Secret Network Overview: Web3’s First Privacy-Focused Platform

Analysis Markets

In Brief

Secret Network is one of the first blockchains based on securitization and privacy

Secret has its roots in an MIT project called Enigma, which raised $45 million in a 2017 ICO to build privacy technologies for public blockchains and, in early 2022, announced $400 million in VC commitments to help fund the ecosystem

Secret Network is built with the Cosmos Software Development Kit (SDK), which allows it to provide interoperable privacy to the entire Cosmos ecosystem

Secret Network applications use a unique variety of smart contracts, which the project calls “secret contracts,” a Rust-based implementation of the CosmWasm library and provide computing with private metadata

SCRT is the native token of the Secret Network blockchain

Some notable dApps that are live on mainnet are ALTER, Shade, Sienna, and Stashh

The ecosystem of Secret Network partnerships includes top funds and other organizations that are able to support and promote both local ecosystem projects and the entire blockchain in general

Activity within the network is mostly at the same level but has recently decreased mainly due to the market rollback

SCRT Labs, the core development team of Secret Network, has extensive  academic, institutional, and blockchain experience that helped with the project’s successful launch and helps today with its development

In the future, Secret Network expects further development of its blockchain software and technologies, as well as due attention to the rest of the ecosystem projects


The Trust Project is a worldwide group of news organizations working to establish transparency standards.

As the web3 space develops, ordinary users, pioneers, and institutions are learning more about the system, discovering both its advantages and disadvantages. One such disadvantage, which increasingly affects the operation and even the meaning of the blockchain, is non-anonymity and privacy. Currently, the vast majority of blockchains run a public ledger. This means that anyone can check exactly how much each wallet or address is worth, with whom or what it interacted, and when exactly the interactions took place. The Secret Network blockchain has been designed with these issues in mind.

History and fundraising

Secret Network is one of the first privacy-focused smart contract platforms. It is a level 1 blockchain built using the Cosmos SDK and Tendermint BFT, a Proof-of-Stake consensus protocol.

Secret has its roots in an MIT project called Enigma, which raised $45 million in a 2017 ICO to build privacy technologies for public blockchains. The Enigma community launched the Secret Network as an independent level 1 blockchain based on Enigma research and technology. In addition, Spartan Group, Hashed, Fenbushi Capital, Arrington XRP Capital, Outlier Ventures, Skynet Trading, BlockTower Capital, and ICONIUM invested $11.5 million in the project as strategic investors during the seed round in the spring of 2021.

On January 19, 2022, Secret Network announced $400 million in ecosystem funding as part of its initiative, with investments from HashKey, CoinFund, and DeFiance Capital. In a way, the project wants to characterize itself as a critical pillar and data privacy hub for Web3.

Technology and uniqueness

To continue talking about such a significant project for the blockchain ecosystem as Secret Network, we need to start with the basics.

Secret Network is a decentralized network of computers, which the developers themselves call “secret nodes,” that use privacy hardware and software technologies to provide secure computing. To put it simply, it is a blockchain platform that solves one of the longest-standing problems in the field of blockchain—the lack of user privacy. The Secret Network offers scalable, permissionless smart contracts with a private by default design, enabling new use cases for blockchain not possible in public systems. It offers the anonymity users didn’t have before; this way, they can share the information only when they choose to.

The Secret Network is built with the Cosmos Software Development Kit (SDK), providing interoperable privacy for the entire Cosmos ecosystem. The protocol uses Intel Software Guard Extensions (Intel SGX), which divide the protocol code into trusted and untrusted parts. A secure “enclave” Trusted Execution Environment (TEE) component executes trusted code. TEEs are used in many devices, including smartphones and game consoles, and act as a “black box” for processing encrypted data.

