Secret 2.0: The Next Generation (Request for Feedback)

As most of you will have seen by this point, “Secret 2.0” has been teased for a while now and we would like the community’s support in building the best path forward for the Network. Here is the original blog post for reference, but in the past month and with the help of several dozen community members we have evolved the idea quite significantly. Personally, I have never been more excited about the path forward, and seeing so many valued community members work together to bring these ideas into a real, substantial and concrete proposal, is a testament to the strength of our community.

But we’re not nearly finished. This isn’t meant to serve as a ‘top-down’ proposal for people to rubber-stamp. We’re also not going to put this into a network vote next week. Quite the contrary, we want anyone who cares about Secret, our vision, and our mutual success to comment/provide feedback/bring up new ideas. Nothing presented here is set in stone!

With that context in mind, let’s dig deep into how we envision Secret 2.0 and what it entails.

What is Secret 2.0?

Secret remains today the only privacy-preserving smart contracts L1 in production. We were first to identify the need for privacy beyond transactional and beyond Zero-Knowledge Proofs (which in general are more of a scaling solution rather than a privacy one). With concerns such as MEV and L1 censorship, it appears that others are catching up to the need of having base-layer privacy.

To support further growth (and Secret still has a lot of room for growth) and to ensure we remain the market leaders, it’s time to look ahead and revise our short, medium and long term vision that will ensure that Secret grows to become the privacy hub for all Web3.

What does being the privacy hub for all of Web3 actually mean? We identified several areas of focus:

  1. Cryptography layer for Secret: SGX was always the pragmatic choice, and TEEs in general (not necessarily SGX), are certainly a big part of any end-game solution. TEEs will continue to evolve into a more robust solution, but for highly sensitive use-cases combining TEEs with MPC (and other cryptographic techniques such as additively HE or ZKPs) is the most secure option (much more than using cryptography alone). Secret 2.0 Cryptographic roadmap will add the building blocks required for this. These primarily include: MPC/Secret-Sharing, Threshold (Homomorphic) Encryption/Decryption, and accompanying Zero-Knowledge proofs in Secret’s client libraries.
  • Some examples of the kinds of use cases this would enable or greatly improve include private DAOs, RNGs, threshold wallets (and by extension - threshold key management and stronger Secret NFTs)

  1. Constellation of chains: Secret 2.0 will look to collaborate with others to build an ecosystem of blockchains that Secret Network will spearhead and/or support, truly solidifying Secret’s position as the hub of Web3 Privacy. Alongside the existing Secret Network blockchain, we expect to see:
  • The development of a threshold fully homomorphic encryption (“FHE”) Layer-1 (“L1”)
  • The development of consumer chains utilizing Privacy-as-a-Service (“PaaS”)
  • The development of privacy-preserving rollups to complement the threshold FHE Layer-1
  • The addition/inclusion of any chain that shares our mission for privacy. In other words, becoming part of the constellation does not necessitate having an affiliation with Secret. Being a kindred spirit and formalizing all kinds of business relations (see next section on becoming a liquidity hub, as an example) is enough.**
  1. Becoming a liquidity hub for privacy-aware projects: As part of a clear strategy to own and be the focal point of the Web3 privacy narrative, Secret should strive to support liquidity for any other privacy-aware project, whether it is built on Secret or not.
  • As a precursor, Secret should reignite its DeFi ecosystem. There are several DeFi projects launching soon (some of which, like Shade, offer a whole suite of solutions!). We should target $50M TVL in strategic pools across these new products as an immediate and important milestone to achieve. We would obviously want to grow significantly beyond that and this is only an initial milestone.

  • We also hope to create some new structures to grow Secret Network’s DeFi suite - to enable users to have a better experience with lower costs. We also want to use this opportunity to provide a platform for developers to build a broader range of applications. We believe the future of Secret Network’s DeFi suite will be led by Liquid Staking Derivatives (“LSDs”) which will enable people to earn both staking yield and yield from DeFi protocols.**

Secret 2.0 Roadmap

Below is a very high-level description of the major technical advancements we envision for Secret 2.0., and in my opinion the most important piece of Secret 2.0. All of these relate specifically to changes made to the existing privacy-hub chain (i.e., Secret that we know and love…).

