RWA and STOs: How Financial Institutions Can Support Compliant Privacy Solutions With Zero Knowledge Proofs

By: Philip Halsall and David Park

As the worlds of traditional finance and blockchain technology collide, one use case is gaining more and more attention. Even BlackRock is getting involved. It’s a grand claim that the next crypto bull market won’t be triggered by the Bitcoin halving or approval of an Ethereum ETF; it will be led by real-world assets. With the STO market valuation in Korea expected to meet $287 Billion by 2030 and Japan already issuing and distributing security tokens, it is certainly worth paying attention. 

So, what are Real World Assets (RWA) and Security Token Offerings (STO), and why are they relevant to zero knowledge proofs and Mina Protocol? 

Definitions vary, though fundamentally, RWAs tokenize physical items such as real estate, collectibles, and luxury goods, whereas STOs tokenize financial instruments such as equities and debt.  

Mina Foundation is collaborating with Mirae Asset Financial Group to build a privacy-enhanced STO solution. This allows their users to benefit from STO ownership while preserving their privacy and maintaining regulatory compliance in Asia markets. This solution will use zero knowledge proofs (ZKP) and will be built on the Mina blockchain. 

How it Works

Mirae Asset Financial Group operates its own private ledger (Hyperledger BESU) and a database maintaining customer data. They publish STOs assets, and transactions onto this ledger. 

The solution will securely commit tokenized securities data to the public Mina blockchain and let owners of these assets claim proof of their assets without compromising their privacy. 

The system has two components: 

1. A ZK Rollup which preprocesses security tokens stored on the private ledger and exports selected data to the public blockchain.
2. A zkApp which calculates commitments of the STOs and allows users to create a privacy-enhanced proof.

ZK Rollup: Preprocessing the STO Data

Using o1js and verifiable off-chain computation, the ZK rollup processes the private STO data. The ZK rollup will:

1. iterate over the STO data stored in the private ledger
2. extract only select data, ensuring privacy and regulatory guidelines are met
3. publish commitments to the public blockchain

 This code executes on premise in a private and secure environment.

Proof of Ownership

Using o1js and verifiable off-chain computation a zkApp will:

1. verify the stored commitments of STO data
2. generate a proof of ownership

This code executes on the client’s own computer to ensure privacy and security.

This collaboration with Mirae Asset Financial Group is just the beginning. It demonstrates how the Mina blockchain can play a pivotal role in the mainstream adoption of blockchain technology. As traditional financial institutions, large corporations, and governments begin to integrate blockchain technology, the need for user and data privacy becomes paramount. At the same time, the connectivity of Web 3.0 also opens up many new possibilities.

The Mina blockchain is designed with zero knowledge (ZK) technology from the ground up, creating a  ‘proof of everything’. As the world’s first zkProgrammable Layer 1 blockchain, Mina offers unmatched advantages in terms of decentralization, data protection, privacy, and scalability. This partnership demonstrates how Mina can support financial institutions handling STOs and RWAs, leveraging ZK technology to protect clients and their data.

Why Build on Mina?

The Mina Protocol has become the go-to place to build with ZK for the following reasons.

1. The Most Advanced ZK Blockchain – Mina is a ZK-native chain. Its recursive properties make the L1 one giant proof, enabling nodes to sync quickly. This not only can make running a node more accessible, but it also can improve decentralization and security drastically. This also allows rollup app chains to build on Mina to improve scalability.
2. ZK Programmability – Mina zkApps use o1js, a TypeScript library that is a widely recognized language by many developers. Developers execute off-chain removing burden from the L1. Additional community built Layer 2 solutions like Protokit and Zeko aim to streamline system and DSL complexity even more to deliver better scalability and performance. 
3. Interoperability – Builders can reuse proofs and parts of code across different chains and applications, enabling powerful composability. 

If you are interested in leveraging Mina’s leading zkProgrammability, contact us.

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