Zero-Knowledge RWA Tokenization & Trading Protocol on Midnight (open source)

[GENERAL] Name and surname of main applicant

[GENERAL] Are you delivering this project as an individual or as an entity (whether formally incorporated or not)

[GENERAL] Please specify how many months you expect your project to last (from 2-12 months)

[GENERAL] Please indicate if your proposal has been auto-translated into English from another language

[GENERAL] Summarize your solution to the problem (200-character limit including spaces)

Zero-Knowledge Proof protocol to enable privacy-preserving tokenization of RWAs on Cardano, ensuring ownership and transaction confidentiality without sacrificing transparency or security.

[GENERAL] Does your project have any dependencies on other organizations, technical or otherwise?

[GENERAL] If YES, please describe what the dependency is and why you believe it is essential for your project’s delivery. If NO, please write “No dependencies.”

No dependencies.

[GENERAL] Will your project’s output/s be fully open source?

[GENERAL] Please provide here more information on the open source status of your project outputs

All code will be open source under Apache License 2.0.

[METADATA] Horizons

[SOLUTION] Please describe your proposed solution

=> The Challenge of Tokenizing Real-World Assets (RWAs)

Tokenizing real-world assets (RWAs), such as real estate or commodities, introduces the possibility of fractional ownership, increased liquidity, and accessibility to broader markets.

BUT it also brings significant privacy concerns when implemented on public blockchains. When a user tokenizes an asset, information such as ownership details, transaction history, asset values, and personal information can become public knowledge, deterring both individual and institutional users who prioritize privacy.

Here, we propose to create a protocol using Zero-Knowledge Proofs (ZKPs) on Midnight to maintain the confidentiality of key information while enabling secure and verifiable transactions. ZKPs allow a party to prove that they hold valid information (such as ownership of an asset) without revealing the information itself.

=> Technical Approach

1. Privacy-Preserving ZKP-Based Transactions on Midnight

At the core of this solution is the use of zk-SNARKs (Zero-Knowledge Succinct Non-Interactive Arguments of Knowledge), which will enable users to:

• Prove ownership of a tokenized asset without revealing details such as the asset type, value, or personal information associated with the owner.
• Execute private transactions, allowing fractional transfers of real-world assets to be carried out securely on-chain without exposing sensitive information (e.g., transaction amounts, ownership details).

-> How it works:

• When an asset owner (e.g., Alice) transfers fractional ownership of a tokenized real-world asset (e.g., real estate), a zk-SNARK proof is generated to validate the transaction.
• This proof ensures that Alice owns the asset and that the transfer to the new owner (e.g., Bob) is valid. However, the proof does not reveal how much of the asset is being transferred or any personal details about Alice or Bob.
• The zk-SNARK proof is submitted to the blockchain along with the transaction, and the transaction is executed only if the proof is verified.

2. Tokenization and Fractional Ownership of RWAs

To enable real-world asset tokenization with privacy protection, we will deploy smart contracts that tokenize real-world assets and manage the issuance, transfer, and ownership of those assets. These tokens will represent fractional ownership of physical assets like real estate, enabling users to trade them freely on Cardano without revealing sensitive information.

-> Smart contract components:

• Asset Registration: The original asset (e.g., real estate) is tokenized by creating a fixed supply of tokens representing fractions of ownership.
• Ownership Verification: ZKPs ensure that only authorized parties can claim ownership or transfer tokens without revealing the underlying asset’s identity or owner’s details.
• Fractional Transfer: Users can transfer fractional ownership using ZKPs that prove the transfer is legitimate without disclosing the transaction amount or asset-related information.

3. Proof of Ownership with Zero-Knowledge Privacy

Ownership of a tokenized asset can be proven using ZKPs without disclosing identifying details about the owner or the asset. This feature is critical for privacy-conscious users, including high-net-worth individuals or institutions, who may not wish to publicly reveal their ownership stakes in tokenized assets.

-> Process:

• A user wishing to transfer or claim ownership provides a zk-SNARK proof showing that they have a valid claim on the asset.
• The proof demonstrates that the user possesses ownership without revealing the underlying documentation, such as property deeds or asset certificates.
• The smart contract verifies the zk-proof and processes the transaction without disclosing the owner’s identity or asset specifics on-chain.

