that SushiSwap’s V3 protocol will launch on Findora along with liquidity mining rewards from the Foundation.

NFTs

There are currently no NFT projects live on Findora’s mainnet yet. Nart Exchange is an upcoming NFT marketplace and creator. It recently conducted a $10,000 incentivized testing campaign on Findora’s testnet.

Bridges

At the end of Q1’22 Discreet Labs launched Rialto Bridge to connect Findora’s EVM chain with other EVM-compatible chains. Rialto is a fork of ChainBridge, an open-source cross-chain protocol by ChainSafe. Rialto relies on a permissioned group of relayers to pass and verify messages. So far, Rialto has only been integrated with BNB Smart Chain, with plans to integrate with Ethereum in the future. Rialto received $10 million from the Findora Foundation to use as incentives and gas reimbursements ($5 million for testnet and $5 million for mainnet).

At the end of March 2023, Multichain added support for Findora. Findora was affected by the recent events surrounding Multichain; however, its exposure was minimal. The Findora Foundation is currently exploring alternate bridging solutions.

Other Infrastructure

Findora has recently added several other key infrastructure services to its EVM chain. In Q4’22, Findora began hosting a Graph node to enable data indexing and querying. In January 2023, Discreet Labs implemented a fork of Safe (previously Gnosis Safe) to bring multi-sig wallets to Findora. Recently in March, Band Protocol added support for Findora, becoming the network’s first oracle provider.

Roadmap

Technical Improvements

EVM Staking:

Discreet Labs is working on adding staking functionality on the EVM layer iin Q3’23. This upgrade will make it easier for users to stake, which is currently only possible on the UTXO layer. Once EVM staking launches, it will be important for liquid staking services to launch, allowing EVM users to both stake and still participate in Findora’s ecosystem.

Auditability and Compliance Features

In Q3’22, Discreet Labs proposed the creation of a new asset type to merge privacy and auditability. Auditable Privacy-Preserving Assets (APPAs) would be a distinct token standard from FRA or other tokens on the UTXO layer. Transactions involving APPAs would remain private through triple masking to everyone except for the issuer of that APPA. The solution is geared toward enterprise use cases, such as a CBDC or institution that wants to interact with the blockchain in a private but compliant manner.

Identity

Source: Findora Blog

Discreet Labs also proposed a zero-knowledge decentralized identity (zk-DID) solution in Q3’22. The proposed flow involves three steps:

1. First, identity issuers will verify a user’s identity off-chain and issue a DID identifier. DID identifiers are NFTs that store zkCredentials. When creating the DID identifier, the identity issuer will also add zkCredentials for birthdate, name, and any other fields they verified. Users can later add to their DID by receiving zkCredentials from the original identity issuer or other credential issuers. For example, there could be a credential issuer that issues credit score zkCredentials.
2. Once a user has a DID with zkCredentials, they can generate and sign a zkProof based on an individual zkCredential. This is possible because each zkCredential will be linked to a specific zkCircuit by the issuer. Users can store their signed zkProofs on IPFS.
3. Lastly, users can submit their zkProof to a dapp for verification. Dapps would only be able to verify whether or not a user’s credential meets certain criteria (i.e., if the credit score is above some threshold) without revealing any more information.

Discreet Labs plans to develop an SDK to make it easier for credential issuers, DID holders, and dapps to follow these steps.

Growth Strategy

The Findora Foundation and Discreet Labs will continue deploying funds and forming partnerships to spur protocol and ecosystem development.

The Foundation has announced two $100 million ecosystem funds, first at the end of 2021 and more recently at the beginning of 2023. The token incentives come from the Foundation’s token allocation. The second ecosystem fund largely uses tokens from the first fund, as only a small portion of tokens from the first fund were actually distributed. In mid-May, the Foundation announced its first grantee Lumias, a protocol aiming to provide an all-in-one GameFi platform, including an NFT marketplace, DEX, and portfolio tracker.

Findora also held a hackathon at the end of 2021 with $50,000 in prizes and has sponsored several hackathons, most recently at EthDenver with $15,000 in prizes.

As mentioned above, the Findora Foundation is specifically looking to form partnerships with universities and other academic institutions. The Foundation has announced partnerships with the blockchain clubs at UPenn, Rutgers, Cal Poly, UC Santa Barbara, Vanderbilt, UC Irvine, and Purdue. The partnership includes providing technical support to help the clubs run validator nodes on Findora as well as broader education and networking opportunities.

Summary

Findora adopts a unique dual execution layer architecture that combines privacy and programmability. Despite its potential, network and economic activity on Findora has been relatively low since launch. The EVM layer has a recorded median of 2,105 daily transactions and 89 daily active addresses, while the UTXO layer’s figures are approximately half of that. Furthermore, Findora’s DeFi TVL stands at $220,000 in DeFi TVL, ranking it 154th among all chains, and there are no live NFT projects.

Nevertheless, the Findora Foundation and Discreet Labs are actively targeting institutional use cases to enhance adoption. They have proposed technological solutions such as the APPA token standard and zk-DID. Their goal is to provide users access to privacy while still being able to comply with regulators, auditors, or other entities. A successful implementation of these solutions, along with continued fund allocation and growth-driving efforts by the Findora Foundation, could attract a wave of users seeking compliant privacy.

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