Secret network TEEs maintain the integrity of any level of encryption, which ensures that transaction data remains secure and confidential at runtime, even for validators. The only way to view encrypted information is to use access control mechanisms like Viewing keys or Query permits. End users have full control over these keys, which gives them access to private transaction details so they can share them with others, for instance, tax authorities, when needed. The decentralized network of computers hosting the Secret Network comes to a consensus (delegated Proof-of-Stake—Byzantine Fault Tolerance) without ever gaining access to the data being processed.

Secret Network applications use a unique variety of smart contracts. The project calls them “secret contracts,” and they are a Rust-based implementation of the CosmWasm library and provide computing with private metadata. This provides unique use cases for the Secret Network that are simply not possible on other blockchains.

Figure 1: Computation comparison. Source: https://forum.scrt.network/t/education-infographic-library/5837/3
Figure 1: Computation comparison. Source: https://forum.scrt.network/t/education-infographic-library/5837/3

Unlike the contracts used on Ethereum, these secret contracts can accept encrypted inputs and produce encrypted outputs while refraining from revealing the state of each contract (its internal database). Secret contracts have a number of real-world applications, including user-side storage and transmission of encrypted data, NFTs with private content and ownership, lending protocols with private collateral information, and any application that requires true randomness on the chain.

Figure 2: Network Privacy Distinction. Source: https://messari.io/report/shhhhh-it-s-asecret-network?referrer=asset:secret-network
Figure 2: Network Privacy Distinction. Source: https://messari.io/report/shhhhh-it-s-asecret-network?referrer=asset:secret-network

Wrapping ERC-20,BEP-20, or Monero tokens requires a connection to Secret via a bridge smart contract. Monero (XMR), for example, can be deposited in exchange for sXMR on Secret. Users can move funds in the opposite direction (back to Monero) by burning the sXMR token to unlock XMR.

However, for networks other than Monero, bridging is not completely anonymous. In fact, bridge transfers can be tracked even if privacy is maintained on Secret Network.

Additional facts:

  • One can see the design of Secret Network as a combination between Ethereum’s permissionless smart contracts, a private by default design like Monero, and the scalability and interoperability of the Cosmos ecosystem.
  • Secret Network hides transaction data from validators and blockchain analytics tools (such as block explorers), preventing validators from reordering transactions or performing MEV attacks – so transaction metadata on Secret Network is private by default.
  • The nature of Secret Network also means that all of the Dapps benefit from being resistant to MEV attacks due to the encrypted mempool and state of the chain, protecting users from getting front-run on their transactions.

In addition to SCRT Labs, another entity that contributes to the network is the Secret Foundation, a private organization focused on many aspects, including the marketing, branding, community, social presence, accessibility, and most importantly growth of the ecosystem. Their mission is to drive the global adoption of open-source privacy technologies. The team consists of multiple full-time employees and contractors from all corners of the decentralized web who focus on general marketing, content, design, media, external relationships, and more. Secret Foundation also helps manage critical communication channels such as the Secret Network website, Discord, Telegram and Twitter.

Another contributing entity is the Secret Agency, a community DAO funded by the Secret Foundation, which focuses on supporting international communities, attending global events and organizing grassroots local events, supporting network wide educational content, a sustainable community engagement and learning experience, and generating social media presence for the community and supporting KOL and other contributors in doing so.

Ecosystem

To tell you about the ecosystem, you need to understand what is the second most important component, after the technology itself, that makes it work: the Secret coin (SCRT).

SCRT is the native token of the Secret Network ecosystem and is, therefore, used for activities like paying transaction and computational fees, staking with validators to secure the underlying network and receive inflationary rewards, viewing key generation, mint NFTs, AMM swaps, participating in community governance, etc.

Given that the coin is a public asset on the chain, interactions that require gas payment will appear as interactions on the chain. While the design of secret tokens allows for such transactions to have private metadata, the interaction itself can be publicly verified on the network.