Track 1 (Engineering):

  • Wasm3 Runtime (5x-25x boost)
  • Enclave-to-enclave communication
  • Rolling network keys
  • Bridge migration
  • Moving cross-chain (ICA, ICQ, PaaS)
  • Replacing TEE-backend (Gramine)
  • Light-client verification within the enclave
  • Wasmer (100x-200x boost)
  • Supporting additional hardware
  • Contract migration
  • Iterators support
  • Revamping key-management

Track 2 (Cryptography):

  • Honest-dealer Key Generation
  • Validator Threshold Decryption Protocol
  • Distributed Key Generation Protocol
  • Additively Homomorphic Encryption Library and API (client and enclave-friendly)
  • Client-side proof of encryption ZK API
  • Hardened Private Voting (via HE+ZKP)
  • Threshold wallets
  • Threshold key-management (e.g., hardened Secret NFTs)
  • Threshold Randomness (using Threshold BLS)

Revised Tokenomics

Secret Network is one of the longest-running (and biggest) Cosmos chains. Our original emission parameters were greatly inspired by the original ATOM tokenomics (and frankly, default Cosmos SDK values). These values has served us well, but in our opinion fail in at least two major areas: (1) They aren’t long term sustainable (Inflation remains constant over time and is only dependent on % of staked coins).; (2) They cannot currently support the greater vision proposed here.

To solve for these, we proposed a medium-scale revision to current network tokenomics. These changes adhere to these principles in mind, to ensure this is net positive for all stakeholders:

  1. Stakers remain ROI-positive and maintain the same %APR initially
  2. Inflation slowly decreases over the years, to ensure overall Secret emissions are contained and are significantly lower on a 10-year horizon .
  3. Several network-owned funds are created to fund the Secret 2.0 vision. These funds are primarily non-circulating unless used to support any of the expanded vision, for which a reasonable assumption is that this will lead to positive ROI.

Specifically, the current idea is to set inflation to 25.0% and from that to formulaically decrease it each year towards 5.0% (Graphing Calculator). As some reference points, by Year 2, inflation will be 15.0% (the Network’s existing inflation rate) and by Year 10, it will have reduced to 7.0%. Such a gradual decrease ensures there aren’t any supply shocks that could lead to adverse results.


The first two years of the proposed inflation schedule will see higher emissions than today. At the end of Year 2, there will be an extra 26.6m SCRT emitted. By the end of Year 5, the proposed inflationary schedule will have a lower total supply and by the end of Year 10, it will have emitted 293.8m less SCRT.

To enable the vision for Secret 2.0, we require the formation of some new structures. These are:

  • Growth Fund: Funding acquisitions related to building out the Secret Network ecosystem
  • Developer Fund: Funding dApps, infrastructure and tools to grow Secret Network
  • Incentive Fund: Funding DeFi dApps to draw short-term incentives to bootstrap their protocol

We have worked to ensure that staker’s interests are protected. By front-loading the emission for the Growth Fund, we are able to accrue the required amount in a shorter period of time rather than burdening stakers for a long time.

The continued success of the Terra Grant Fund (which included the funding of Fina Wallet, Kado, Leap, Margined Protocol and others) makes us want to continue this effort with the Developer Fund. It will operate similarly and be open to all developers similar to the Community Pool.

SCRT Labs has been deploying significant funds (to date, roughly 7M SCRT out of 20M) from the ecosystem fund. To clarify, the ecosystem fund is part of SCRT Labs own balance sheet, and we expect to continue to deploy funds from it going forward at our own discretion.

With more sustainable network-owned funds (that are not owned by SCRT Labs or appear on our balance sheet), like the Developer Fund, one angle we are exploring for the ecosystem fund is to take more concentrated bets in projects building on Secret, in return for a meaningful stake that better align everyone’s incentives when building on Secret.

Providing incentives to DeFi applications to bootstrap their protocol is something that has been done successfully by many blockchains. It allows dApps to grow their TVL more sustainably which helps its long-term prospects. While this creates some small supply-side pressure on SCRT, it should be noted that a more flourishing DeFi suite will provide greater utility for SCRT which will see its demand increase.

The proposed tokenomics will ensure that stakers maintain positive value accrual from staking SCRT. While in the earlier years, the growth above inflation will be minimal (due to taxes), this will ramp up over time. We have ensured that stakers will not face dilution through this process. Also, note that these figures assume a ‘worst-case’ scenario where all new emissions are circulating, which, unlike today - is clearly not the case and most assets allocated to any of the new funds are non-circulating by definition.

Governing the Funds

While each Fund will have a different duty, it is expected that there will be some overlap in their membership such as representation from SCRT Labs. Note that while the Developer and Incentive Funds look inwards at Secret Network (and present their own potential conflicts of interest), the Growth Fund is looking outwards.

