Author: blocmates
Compiled by: White Paper Blockchain
Have you noticed that privacy is once again becoming a hot topic? And this is by no means just a technical carnival stirred up by hardcore cypherpunks. When anyone with access to AI can dox your real identity in under a minute for less than $2, even ordinary people are starting to take their online footprint seriously, and the wave of change is already imminent.
"In the electronic age, privacy is essential for an open society. Privacy is not secrecy. A private matter is something one does not want known to the world, while a secret is something one does not want anyone to know at all. Privacy is the power to selectively reveal oneself to the world." — A Cypherpunk's Manifesto, Eric Hughes, 1993
Privacy has always been deeply rooted in the ideological foundation of the crypto world. Therefore, in an era where users cannot even step out to a 7-Eleven convenience store without encountering half a dozen license plate capture cameras, it is hardly surprising that privacy tokens such as ZEC (Zcash) saw explosive surges this year.
A world without privacy is a world without any sense of security.
But when we discuss these topics, it is hard not to feel a strong sense of irony: because the vast majority of our on-chain interactions and transactions actually take place on a completely transparent public ledger—anyone can casually inspect your asset holdings, trading strategies, preferred centralized exchanges, and even your daily active hours.
Monero (XMR) and Zcash (ZEC) have proven the strong market demand for private money, but in our view, this is still far from enough.
Today's privacy solutions are either too narrow or too cumbersome
To claim that there are currently no privacy solutions at all would clearly be less than objective. The real crux is this: the vast majority of solutions can only protect a single trading venue, a specific asset, or one isolated segment of the transaction lifecycle.
In the dark pool trading space, Renegade allows orders to settle directly anchored to the midpoint of Binance's bid-ask spread, while ensuring that order details remain confidential throughout. Relayers use multi-party computation (MPC) between both parties to find matches, and the subsequent settlement state is verified on-chain through zero-knowledge proofs (ZKPs).
Aster took a different approach, launching "hidden orders" and "hidden positions" mechanisms. While sharing the same matching engine as public orders, it isolates specific order and position data from the public data stream.
On the spot trading side, related tools focus on providing protection before execution. Private RPC nodes such as Flashbots Protect and MEV Blocker can intercept pending transactions outside the public mempool; while threshold encrypted mempool systems such as Shutter can conceal the payload of transactions throughout the process before transaction ordering or block inclusion is finalized.
Shutter later also began expanding its threshold encryption toolchain to other use cases, but the encrypted mempool remains its most well-known flagship product.
For users who want to hide their personal alpha strategies and avoid frontrunning sandwiches, these products are indeed a positive step forward. But each solution is confined to a single trading venue, a specific application, or an isolated stage of the transaction lifecycle.
If we look at financial privacy more broadly, crypto natives will usually recommend Monero (XMR) or Zcash (ZEC). Admittedly, market interest in these two types of tokens has risen extremely rapidly, but ultimately they are essentially just "private versions of Bitcoin."
Private value transfer cannot provide a general-purpose infrastructure for "privacy protection of programmable intents."
And fully private execution environments often force developers to completely tear everything down and rebuild in order to adapt to an entirely separate new tech stack.
See the crux? Between "private assets" and "fully transparent smart contracts," there is a critical missing layer.
From the perspective of actual traders, what exactly are the core things that truly need protection? For traders, as long as any one of the following elements is leaked, their strategic edge instantly evaporates:
The action they intend to execute.
The preconditions that will trigger that action.
Key sensitive parameters, such as position size, limit price, execution timing, or the trading strategy itself.
We love public blockchains, and we champion them even more than most. But if all details are laid bare on-chain, any potential hunter can watch you covertly the entire time... and front-run you to harvest you at any moment.
Crypto Market: A Beginner's Guide
Our veteran comrade-in-arms @nillion is back strong. This time, they have brought the technological achievement the market has truly been eagerly awaiting.
They named this new foundational primitive Covenants: a fully sealed "if-this-then-that" conditional instruction that will only be unsealed and executed when the set preconditions are completely satisfied.
If you have a technical background, you may already realize how vast the application scenarios for this technology are:
Sealed-bid Auctions: all bids remain strictly confidential until final reveal.
Sealed Predictions: able to prove to the outside world that you made a prediction in advance at a certain point in time, without having to disclose the prediction details beforehand.
Protocol Safeguards: automatically activate protection in emergency situations without prematurely exposing sensitive risk thresholds.
Stealth conditional orders and private trading strategies.
While preserving full on-chain characteristics, absolutely defend strategic alpha.
This is exactly the type of application Covenants aims to make dramatically easier to develop, so developers can easily invoke and build with it without forcing themselves to become cryptography experts.
To be clear, its "Dusk" phase will launch the first implementation on the Ethereum mainnet, while subsequent phases will further expand this model cross-chain to multi-chain ecosystems, external data sources, and more complex private logic processing. We will break down its complete 7 rollout phases in detail in our next research report.