4. Non-Interactive Verification

A key advantage of zk-SNARKs is their non-interactive nature. This means that once a proof is generated, it can be verified in a single step by the recipient (or smart contract), eliminating the need for multiple rounds of communication between the parties. This characteristic is ideal for blockchain applications where minimal interaction and reduced transaction complexity are essential for scalability.

=> Example Use Case: Real Estate Tokenization

Imagine Alice owns a commercial building and wants to tokenize her property to enable fractional ownership. Alice uses the protocol to issue tokens representing fractions of the building’s value. She then privately sells a portion of her tokens to Bob using zk-SNARKs. Through this process:

• Alice proves that she owns the tokens.

• Bob receives a zk-proof that verifies the token transfer.

• Neither Alice’s identity nor the value of the real estate is revealed publicly on the blockchain.

=> Why this proposal is unique:

• Full Privacy for Ownership and Transfers: Unlike traditional asset tokenization protocols, wwners can prove asset ownership and transfer tokens without revealing sensitive information, making it ideal for privacy-conscious users.
• Institutional Adoption: The protocol’s privacy features attract institutions and high-net-worth individuals, addressing concerns about public blockchain transparency.
• Easy Integration: The protocol easily integrates with existing tokenization platforms, adding a privacy layer without disrupting current systems.

[IMPACT] Please define the positive impact your project will have on the wider Cardano community

=> How the ecosystem benefits:

We will develop privacy-preserving tokenization and trading of real-world assets (RWAs), that could help our DeFi ecosystem to grow by attracting privacy-conscious users and more institutional participants:

• Better Privacy: This protocol ensure confidential ownership and transaction management for tokenized RWAs, benefiting applications and users who prioritize data privacy.
• Attracting Institutional Users:By offering privacy-preserving trading of real-world assets via zk-SNARKs, the protocol can appeal to institutional investors and traditional financial markets. 
• Open-Source Innovation: By offering open-source zk-SNARK frameworks, the project will help other developers or application to build privacy-focused DeFi applications.
• Expanding Transaction Diversity: This protocol can significantly diversify the types of transactions on the Cardano blockchain by enabling the tokenisation of real-world assets.

=> How we measure success:

Quantitative On-chain Metrics:

• Tokenized Real-World Assets (RWAs) Tokenized
• Metric: Number of real-world assets (e.g., real estate, commodities) tokenized using the ZK protocol.
• Goal: Tokenize at least 10 real-world assets within the first year to demonstrate adoption and utility in diverse markets.
• Transaction Volume:
• Metric: Track the number of transactions processed through the ZKP protocol for RWA tokenization and trading.
• Goal: Achieve 1,000 ZKP-based transactions within the first 12 months.

Quantitative Off-chain Metrics:

• dApp Integrations:
• Metric: Number dApps that integrate the ZK protocol.
• Goal: Integrate with 3 dApps in the first year

Qualitative Metrics:

• Trust in RWA Tokenization:
• Metric: Survey users assess their trust in using ZKPs for asset tokenization and trading.
• Goal: Ensure that at least 75% of users report increased trust and security in tokenizing real-world assets via the protocol.

=> Sharing Outputs:

• Open-Source All code and development will be shared on GitHub.
• Reporting: We will provide regular updates through Project Catalyst and blog posts.
• Educational Resources: We will provide comprehensive documentation to help users understand and benefit from the protocol.

[CAPABILITY & FEASIBILITY] What is your capability to deliver your project with high levels of trust and accountability? How do you intend to validate if your approach is feasible?

=> Previous Funding and Experience:

TrustLevel and Dominik Tilman have a proven track record of delivering successful Catalyst-funded projects since Fund 3. Over several Catalyst rounds, we’ve be awarded with complex blockchain project such as Aiken Smart Contract Library in F11 (will be implemented here: https://MeshJS.dev/) and zero-knowledge protocols in F12 (link: https://projectcatalyst.io/funds/12/f12-cardano-open-developers/zero-knowledge-zksnark-voting-protocol-on-cardano-for-dao-governance-open-source

=> Team Capabilities:

• Technical expertise: We are experts in Cardano's blockchain, Aiken smart contracts and zk protocols.
• Catalyst Experience: Our experience in implementing funded projects with strong community engagement demonstrates our ability to manage resources and meet deadlines.
• Community engagement: We have strong connections within the Cardano ecosystem and work will continue to work with relevant teams to ensure adoption and value creation of our projects

=> Active Ecosystem Collaborations:

We are currently engaged in several collaborations across the Cardano ecosystem:

• SidanLab and MeshJS: We are collaborating on smart contract development, particularly within the open-source Aiken Smart Contract Library, a project funded in Fund 11.
• LidoNation: Working on reputation scores for Catalyst reviewers, where we focus on analyzing user behavior and building models to assess reputation and trustworthiness in the Cardano Catalyst ecosystem.
• Photrek: Involved in the development of a community tool for voting calculations and community engagement in SingularityNet, building and testing decentralized voting mechanisms (https://proposals.deepfunding.ai/graduated/accepted/ed600af3-885c-45bc-a874-56d2dde371ce).

[PROJECT MILESTONES] What are the key milestones you need to achieve in order to complete your project successfully?

Architecture and System Design

Goal: Establish a clear and detailed system architecture for the privacy-preserving tokenization of real-world assets (RWAs) using Zero-Knowledge Proofs (ZKPs) on Midnight.

Deliverable:

• Detailed architecture document outlining the tokenization process, zk-SNARK integration, and smart contracts for asset registration, fractional ownership, and transfers.
• Flow diagrams for ZKP-based transactions, illustrating how ownership is proven and verified without revealing sensitive information.
• Technical specifications for the smart contracts handling asset tokenization, ownership verification, and fractional transfers.

Acceptance Criteria:

• Architecture must clearly define how zk-SNARKs will be used for privacy-preserving ownership verification and fractional transfers.
• The design must include a framework for secure off-chain storage of sensitive asset details.

Evidence:

• Published system architecture document and diagrams on Github or other collaboration platforms.

Smart Contract Development for Asset Tokenization and Fractional Ownership

Goal: Develop and deploy smart contracts that handle the tokenization of RWAs and manage fractional ownership and transfers using zk-SNARKs on Midnight for privacy.

Deliverable:

• Smart contracts for asset registration (e.g., real estate), token creation, and fractional ownership management.
• Implementation of zk-SNARK-based ownership verification and fractional transfer mechanisms.
• Integration of asset registration, ownership verification, and transfer functionality into the smart contracts.

Acceptance Criteria:

• Smart contracts must allow for secure tokenization of assets and the transfer of fractional ownership using zk-SNARKs without revealing sensitive information.
• Ownership and fractional transfer functionality must be fully verifiable on-chain.

Evidence:

• Published smart contract code on Github with detailed documentation.
• Video demonstration of tokenizing an asset and executing a private fractional transfer using zk-SNARKs.

ZKP Integration for Ownership Verification and Transfer

Goal: Implement Zero-Knowledge Proofs (ZKPs) on Midnight to enable privacy-preserving proof of ownership and secure, non-interactive verification of tokenized asset transfers.

Deliverable:

• Integration of zk-SNARKs for non-interactive proof generation, allowing users to prove ownership and perform fractional transfers of tokenized assets.
• Functionality to generate zk-SNARK proofs for ownership claims and submit these proofs on-chain for verification by smart contracts.
• Testing and validation of zk-SNARKs for secure, private ownership transfers.

Acceptance Criteria:

• The ZKP integration must allow users to prove ownership of tokenized assets and execute fractional transfers without exposing asset or ownership details.
• All ZKP-based transactions must be verifiable on-chain using smart contracts.

Evidence:

• Published ZKP integration code on Github.
• Documentation on zk-SNARK integration and transaction privacy features.

User Interface (UI) for Asset Tokenization and Private Transactions

Goal: Develop a simple user interface (UI) to enable users to tokenize assets, manage fractional ownership, and perform private transactions using zk-SNARKs on Midnight.

Deliverable:

• A basic web-based UI for users to register assets, create tokens, and manage fractional ownership.
• Interface functionality for users to generate zk-SNARK proofs, verify ownership, and execute private transfers.
• Integration of smart contracts and ZKP functions into the UI for seamless user interactions.