The composition of these Funds has not been determined and we would appreciate the community’s support in recommending entities that should be in each Fund.

The above structure enables each Fund to act swiftly while ensuring that the Network can influence decision-making on material expenditure. This means that the Network can veto any expenditures above a de minimis amount (which will be up to the Community to decide).

Requests to You

We would like to leave this open for discussion for a healthy period of time to ensure views across the Network have the appropriate time to help shape Secret 2.0 to be the best direction we can take.

We would like to know what works, what doesn’t work, and your recommendations for changes that you would like - your views on this matter are all appreciated to make Secret 2.0 as great as it can be.

Acknowledgements

I’d like to personally express my gratitude to every one of the dozens of people who actively contributed to this proposal. In particular, I’d like to thank Orageux101 for leading the effort of essentially putting all of the many ideas into a concrete form (writing the main proposal, building out the model/spreadsheet, providing many of the ideas, etc…), Carter and Ranger for taking a big part in shaping the revised tokenomics,

Cheers,
Guy

30 Likes

Hey guys, I thought I would explain some of my thoughts on how I see Secret 2.0!

I think that the opportunities for growth such as an accompanying FHE blockchain, strengthening the security of the Network and growing its offering, as well as growing through consumer chains all offer significant value to SCRT.

Inflation is too high!

  1. The cost of securing the Network (inflation) far outweighs the amount we are securing. This “cost” which is paid to stakers results in material long-term selling pressure; and
  2. Current staking APR cripples DeFi ecosystems all over the Cosmos. LSDs are part of the solution (as users can get supplemental income within DeFi), but LSDs alone don’t solve DeFi if there is high inflation. Pairing an LSD with a non-LSD asset on an AMM is just not economical at high inflation.

The inflation curve we are using here commences starts at 25% and decreases towards 5%. This should help provide DeFi with relative strength as well as keeping “healthy” staking APR.

Blockchains need taxes to grow!

It is well understood that teams receive allocations and we should keep them honest of their responsibilities as a result. However, a sustainable blockchain needs to have its own paths to growth and taxes enable this. The Terra Grant Fund was positive for the Network and we should leverage this momentum to keep pushing for growth on Secret Network.

The proposed taxes aim to bolster the Network’s route to internal and external growth. They are large enough to ensure we have some weight to push behind opportunities but small enough that we do not burden stakers into being diluted. The proposed parameters reflect growth for stakers, although the RoI is smaller than that today (but explained by both the need for taxes as well as inflation being too high).


If anybody has any questions in relation to this or separate, I’ll be more than happy to help where I can.

OJ

19 Likes

Greetings community,

Many hours have been put into envisioning what Secret 2.0 will entail. SLABs has an incredible vision for improving Secret Network from both an engineering and cryptography perspective - pushing the boundaries of what is possible with this technology. As a representative of Shade Protocol, I can say without a doubt that we are excited to see where Secret Network goes. I’ve been here the last 5 years, so proposals that touch on the next decade happen quicker than you think.

Time flies.

Cheers to a bright future, let’s show the world the power of privacy.

17 Likes

The idea of been a hub is really nice. Having all project archived/linked in a common library. So lets say someone makes a “private insurance company database transaction” and I want to build a “private retail database whatever” ideally this should be easy to find and not require a lot of github digging only to find something else named “secret blabla”.

You mention tokenomics changes, but it is not 200% clear for me, and probably many others, if SCRT 2.0 will use the same token we use today or if it’s going to require a new token, or even migration etc?

I know this might sound like trolling and unproductive but trust me it is not, its in the best interest of the community.

3 Likes

Secret Network will be using the same token going forward. A blockchain leveraging FHE technology that accompanies Secret Network may have its own token - however, these two chains will work together, so it will benefit both parties!

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It has been great to watch the community collaborate on clarifying the vision of 2.0 and including input from a lot of different parties behind the scenes.

Since 2017 the vision of cryptographic solutions to solve real world privacy problems was always one of the biggest draws for me. With Secret 2.0’s vision it seems some of these solutions are back in the fold, and I’m excited to see what the future holds. It’s exciting to see the community collaborating and maturing along with the tech stack; the future is bright.

9 Likes

Very excited to see this breakdown of SCRT 2.0 on the forums for anyone in the community to give feedback to! It encompasses quite a number of different topics but nicely ties together to shape the future of SCRT.

Personally I am really looking forward to the continued evolutions of SCRT (and it’s TEE strengths) in combination with the Secret Constellation. This enables so many different possibilities in the near and mid term.