“Secret Network’s inflation parameters are dynamic, with current inflation at 15% as long as the SCRT ratio for rates, and no rates remain below 66%. If the bond rate exceeds 66%, inflation gradually declines to 7%. Secret’s current annual interest rate Network is ~23% which is higher than the annual inflation. If a user stakes SCRT, they get a real profit of ~5-7%. If a user does not stake, they get diluted. These tokenomics helps create a sustainable environment for the SCRT coin and all participants networks” – Secret Network documentation.

It is also important to mention some price statistics for the SCRT token:

Figure 3: SCRT price statistics. Source: https://coinmarketcap.com/currencies/secret/
Figure 3: SCRT price statistics. Source: https://coinmarketcap.com/currencies/secret/
Figure 4: SCRT price statistics. Source: https://coinmarketcap.com/currencies/secret/
Figure 4: SCRT price statistics. Source: https://coinmarketcap.com/currencies/secret/

Let’s briefly mention tokenomics. The share of the team relative to the rest of the distribution of tokens is quite large, but the project has not suffered from this throughout the development of the project and the ecosystem as a whole. It is unlikely to happen now. Meanwhile, the rest of the distribution is logical and high quality. Given the relatively recent introduction of inflation controls, the effectiveness of tokenomics has only grown (more details could be found here: https://scrt.network/blog/secret-network-tokenomics-and-ecosystem-pool).

Now, let’s talk about the projects involved in the Secret Network’s ecosystem. A key development strategy involved connecting to other networks with existing user bases and liquidity pools. With the right incentive structure, Secret Network can participate in the activity generated by other blockchains. All this can be achieved without spending extra resources to create a new economy from scratch. The project launched its first bridge on December 15, 2020, establishing the necessary connection to Ethereum.

Since then, it has deployed bridges to Binance Smart Chain (about 10% of the assets in the Secret Network went through BSC) and Monero, as well as many other Cosmos SDK chains via the IBC protocol.

Secret Network chose the Cosmos SDK platform because of its interoperability. The Cosmos SDK allows developers to add new features through plug-and-play modules.     

Secret has dedicated significant resources to growing its ecosystem of apps and product offerings. The project and its community have established a 20 million SCRT Grants Program to help fund the creation of applications on the web. It has also completed integration with Band Protocol, a necessary DeFi building block for providing price feeds for exchanges and DeFi applications, such as lending and derivatives protocols.

The aforementioned $400 million Secret Network fundraiser was divided into two important parts:

  • a new $225M Ecosystem Fund consisting of contributions from over 25 existing ecosystem investors and partners to expand the Secret Network’s application layer (including DeFi and NFT), network infrastructure, and tools.
  • a $175 million accelerator pool funded by SCRT that is designed to provide nondilutive capital, grants, and ecosystem incentives to scale up user adoption rapidly.

The news of the investment followed the launch of auctions for the long-awaited Tarantino NFTs. The collection comprises seven rare NFTs released by Quentin Tarantino on the Secret Network and was featured in The New York Times, The Wall Street Journal, and CNBC. These secret NFTs contain chapters from the original, never-before-seen Pulp Fiction handwritten script, as well as exclusive commentary from the award-winning director and writer.

In addition to the $225 million Secret Ecosystem Fund, the $175 million accelerator pool will be used to support critical growth initiatives in Secret DeFi, NFT, gaming, and the metaverse, as well as other important application verticals on the Secret Network. The initiatives will target the core network metrics mentioned above, especially active usage, user base, and TVL.

Figure 5: Secret Network's ecosystem. Source: https://docs.scrt.network/secretnetwork-documentation/secret-network-overview
Figure 5: Secret Network’s ecosystem. Source: https://docs.scrt.network/secretnetwork-documentation/secret-network-overview

Secret has already carved a niche and is following the path of growth in areas such as DeFi, NFT, games/metaverse, and access control. It has seen a historical trading volume of over $1.3 billion on Secret DEXs, such as SecretSwap and Sienna Network, thousands of active faucets, and creators of NFTs on platforms like Stashh. It has also seen successful funding rounds for covert applications, such as the Sienna Network, Altermail, and Shade Protocol. The Ecosystem Fund will help fund the next generation of superstar projects in the Secret ecosystem while strengthening support for existing projects and developers.