At the underlying level, a Covenant consists of the following three parts:
Trigger conditions (for example: "BTC spot price on Hyperliquid touches $100,000," "wallet 0x8...9df sold any amount of UNI," "large amounts of funds are simultaneously withdrawn from multiple pools").
Execution actions (for example: "temporarily freeze the smart contract," "open a USDC-ONDO UniV3 position," "withdraw my stablecoin funds through an off-ramp to Kraken").
Boundary parameters constraining the two (for example: "but only execute on weekends," "but only take effect when USDC depegs," "but only trigger when Brother Machi is in a net short position on Hyperliquid").
As the roadmap unfolds, the monitoring scope of trigger conditions will extend beyond a single blockchain. An event occurring on Solana may in the future directly trigger an action on Hyperliquid; and compliant oracles as well as traditional Web2 API interfaces can also fully connect real-world data into the same framework.
This will inspire many highly imaginative new strategies, such as:
If the probability of Justin Sun facing prosecution on Polymarket reaches 40% or higher, immediately establish a 3x leveraged ETH/TRX pair trade on Pear.
If the Strait of Hormuz API detects that the flow of transiting vessels has surged by more than 50% over the past 24 hours, then short crude oil contracts on Hyperliquid.
If any of Satoshi Nakamoto's initial Bitcoin addresses show movement, go all-in short BTC and immediately withdraw stablecoins.
When the United States Geological Survey (USGS) reports an earthquake of magnitude 6.5 or above in the Taiwan region, immediately short Taiwan Semiconductor Manufacturing Company (TSM).
If a theme park queue-time API continuously shows a steady recovery in visitor traffic, then go long Disney (DIS).
Frankly speaking, such use cases are too numerous to enumerate. More critically, the core point is this: this design dimension goes far beyond merely hiding a single transaction in the mempool.Today, you might be able to cobble together part of the logic, but the entire business logic is often completely public and transparent, fragmented across multiple disconnected services, or highly dependent on centralized trusted infrastructure—not to mention the complex cross-chain interactions and fragile API stitching required to pull it all off.
Under the Covenants system, you simply upload your private transaction plan to Nillion—a decentralized network responsible for monitoring conditions and releasing authorization instructions when conditions are met. Until the trigger threshold is satisfied, all your strategic intentions are absolutely invisible to the entire network.
Covenants is designed to serve as an overlay enhancement layer on existing programmable public blockchains, without forcing users and developers to migrate to a separate execution environment. It is by no means another narrowly functional single-point privacy toy.
We are witnessing the dawn of "Encrypted Markets": you can fully leverage DeFi's vast "money Lego" building blocks while perfectly preserving your own strategic moat.
Rediscovering Nillion
Most readers probably have their own judgments based on Nillion's past journey, and I am certainly no exception.
In the past, when I saw "Nillion," what came to mind were uniformly blue-eyepatch-wearing NFT avatars and vague, incomprehensible answers when asked "what exactly are you doing."
Like most "infrastructure maximalist" projects, they previously painted an extremely grand vision—providing general-purpose universal privacy computation.
But in practical implementation, this grand narrative proved extremely difficult to deliver at scale.
The subsequently adopted trusted execution environment (TEE)-based model lacked sufficient technical barriers and differentiation, and in our view, it relied excessively heavily on centralized operational infrastructure.
I must admit, when I first saw them successfully running DOOM on their own tech stack, I did think it was cool. But it inevitably raises the question: why on earth should I care about keeping my DOOM gameplay records private?
The person above is John Woods, who recently took over as CEO and has since completely reversed the entire project's strategic direction.
After team optimization and strategic restart, the current core team has been streamlined by about 80%, with its strategic focus fully shifted toward building a decentralized privacy network, developer tool libraries, and high-stickiness applications that directly address real pain points for crypto users—rather than fancy infrastructure that only sounds impressive in a whitepaper.
Nillion's strategic pivot is fully focused on four pillars:
Products must be purely decentralized.
Privacy protection must always be the network's unbreakable foundational cornerstone.
The NIL native token must hold an irreplaceable first-priority position in system staking security, operational collaboration, and resource scheduling.
Technology must solve clear, specific real-world pain points, rather than forcing users to pay for infrastructure just to sell technology.
In plain terms, this is by no means a meaningless pivot to cook up a new marketing concept. Nillion never stopped researching and developing privacy technology; the most fundamental shift is that its new strategic blueprint begins with clear pain points that developers and ordinary users have long experienced firsthand.
Covenants in Practical Application
Covenants seeks to repair and deepen a relationship that should have been at the core of DeFi all along: the symbiotic relationship between open financial infrastructure and underlying user privacy. And this value already extends far beyond complex private transaction strategies.
For projects facing major token generation event (TGE) milestones, the specific mechanics of a public token sale can easily turn into a disaster of misaligned interests.
Price too high, and the round may fail to sell out, causing a project with great potential to lose valuable growth momentum early on.
