This is a series of questions related to the technical underpinnings of the Phonon protocol, as they relate to standard use cases in Web3 and scaling of the network directed to the developers of the Phonon protocol.
Recently, I put together a graphic (see below) outlining some of the common use cases for the Phonon protocol, in preparation for discussion about initial areas of focus.
The graphic makes several assumptions about the Phonon protocol based on my current understanding of its capabilities and limitations. If possible, I’d like to see if the team could answer some key questions related to these assumptions to determine if they are accurate. Some of these questions cover basic topics, and are included for the benefit of individuals new to the protocol.
Accessing the Network and Trading Phonons
At its core the Phonon network enables secure, private P2P transactions of crypto-assets. Are users required to use hardware (cards, devices, eSIM cards) to create and transfer Phonons P2P?
Does the technical team consider the need for users to acquire hardware/cards to transact a significant barrier to entry? Why or why not?
What would be the primary entry points for a user to create Phonons? For example, on the Ethereum network would a purpose-built smart contract be required?
From a privacy perspective, would a smart contract utilized for individuals to create Phonons be easily identified and tracked, influencing the privacy of wallets interacting with it?
While within the Phonon network, transactions are private by default. However, when phonons are converted back to assets on the BTC and ETH chains are these transactions easily identifiable as coming from the Phonon network? Why or why not?
In your minds, what special benefits does transacting on the Phonon network provide that make it superior to existing solutions with a similar feature set?
For example, individuals using the Incognito network can transact freely between assets cross-chain (as long as they are wrapped/deposited to the network), and these transactions are auditable, but not tied to individual users taking standard precautions (don’t withdraw/deposit large amounts in a short period of time, etc.).
What additional privacy guarantees does transacting on the Phonon network provide beyond this? Specifically:
- Entering the Phonon network (creating phonons) is very similar to what is required for other solutions such as Railgun, but “standard” deposit amounts are not required.
-Transactions on other privacy-centric chains and applications are also invisible, or difficult to track by default. How is transacting on the phonon network superior to those other options from a privacy perspective?
-Obscuring transaction behavior by making deposits/withdrawals in standard amounts is a core feature of privacy tools such as Tornado Cash. How is the Phonon network superior to options such as Tornado Cash if depositing/withdrawing in “standard” amounts is a common feature?
-Individuals withdrawing deposits from Tornado Cash, Incognito, Secret Network, etc. must be careful to do so using standard amounts, and transactions exiting the network can be identified and tracked. Is it possible to identify phonon network withdrawals? Why or why not?
Why must Phonons be created in standard increments (e.g., .1 ETH, .5 ETH)? Can phonons be created in arbitrary amounts, such as .12 ETH, etc.? What are the benefits/drawbacks of depositing/withdrawing phonons in non-standard amounts?
Phonon Pooling and “Interoperability”
Is it possible for users to independently create Phonons and then have them aggregated together in a single pool that other users can access?
-Alice creates 100 ETH in phonons in 10 ETH batches
-Bob creates 100 ETH in phonons in 20 ETH batches
-John creates 8 BTC in phonons in 2 BTC batches
-Sarah creates 8 BTC in phonons in 1 BTC batches
Alice and Bobs phonons are aggregated into a pool worth 200 ETH and John and Sarah’s BTC are aggregated into a 16 BTC pool.
Andrew creates a 10 ETH phonon amount and then trades these phonons for BTC utilizing the phonon network (from John and Sarah’s pool).
Is this type of pooling and transaction possible utilizing the Phonon network? How would this be achieved technically?
Would Phonons created using different hardware with different certificates not be able to “talk” to or “see” each other? How do we prevent the fragmentation of the phonon network if this is the case?
If phonons cannot be pooled or aggregated would a centralized, highly capitalized “market maker” be required to facilitate transactions on the network? If so, would this be a point of centralization for the network, and a potential privacy risk?
For example, if a centralized actor, such Circle created the vast majority of USDC Phonons used in a DEX , but required that all transactions using its phonons be tracked by default.
However, other actors, who don’t have large amounts of capital available, could not pool together their Phonons to create large capital pools on the network that guaranteed private transactions by default. As a result, the majority of USDC transactions on the network are not private and permissioned (only accessible as long as Circle maintains its liquidity and the ability to monitor transactions).
Phonon Network: Building Applications
- Lending, borrowing and other financial applications are growing in popularity. How could the Phonon network be used to facilitate the following activities:
- Borrowing of Phonons of a specific type (say a decentralized stablecoin)
- Lending of Phonons
- Generating yield on phonons deposited to the network (if lending and borrowing of phonons is possible
- What types of applications do you recommend be developed to that make it easy for individuals to transact using the network in a way that preserves privacy, maximizes security and maximizes accessibility?