Private Bonds

Institutional bond issuance and trading on public blockchains where volumes, prices, and positions must remain confidential to prevent front-running and strategy exposure. The solution requires confidential amounts and positions with selective regulator visibility, atomic delivery-versus-payment (DvP) settlement, while maintaining public-chain finality and economically viable daily settlement cycles.

Actors

Issuer · Investors · Crypto-Registry · Regulator · Oracles (valuation, payment) · Settlement venues (stablecoin network)

Problems

Problem 1: Transaction Privacy with Regulatory Compliance

Public chains expose volumes, prices, and positions by default, enabling front-running and competitive intelligence gathering. Institutions require transaction-level confidentiality while maintaining selective disclosure for regulatory compliance.

Requirements:

  • Must hide: amounts, positions, trade details (issuance + secondary); ideally RFQ/order size pre-inclusion
  • Public OK: legal entity identities; existence of transactions/events (no figures)
  • Regulator access: scoped viewing keys and/or ZK proofs; access logging (attestations)
  • Settlement: atomic DvP; minutes-level finality acceptable; daily cycles
  • Ops: predictable L2 costs (post-4844), append-only encrypted audit log with on-chain anchors; key rotation & retention policies

Constraints:

  • Regulatory compliance (crypto-register integration where required)
  • Production timeline: 1–2 years
  • Avoid HTLC brittleness
  • Infrastructure costs viable during adoption phase

Recommended Approaches

See detailed solution architecture and trade-offs in Approach: Private Bonds.

See Approach: Atomic DvP Settlement for the settlement leg, including cross-network DvP via ERC-7573.

PoC Implementation: Private Bond PoC; three approaches: Custom UTXO (EVM), Privacy L2 (Aztec), and FHE (Zama fhEVM).

Open Questions

Notes below reference the PoC implementation.

  • Secondary market: RFQ model + pre-trade privacy requirements (what must be hidden?)
    • PoC approach: Negotiation and RFQ run off-chain with on-chain settlement; in Custom UTXO the issuer relays and can act as matcher, in Privacy L2 either party or a relayer submits the swap
  • Minimum viable privacy: amounts/positions only vs parts of the term sheet?
    • PoC approach: Amounts and positions hidden; legal entity identities can remain public (dual identity model)
  • ISO 20022 relevance for bond workflows vs ICMA BDT usage

Notes And Links