You should also keep in mind the ecosystem of partnerships that the Secret Network has developed, which includes a large number of top funds and other organizations:

Figure 6: Secret Network’s partnerships. Source: https://scrt.network/ecosystem/partners

TVL, after the peak in November 2021 of $100 million, fell to the level of $36-60 million. It stayed that way until May 2022, and with the collapse of Terra, the trend went down to the level of $12-18 million and continues.

Now, TVL fluctuates in the channel from $8 to $12 million. There is a strong correlation with Bitcoin. A large share is occupied by the Sienna Network and SecretSwap (more than 70%), but this is offset by the fact that the ideas of ecosystem projects are diversified. Indeed, almost all the most common and recognized blockchain ideas are present: DeFi, NFT, DAO, communication, documentation, Game-Fi, bridges, etc.

Figure 7: Secret Network's TVL. Source: https://defillama.com/chain/Secret
Figure 7: Secret Network’s TVL. Source: https://defillama.com/chain/Secret

Speaking specifically about NFTs, the privacy properties of the Secret Network can extend to several types of tokens, including NFTs. In April 2021, the recipient of the first Network Community Grant submitted an implementation of the secret NFT standard (SNIP-721) on the main network. Secret NFTs have the same characteristics as ERC-721 Ethereum tokens but offer three new features: the ability to hide ownership of the NFT, privacy of the metadata field (how the NFT signature is related to offline data), and control access to connected content.

Figure 8: NFT comparison. Source: https://forum.scrt.network/t/education-infographic-library/5837/3
Figure 8: NFT comparison. Source: https://forum.scrt.network/t/education-infographic-library/5837/3

Secret Network’s privacy settings allow users to store NFTs out of the public eye. The last two features could include new use cases for NFTs (game elements with hidden abilities or art embedded in secret links), allowing artists or marketplaces to customize access to their products, which could be important for exclusive events or the entertainment industry.

Internal activity

Let’s take a quick look at the activity on the network: The number of daily transactions for almost the entire 2022 fluctuated on average from 8,000 to 22,000 transactions per day. Noticeable gaps were from mid-May to early July (just when the crypto market was “cold”) and from the end of September to the present, which indicates that the token is still not strong enough to recover.

The gas level also fluctuated on average at one level 1.2-2.6B, throughout the year, except for the period from the end of September to the present day. The last month’s trend is depressing, but what’s weirdest is right after the latest Shockwave Delta update rolled out, which went pretty smoothly (significant speed improvements for high-traffic network events like NFT mints, the addition of cross-network accounts, updated CosmWasm state sync, preparing the network to update Shockwave Delta to CosmWasm v1) and there are no reasons for such a trend, except for a general rollback of the market.

What is really pleasing is the cumulative number of new addresses in the network: Although the stage of wide-parabolic growth has already ended, and there has been a decreasing return on the growth of addresses over time since April, this trend is characteristic of most networks of giants in the blockchain. This means that Secret Network is entering a new level of evolution.

Figure 10: Secret Network's cumulative number of new addresses. Source: https://secretanalytics.xyz/
Figure 10: Secret Network’s cumulative number of new addresses. Source: https://secretanalytics.xyz/

Who is behind all these achievements?

SCRT Labs is the driving force and core development team behind the Secret Network. It was these people who did a great job for one of the first private networks in the world to enter the arena of blockchain giants: Athena Wisdom, HWzone, KeyTango, OTORIO, IVC Research Center, Deutsche Telekom, Check Point Software Technologies, Puzzle Projects LTD, Socially, Aristo Games, OnTheMob, TeenK, TBWA and more. Many team members have held various top positions in the Israel Defense Forces. The team also has excellent academic experience, having studied at MIT Media Lab, Tel Aviv University, and other renowned institutions.

