Mathematical Finance & Financial Data Science Seminar

zk-SNARK proofs of solvency

Speaker: Aaron Carl Brown

Location: Online Zoom access provided to registrants

Date: Tuesday, April 4, 2023, 5:30 p.m.

Synopsis:

A zero-knowledge succinct non-interactive argument of knowledge (“zk-SNARK”) is a cryptographic tool through which a Prover can generate a relatively small message (say 500 bytes) that proves a statement to a Validator, without the Validator sending any messages to the Prover, or learning anything other than that the statement is true. The basic mathematics were worked out from 1988 to 2012, and have been implemented to some degree in cryptocurrencies like ZCash (2016). The collapse of Mt. Gox stimulated interest in zk-SNARK proofs of solvency, a way for crypto institutions to prove their assets exceed their liabilities by publishing a succinct message that can be quickly and easily verified, without revealing anything else about the institution’s assets, liabilities, customers or business. Interest increased dramatically with the failure of FTX. Several companies, including one I am associated with, introduced commercial versions of zk-SNARK proofs of solvency in late 2022, and some large crypto institutions have announced proprietary versions. This talk will briefly review the ideas of zero-knowledge proofs, and how people made them succinct and non-interactive. This portion will be kept to a low mathematical level to be easily intelligible to people unfamiliar with this area, and to avoid wasting time of people who are familiar. The main topic is the mathematics by which zk-SNARKS can be used to prove solvency, including legal and financial issues. Although current commercial applications work only with public-ledger blockchain assets, traditional financial institutions could adopt technology to allow zk-SNARK proof of solvency for traditional currencies and assets. Since insolvent traditional financial institutions are an ancient and major problem zk-SNARK proofs of solvency may become part of the core security infrastructure of finance.

Speaker Bio:

Aaron Brown spent 35 year on Wall Street as a trader, portfolio manager, head of mortgage securities and risk manager for some of the largest global financial institutions, the last ten as risk manager for AQR Capital Management. He has written a few books, and a lot of articles, most recently including regular columns for Bloomberg and Wilmott magazine. He is a long-time crypto investor and participant. Aaron holds an B.S. degree in applied mathematics from Harvard, and an MBA in finance and statistics from the University of Chicago. He splits time between Manhattan, Las Cruces and Coronado with his wife of 31 years, Deborah Pastor. He has two grown children, Jacob and Aviva.

Notes:

This event is free, but requires registration. You will then receive the Zoom link by email about a day or so before the event.