Price too low, and the sale may be instantly swept up (sniped) by professional sniper scripts within seconds, or severe oversubscription may leave the vast majority of retail supporters with only a tiny allocation.
The ideal token sale mechanism should precisely discover a solid market-clearing price while allocating tokens to participants who demonstrate genuine willingness to hold. One highly feasible design architecture is the sealed-bid auction.
Here is how it works in practice:
Suppose a protocol plans to publicly auction 1 million tokens, with the market independently determining the final clearing price.
Each bidder independently submits the amount of tokens they wish to subscribe for and the maximum unit price they are willing to pay: a) Alice applies to subscribe for 400,000 tokens, with a maximum bid of $0.05 per token. b) Bob applies to subscribe for 300,000 tokens, with a maximum bid of $0.045 per token. c) Charles applies to subscribe for 600,000 tokens, with a maximum bid of $0.06 per token.
Each bidder independently submits the amount of tokens they wish to subscribe for and the maximum unit price they are willing to pay:
a) Alice applies to subscribe for 400,000 tokens, with a maximum bid of $0.05 per token.
b) Bob applies to subscribe for 300,000 tokens, with a maximum bid of $0.045 per token.
c) Charles applies to subscribe for 600,000 tokens, with a maximum bid of $0.06 per token.
The system fills orders sequentially from the highest valid bid downward until the full 1 million token allocation is completely distributed. Under this rule, Charles's and Alice's orders will fully fill the 1 million token quota, while Bob's bid is shut out below the cutoff line.
Under a uniform-price auction model, all winning bidders ultimately pay a unified price equal to the lowest winning bid—in this case, settling at $0.05 per token.
Proponents view this model as one of the most robust and fair forms of token sale, because it both rewards the most committed participants with the strongest willingness to pay and leaves price discovery entirely to free market competition rather than the project team's subjective judgment.
But if all bids are nakedly exposed on the public blockchain during the auction window, later bidders will directly reference others' bids for malicious anchoring and game-theoretic queue-jumping. This completely kills the original intent of independent blind bidding among multiple parties.
Once the sealed-bid auction mechanism is embedded into the Covenants framework, all bid data can be registered on-chain in encrypted form and remain strictly sealed throughout the entire bidding period.
Only at the moment the countdown ends will the encrypted data be simultaneously unsealed, and the auction contract will then fairly and impartially calculate the final clearing price and token allocation.
For project teams, they neither undersell their core tokens nor fail to make their most loyal early supporters core holders; for ordinary users, they finally gain a fair and open starting line in the new project sale they have been eagerly awaiting.
In addition to sealed-bid auctions and complex on-chain hedging transactions, the team is currently publicly demonstrating nilSwap on testnet—a seamless cross-chain swap application between Ethereum and Monero. Frankly, before this I did not even know such cross-architecture interoperability was actually feasible.
The application currently runs smoothly between the Ethereum Sepolia testnet and the Monero stagenet test network. Go try the demo yourself, and developers especially should carefully study its official technical documentation to draw inspiration for architectural design.
Conclusion and Reflections
We are truly standing on the threshold of an on-chain privacy renaissance. ZEC and XMR have stormed back to the absolute center of crypto market discussion, the Ethereum Foundation is making all-out heavy bets on its privacy technology roadmap, and the public has finally become clearly aware of just how shockingly intrusive modern AI-based on-chain and off-chain penetrating surveillance can be.
But this exponential hockey-stick effect has not even truly begun its accelerated upward phase.
Developer tools must actively cater to developers' native development habits—providing mature solutions that are ready to use out of the box, integrate smoothly, and do not require them to cross dozens of complicated cryptographic thresholds, thereby truly building a solid security moat for end users.
Because the fact is brutally simple: if access to privacy protection cannot be made absolutely foolproof, then 99% of mainstream users will never touch it.In my view, Covenants has demonstrated the clearest technical paradigm to date: it is powerful and hardcore enough, yet it does not force ordinary users and application developers into becoming cryptography experts.
Nillion's once-in-a-lifetime historical opportunity is precisely to become a privacy-enhancing layer natively and seamlessly embedded into existing application ecosystems and underlying public blockchains.
Private "conditional trigger instructions" (if-this-then-that) are an indispensable foundational primitive for building all kinds of confidential-grade applications, and its upcoming Dusk phase is precisely the critical first step toward making it usable on-chain.
Nillion's even grander sea of stars is precisely its defined "Encrypted Markets": fully preserving the irreplaceable essence of public blockchains (free composability of money Legos, permissionless open markets, and so on), while no longer forcing every ordinary user to expose their hole cards and strategic intentions to public view before entering the game.
This is an extremely grand and ambitious blueprint, and it absolutely cannot be accomplished in one single battle.
Our next research report will focus on breaking down the core milestones they have set to conquer this massive target market (TAM). But before that, please be sure to treat every trail you leave on-chain with caution—you never know who in the shadows is watching you closely.