Figure 11: SCRT Labs team. Source: https://www.scrtlabs.com/
Figure 11: SCRT Labs team. Source: https://www.scrtlabs.com/

Looking into the future

In the future, we expect Secret Network to continue developing its software and ecosystem, as well as the overall network scaling.

Many projects have already been developed in the Secret Network, and many will join it as the problem of securitization is becoming more and more acute among web3 users. Although the whole idea of blockchain independence from the institutional world, more and more crypto companies are trying to associate themselves with it. This is because this could attract users and investors from web2 and web3. However, this comes at the cost of privacy and security, something for which blockchain technology was created.

Secret Network can fix this. Most of its plan for the third and fourth quarters of 2022 has already been fulfilled. Also, given that the number of projects on the network is already large and only continues to grow, just a few have received publicity and recognition. It suggests that the performance of the entire ecosystem can be improved. In this case, attracting customers from web2 (where this problem is most acute) is a good solution.

“As Secret Network grows, along with Web3 itself, the time has come to think bigger about our privacy vision and how to ensure that we are always at the forefront of both research and development. We never want to be stuck in a local maxima; rather, we want to always be the market leader in Web3 privacy solutions that are active in production. We always want to push our solutions to be more secure, more performant, faster, and lower cost – especially as adoption rises thanks to massive innovation in DeFi, Data Management and the Metaverse.”

Guy Zyskind, CEO and Founder

Despite the fact that the Secret Network is confidently moving along the path of the intended development and fulfilling the aims set, several important updates and news are coming, which cannot be ignored:

  • 3x scalability improvement for all contracts via Wasm3 – SCRT Labs
  • Upgradeability coming for Secret contracts – SCRT Labs
  • Privacy as a service use cases in voting and Randomness – SCRT Labs
  • Bushi 3rd person shooter Q1 2023
  • Shade protocol stableswap, stablecoin Silk, normal DEX all early Q1 2023
  • Secret Dao tooling Q1 2023
  • Blizzard finance balancer like DEX Q4 2022   
  • Secret university development platform Q4 2022

Conclusion

Considering everything, we should recognize the relevance of such a solution as the Secret Network. The problem of secrecy of any asset, whether information or money, is becoming increasingly important due to globalization, the recent trend of institutionalization of cryptocurrency, and a strong dependence on the American market.

However, more than that, the Secret Network is a controlled securitization that involves managing the degree of privacy of your information. In addition, its ecosystem consists of many different applications tied to its main idea. The only problem of the Secret Network ecosystem is the lack of publicity of various attractive and promising projects that ordinary users in web2 and web3 can already use.

The niche occupied by the protocol is still developing, and Secret has already gained a leading position. A huge ecosystem fund and a system of grants will allow the application to develop further.

Bibliography

  • https://docs.scrt.network/secret-network-documentation
  • https://scrt.network
  • https://www.businesswire.com/news/home/20220119005731/en/Secret-Network-Announces-400-Million-in-Ecosystem-Funding-Alongside-Substantial-New-Investment-from-Leading-Firms
  • https://www.linkedin.com/showcase/secretnetwork
  • https://blockworks.co/secret-network-announces-400m-ecosystem-fundingreveals-big-name-investors/
  • https://scrt.network/developers/grants
  • https://secretanalytics.xyz/
  • https://medium.com/@secretnetwork
  • https://forum.scrt.network/

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Disclaimer

Any data, text, or other content on this page is provided as general market information and not as investment advice. Past performance is not necessarily an indicator of future results.

Cryptomeria Capital

Cryptomeria Capital is a crypto fund backed by blockchain industry experts. The firm believes decentralized projects, cryptocurrencies, and Web 3.0 will dramatically reshape economic relations and focuses on ventures, tokens, and projects related to blockchain technology and crypto assets. Cryptomeria Capital supports transformation by providing early-stage financing for ambitious projects in a rapidly developing industry.

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