The Shielder feature enables users to move ERC-20 tokens from their public wallets into a private balance. Once shielded, assets can be used in DeFi applications with enhanced privacy. The shielding mechanism utilizes zero-knowledge proofs and Merkle Tree commitments to ensure user anonymity and transaction confidentiality. Powered by RAILGUN - On-chain ZK Privacy for DeFi

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What is ZKP (Zero-Knowledge Proof)?

Zero-Knowledge Proofs (ZKPs) are cryptographic protocols that allow one party (the prover) to prove to another party (the verifier) that a statement is true without revealing any additional information beyond the validity of the statement itself. In the context of Shroomy’s Shielder:
  • Privacy: ZKPs enable transactions to be verified as valid without revealing sender, receiver, or amount details
  • Security: Mathematical guarantees ensure that shielded transactions cannot be forged or double-spent
  • Efficiency: Complex cryptographic operations are performed off-chain, with only the proof submitted on-chain
The protocol uses zk-SNARKs (Zero-Knowledge Succinct Non-Interactive Argument of Knowledge), which provide:
  • Succinct: Proofs are small and can be verified quickly
  • Non-Interactive: No back-and-forth communication needed between prover and verifier
  • Argument of Knowledge: Proves that the prover knows the secret inputs without revealing them

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How Shielding Works

Shield transactions are executed publicly, using a public wallet. Under the hood, the shield action sends ERC-20 tokens into the RAILGUN contract, where they are associated with a RAILGUN Wallet and a private balance. Once shielded, the owning RAILGUN Wallet can initiate private transfers and cross-contract calls to interact with external smart contracts. Shielding actions incur a 0.25% fee on the amount of tokens shielded. This fee rate is subject to change by RAILGUN DAO. After tokens are shielded, private transfers incur no fees. NOTE: Do not shield rebase tokens into RAILGUN, as these are not supported. For a list of rebase tokens, see Rebase Token List (Coingecko).

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Using Shielded Funds in DeFi

Users with shielded funds can access a wide range of DeFi functionality through Railway’s integrated dApps.

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PPOI (Private proof of innocence) and Compliant Privacy

Railgun implements compliant privacy through PPOI (Private Proof of Innocence), ensuring that privacy features align with regulatory requirements while maintaining user confidentiality.

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What is PPOI?

PPOI is a privacy-preserving compliance mechanism that:
  • Enables Compliance: Allows for regulatory oversight while maintaining privacy
  • Prevents Abuse: Deters illicit activities while preserving legitimate privacy needs

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1-Hour Waiting Period

After shielding tokens, users must wait 1 hour before they can unshield or transfer their private balances. This waiting period serves several important purposes:
  • Regulatory Compliance: Provides time for necessary compliance checks
  • Privacy Enhancement: Adds an additional layer of privacy protection
  • Risk Mitigation: Helps prevent rapid movement of funds for illicit purposes
  • Audit Trail: Creates a compliance-friendly audit trail without compromising privacy

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Compliant Privacy Benefits

Shroomy’s approach to privacy ensures:
  • Regulatory Alignment: Meets KYC/AML requirements while preserving privacy
  • Institutional Adoption: Enables enterprise and institutional use cases
  • Legal Clarity: Provides clear compliance frameworks for users and regulators
  • Privacy Preservation: Maintains the core benefits of privacy technology
This compliant privacy model makes Shroomy suitable for both individual users and institutional participants who require privacy while maintaining regulatory compliance.

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Privacy Mechanisms

  • Notes: Cryptographic commitments created from input data. Cannot be reverse-engineered to reveal original information.
  • Merkle Tree: Used to batch and track all shielded notes. New shieldings generate a new leaf, maintaining an updated Merkle Root.
  • Nullifiers: Prevent double-spending by marking spent notes as used. All transactions are verified with zk-SNARK proofs.

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Anonymity Set and Privacy Strength

The anonymity set represents the pool of all possible senders/receivers for any given transaction. In Shroomy’s Shielder, your privacy is directly tied to the size and activity of this anonymity set.

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How Anonymity Sets Work

When you perform a shielded transaction, you’re essentially “hiding in a crowd” of all other users who have also shielded assets. The larger this crowd (anonymity set), the more difficult it becomes to trace your specific transactions.
  • The anonymity set becomes stronger as more people use the Shielder
  • Each new user who shields assets increases the privacy protection for all existing users
  • Higher transaction volume creates more “noise” that makes correlation attacks harder

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Privacy Limitations and Best Practices

While ZKPs provide strong cryptographic privacy, transaction correlation is still possible through external analysis. Here are essential best practices to maximize your privacy:

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Timing Considerations

  • Wait Between Transactions: Avoid immediately unshielding and shielding assets
  • Randomize Intervals: Don’t establish predictable patterns in your transaction timing

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Amount Patterns

  • Avoid Identical Amounts: Don’t shield and unshield the exact same amounts
  • Use Round Numbers Sparingly: Round amounts are easier to correlate across transactions
  • Mix Different Amounts: Consider shielding multiple different amounts to break patterns

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Behavioral Patterns

  • Diversify Usage: Don’t always use the same addresses for shielding/unshielding
  • Avoid Predictable Patterns: Don’t shield on the same day/time regularly
  • Consider Amount Ranges: Use varying amounts within reasonable ranges for your use case

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Advanced Privacy Tips

  • Layer Privacy: Combine Shielder with other privacy tools when possible
  • Monitor Network Activity: Higher usage periods provide better anonymity
  • Educate Others: Encourage adoption - more users mean stronger privacy for everyone

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Privacy vs. Convenience Trade-offs

Remember that maximum privacy often requires some inconvenience. The key is finding the right balance for your specific needs:
  • High Privacy: Follow all best practices, even if inconvenient
  • Medium Privacy: Follow core practices (timing, amounts) but accept some correlation risk
  • Basic Privacy: Use Shielder for basic privacy while maintaining convenience
The beauty of Shroomy’s Shielder is that even basic usage provides significant privacy improvements over transparent blockchain transactions, while following best practices can provide near-optimal privacy protection.