On March 13, Aztec Network, a Layer2 privacy protocol known as the "Ethereum VPN," announced in its official blog that it will gradually shut down the DeFi privacy bridge project Aztec Connect, and will disable deposits from zk.money and other front-ends (such as zkpay.finance) to the Aztec Connect contract at 22:00 on March 21, but users will still have one year to withdraw funds for free.
As a leading privacy project with over 100,000 interactive users and huge financing, Aztec responded to the reason for the closure by saying that the decision was made mainly for commercial considerations and had nothing to do with regulators. At the same time, the company is focusing on the next version of the protocol, which will support fully programmable smart contracts and have privacy by default.
Aztec Connect, which received $100 million in financing, will be closed
In the crypto world that focuses on anonymity, privacy has long been gradually eroded with the emergence of various on-chain data analysis tools. However, in the user-dominated Web3 era, privacy is a rigid need for users to protect their rights. This is why privacy-focused projects such as Aztec are favored by capital.
As an open source Layer 2 network, Aztec aims to bring high scalability and privacy to Ethereum. Its products include the decentralized privacy payment tool zk.money, which is the first attempt to achieve on-chain privacy through zkRollup. However, Aztec 1 is inefficient, slow, and costly, and its functions are limited to basic crypto transfers; and Aztec Connect, a bridge that provides privacy protection for DeFi transactions, allowing users to connect to Ethereum's DeFi ecosystem in a private manner. During operation, the product provided critical information feedback and confirmed the reliability of the sequential executor and Rollup contract.
In addition to receiving rare investment from Ethereum founder Vitalik, Aztec also announced in December 2022 that it had completed a $100 million financing round led by a16z crypto, and planned to use the funds to hire more engineers and build a new encrypted blockchain, namely "Crypto Ethereum", hoping to allow users to verify without disclosing any basic information, allowing users to trade in a private and anonymous manner.
However, the good times did not last long, and Aztec announced the closure of Aztec Connect. "Aztec Connect's sequencer will slowly reduce the frequency of exiting rollup blocks, and the final exit date will be about a year later (March 21, 2024). However, the project team also stated that although withdrawals are always possible, the withdrawal fees will increase significantly after March 21, 2024, so users are advised to withdraw as soon as possible. In other words, after March 21, 2023, Aztec Connect will prohibit deposits and stop using the officially operated sequencer for free withdrawals. Subsequent withdrawals will face problems of low efficiency or increased fees.
At the same time, Aztec officials also stated that they have open-sourced the contract code of Aztec Connect and are happy to see the community fork, deploy and operate the "new version" of Aztec Connect. In addition, in the new round of Grant activities that will be launched soon, they will also provide financial support for independently operated Aztec Connect alternatives.
It is worth mentioning that the DeFi lending protocol Euler Finance was also attacked on March 13, with losses reaching US$197 million. Aztec supports users on the platform to lend funds to the Euler protocol in a private manner. It is not yet known whether its funds have been affected.
It has nothing to do with regulation and will create the next generation of encrypted blockchain
"Ethereum has grown into a world computer with read-write capabilities. Aztec aims to develop a truly decentralized general-purpose privacy blockchain with the security of Ethereum. We aim to add read-write privacy features to achieve this vision," Aztec said in a blog post.
After the closure of Aztec Connect, Aztec's mid- to long-term key products will be Noir, a general development language that supports zero-knowledge proof, and a new privacy-oriented blockchain. It is expected to provide more Noir functions and a full set of specifications for Aztec's next-generation blockchain in the first half of 2023, and launch a fully functional Noir language and local development network by the end of 2023. This will make it the most concise and powerful zero-knowledge proof programming language that can be used for information verification on any EVM chain.
However, the closure of Aztec Connect has triggered market speculation about regulation, but the official person in charge responded that the privacy of Aztec Connect led to some problems in the design and increased maintenance costs, so the decision to shut down was made for commercial considerations, not because of regulation.
"We are still focused on L2 Rollup and have never built L1. The strategy has never changed and we are just entering the next stage." Due to the scale of the new project, Aztec needs to focus all engineering resources to complete it, so it shut down the existing project.
In addition, Aztec mentioned more than 100,000 interactive users in the announcement, which also gave a lot of room for imagination to the users who had previously ambushed the airdrop. According to Dune data, as of March 13, among the total number of zk.money users of more than 110,000, 78.9% of them deposited less than 0.1 ETH, which also indirectly reflects that most of Aztec users only deposited a small amount of funds to "ambush" the airdrop.
But crypto privacy tools are indeed facing regulatory blows. For example, Tornado Cash, a coin mixer that also focuses on privacy, has been sanctioned by the United States, and zk.money has also been warned by the already exploded exchange FTX to be blocked, and the daily deposit limit has been reduced to actively deal with regulatory risks. Aztec CEO Zac Williamson once talked about his views on privacy regulation, "Trying to ban encryption algorithms is the same as trying to ban mathematics. Decentralized cryptocurrency networks have reduced the power of countries to enforce their regulations, and pretending otherwise will only harm their interests. Countries can take back most of their power, but this requires working with good-faith actors in Web3 to create a new regulatory framework that recognizes that the status quo has changed." At the same time, he also expressed his frustration with regulation, "The key roles we are building have not yet fully appeared in our emerging industry. The technology we are building is not advanced enough to meet their needs, and tough regulation may stifle the innovation we need to get to this goal. If we can't control our financial situation, we are not truly free. This is the beginning of a long, grinding war of attrition."
In short, the complete shutdown of existing products does not mean the end of Aztec, but a leap towards a fully programmable encrypted blockchain. As for what this ultimate product will be like, we will have to wait until it is officially launched to see.