It’s a grand vision, but together we can do it! :muscle:

8 Likes

very excited to see this. I really like that SCRT 2.0 is focused on both short and long term tech visions

the things im most excited for
-hardening SGX/TEE by adding MPC is huge and can open up more use cases.
-Potential FHE chain is amazing for hype and niche use cases.
-Aligning other privacy chains and trying to bring Secret defi as a hub for privacy projects
-Making privacy as a service more accessible

10 Likes

This is a great vision for the future of data privacy in general!
Just looking at the shear scope of the Engineering task list makes me very excited for whats to come.
This will diffinalty open up more use cases and make it easier to port over current applications to the network.
Obviously I have my eyes set on the further fun down the road of emplementing the next generation of FHE Hardware.
Nothing better than being invloved with a bleeding edge technology blockchain like this.

Looking forward to it! Im positive everyone involved will make it happen :slight_smile:
During which, the journey is often sometimes better than the destination itself.
A lot us already work closely and im sure more will along the way.

Cheers!
Dan

9 Likes

Thanks to @guy and everyone who helped shape this proposal.

Mario is on board with whatever version of this goes to chain (probably). Especially looking forward to the FHE dream becoming reality!

Exciting changes coming for SCRT as well. Glad to see it.

11 Likes

I haven’t been this excited since the launch of secret contracts in 2020. Looking forward to the discussion that springs out of this initial proposal.

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what use cases do MPC/FHE enable?

2 Likes

Even with all the bad news surrounding our industry, it is inspiring to see we keep pushing forward with what is probably the most ambitious objective since the original Enigma whitepapers.

I think the future is as bright as it’s ever been.

4 Likes

Just taking this from the chat in Anons so everyone has visibility over it…

A blockchain leveraging FHE will be suitable for many items including:

  • Private voting (stronger and better than today);
  • Key management/ threshold wallets / bridges;
  • Stronger randomness; and
  • High-value assets.
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To be clear this is relevant for MPC+SGX (So Secret itself), not necessarily FHE :slight_smile:

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Some things that make me bullish about this forum post:

  1. Cryptography layer for Secret
  2. Constellation of chains
  3. Becoming a liquidity hub for privacy-aware projects
  4. Secret 2.0 Roadmap
  5. Revised Tokenomics

Thank you for letting me be part of The Next Generation group @guy

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Thank you for the everyone involved. I am encouraged to see the long term plan and vision. I support this.

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It’s great to see the whole community come together to deliver these ideas. I hope everyone feels like they have been heard & thanks to @guy for fostering such a vibrant discussion & @orageux101 et al for translating it into a forum-friendly version!

Regarding the new funds & entities that should be in them:

The Secret Agency has dApp team outreach programmes hitting up events & universities all over the world & will continue to develop our grassroots communities to bring new teams to Secret. We would love to be a part of the governance of which teams get funded in the end from the leads we collect & nuture, alongside the rest of the community!

We should also be able to vote as one entity eventually if needs be as our Secret Agency DAO.

I think the team behind the Secret University would be a brilliant fit here as they will have direct input from new devs on what pain points need to be addressed. Alongside the Development Committee & our new developer relations team.

This one probably requires a consortium of all the PriFi dApps on Secret with equal representation alongside some expert advisors from our investors & the wider Cosmos DeFi ecosystem. Oh, and @CryptoChem0000.

All of the above alongside a good representation from SCRT Labs, Secret Foundation & our validator community means we should have a clear focus for each fund with experienced, hands-on governance.

Looking forward to delivering Secret 2.0 with this team! :male_detective:

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Please get the inflation down. It’ll help with the sell pressure. Secret should be top ten. But nothing means anything unless the token itself is a good store of value. As a crypto you need regular people users and buyers of the token not just developers. Really should be taken into account what type of tokenomics would look attractive to retail investors. Even a chain like Ethereum changed their monetary policy to have near zero inflation and attract investors. I really don’t wanna see secret become a dino chain that never caught on because people just didn’t buy the coin. Great tech should have great sales strategies.

The proposed numbers do see inflation decreasing, there’s a couple sentences and a link to a graph in it.

There’ll be a one year jump to 25% and we will decrease each year. The second year will be lower 15% (where it is today) and we’ll venture into single digit inflation quite quickly after that.

I agree that we should reduce inflation where possible, but the difference with Ethereum is that it generates significant transaction fees to compensate stakers, pretty much no other blockchain (including us) do which means we use inflation as a way to incentivise staking.

1 Like