Acceptance Criteria:

• The UI must allow users to tokenize assets, manage tokens, and execute private ownership transfers using zk-SNARK proofs.
• Users must be able to generate and submit zk-SNARK proofs via the interface.

Evidence:

• Deployed web interface prototype or demo.
• Video walkthrough of the UI showing the asset tokenization process and private transfer execution.
• Published UI code on Github.

Project Close-Out Report

Goal: Summarize the project’s achievements, challenges, and future development opportunities.

Deliverable:

• A comprehensive close-out report detailing the milestones achieved, lessons learned, and recommendations for further improvements.
• Documentation for developers, including the architecture, smart contracts, and ZKP implementation details.

Acceptance Criteria:

• The report must summarize the entire project, including technical details, user feedback, and integration results.
• All relevant code, documentation, and reports must be available publicly.

Evidence:

• Final project close-out report published on a shared platform.
• All code, documentation, and deliverables available on Github.

[RESOURCES] Who is in the project team and what are their roles?

TrustLevel, founded by Dominik Tilman in 2023, develops tools and protocols to measure the reliability of data, information and reputation in decentralized ecosystems. Supported by grants from Cardano, SingularityNet and Arbitrum, our main focus is on creating a Decentralized Reputation Layer (DRL). Our tools, including the Voting Calculation for DeepFunding and a ZK Voting Protocol, enable privacy-preserving reputation management across governance, DeFi, and cross-chain applications. All outputs are open-source.

=> TrustLevel Core Team: 

• Dominik Tilman: Project Lead
• Dominik has been actively engaged since Fund 3 in Project Catalyst and involved in multiple funded projects. All proposals are either successfully delivered or on track. He is founder of TrustLevel.io & Conu21.com and has 15+ years experience in innovation management and company building.
• https://www.linkedin.com/in/dominikstumpp/ 
• Roman Preuss: Full-Stack Developer
• https://de.linkedin.com/in/roman-preuss-0b145558
• Josch Rossa: Full-stack developer and LLMs
• https://github.com/josros
• Alex Ramalho: Full Stack AI Developer
• https://alexramalho.dev
• Sergey K.: ML + Blockchain Developer
• https://www.linkedin.com/i

[BUDGET & COSTS] Please provide a cost breakdown of the proposed work and resources

Budget Breakdown (200,000 ADA Total)

We have calculated with an hourly rate of 75 USD (at 1 ADA = 0,4 USD).

Milestone 1: Architecture and System Design – 60,000 ADA

• Detailed architecture for privacy-preserving tokenization of RWAs using zk-SNARKs.
• Design of smart contracts for asset registration, fractional ownership, and ZKP integration.

Milestone 2: Smart Contract Development for Asset Tokenization and Fractional Ownership – 60,000 ADA

• Development of smart contracts to handle asset registration, tokenization, and fractional ownership.
• Implementation of zk-SNARK-based ownership verification and transfer mechanisms.

Milestone 3: ZKP Integration for Ownership Verification and Transfer – 40,000 ADA

• Integration of zk-SNARKs for ownership verification and secure, private fractional transfers.
• Testing and validation of ZKP-based ownership transactions.

Milestone 4: User Interface (UI) for Asset Tokenization and Private Transactions – 30,000 ADA

• Development of a user interface for tokenizing assets, managing fractional ownership, and performing private transactions.
• Integration of smart contracts and ZKP functionality into the UI.

Milestone 5: Project Close-Out Report – 10,000 ADA

• Final project report summarizing achievements, challenges, and future opportunities.
• Comprehensive documentation for developers and users, and publication of code and reports.

[VALUE FOR MONEY] How does the cost of the project represent value for money for the Cardano ecosystem?

Strategic Investment: The investment in this project represents substantial value for money by providing crucial improvements to RWA and DeFI ecosystem in Cardano.

Expertise and Complexity: Our budget covers fair pay for experts in blockchain and zk proofs. These roles need a strong understanding of Cardano and financial markets to ensure we build a high-quality protocl.

Risk mitigation: As a team, we willingly accept the currency risk of being paid in ADA, demonstrating our commitment and adaptability in a dynamic cryptocurrency environment. A decrease in the ADA price is a risk we bear, while any increase allows us to expand the scope.