Trusted setups are a permanent liability. Every ZK proof system requiring a multi-party ceremony embeds a persistent, non-upgradable vulnerability in the protocol's core security. This is a fundamental architectural trade-off, not a temporary bug.
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The Cost of Trusted Setups: A Lingering Liability for ZK Investors
A technical analysis of the permanent systemic risk inherited by SNARK-based projects reliant on trusted setup ceremonies, and why STARKs and recursive proofs represent a trust-minimized future for venture capital.
introduction
THE LIABILITY
Introduction
Trusted setups are a critical, non-removable risk vector that investors in ZK protocols systematically undervalue.
Investors price execution, not security. The market rewards throughput metrics from zkEVMs like Scroll or Polygon zkEVM, while ignoring the catastrophic, one-time failure mode of their trusted ceremonies. This creates a systemic mispricing of risk.
The risk compounds with adoption. A flaw in Aztec's Powers of Tau or Zcash's original ceremony becomes more valuable to exploit as the total value secured (TVS) grows, creating a perverse incentive for long-term attackers.
Evidence: The ZK-Rollup ecosystem has secured over $10B in TVL, yet the security of this capital often rests on ceremonies completed years ago by a handful of participants, a risk profile no traditional fintech CTO would accept.
thesis-statement
THE LIABILITY
The Core Argument
The trusted setup ceremony is a persistent, non-amortizable security liability that undermines the long-term value proposition of a ZK system.
Trusted setups are a liability. A ZK proof's cryptographic security depends on the destruction of toxic waste from its initial ceremony. This creates a permanent, non-upgradable backdoor risk that cannot be patched post-launch, unlike a smart contract bug.
The risk does not amortize. Unlike computational costs that decrease with hardware, this cryptographic trust is a binary, time-invariant vulnerability. Investors in zkSync or Polygon zkEVM are betting the ceremony participants, like the Matter Labs or Polygon teams, acted with perfect integrity forever.
Ceremony size is a weak proxy. Projects tout participant counts, but security hinges on one honest actor. A large ceremony with Aztec's Powers of Tau improves probability but cannot eliminate the model's fundamental fragility versus trustless alternatives like STARKs.
Evidence: The perpetual need for re-audits and monitoring, as seen with the ongoing community scrutiny of Scroll's ceremony, represents a recurring operational cost and reputational risk that pure validity proofs like StarkWare's Cairo VM avoid.
key-trends
THE COST OF TRUSTED SETUPS
The Trust Spectrum in ZK
Trusted setup ceremonies are a foundational but often ignored liability, creating systemic risk and hidden costs for protocols and their investors.
01
The Ceremony Problem: Perpetual Trust Assumptions
ZK proofs are only as secure as their initial setup. A single compromised participant can forge proofs and mint infinite tokens. This creates a permanent backdoor that audits cannot fix.
- Ceremony size ≠security: Large participation (e.g., 1,000+ for Perpetual Powers of Tau) only reduces, not eliminates, risk.
- Time-locked risk: The liability persists for the protocol's entire lifespan, often decades.
- Hidden cost: Investors bear the unquantifiable risk of a catastrophic failure.
1
Compromised Participant Fails All
Decades
Liability Lifespan
02
The Solution: Transparent & Updatable Setups
Eliminate the single point of failure. Projects like Mina Protocol (recursive SNARKs) and Halo2 (no trusted setup) prove it's possible. The goal is verifiable, not just ceremonial, trust.
- Recursive Proofs: A single, publicly verifiable genesis setup (e.g., Mina's ~22KB blockchain).
- Upgradable Circuits: Frameworks like Circom and Noir enable post-deployment security patches.
- Investor Due Diligence: Shift focus from 'who participated' to 'is the setup transparent?'
0
Trusted Participants
22KB
Mina Genesis Size
03
The Investor's Blind Spot: Ignoring Setup Provenance
VCs pour billions into ZK rollups (zkSync, Scroll, Polygon zkEVM) without pricing the trusted setup risk. This is a fundamental mispricing of technical debt.
- Opaque audits: Reports validate circuit logic, not the ceremony's integrity.
- Concentrated risk: Multiple L2s often share the same underlying ceremony (e.g., Powers of Tau), creating correlated failure.
- Actionable metric: Demand proof of ceremony transcript availability and participant decentralization.
$10B+
TVL At Risk
1
Common Ceremony (Powers of Tau)
04
The Economic Reality: Ceremonies as a Cost Center
Trusted setups are not free. They demand significant capital for coordination, auditing, and incentivizing participants, costing projects $500K-$2M+ before a single transaction is proven.
- Resource drain: Diverts engineering and capital from core protocol development.
- Recurring cost: New circuits (for upgrades/new apps) require new ceremonies.
- Competitive disadvantage: Protocols with transparent setups (StarkNet's STARKs) avoid this recurring tax entirely.
$2M+
High-End Cost
0
StarkNet's Setup Cost
THE COST OF TRUSTED SETUPS
Trusted Setup vs. Trust-Minimized: A Protocol Comparison
A feature and risk matrix comparing the foundational trust assumptions of ZK protocols, highlighting the operational and security liabilities for investors.
| Feature / Metric | Trusted Setup (e.g., zk-SNARKs, Polygon zkEVM) | Trust-Minimized (e.g., StarkEx, RISC Zero) | Universal Setup (e.g., PLONK, Halo2) |
|---|---|---|---|
Initial Trust Assumption | Single, multi-party ceremony (e.g., Powers of Tau) | Transparent (no ceremony required) | Updatable, universal ceremony |
Ceremony Participant Count | ~1000s (e.g., Aztec's Ignition) | 0 | 1 (e.g., Perpetual Powers of Tau) |
Ceremony Cost (USD) | $500k - $2M+ | $0 | $50k - $200k (one-time) |
Ongoing Trust Liability | Permanent; ceremony compromise breaks all proofs | None; security is cryptographic | Limited; requires trust in latest update |
Proof Verification Key Size | ~1-10 KB (small) | ~100-500 KB (large) | ~1-10 KB (small) |
Recursive Proof Support | |||
Post-Quantum Security Pathway | Theoretically possible | ||
Protocol Examples | Zcash, Tornado Cash, Polygon zkEVM | StarkEx, RISC Zero, Mina Protocol | Aztec, ZKSync Era, Scroll |
deep-dive
THE PERPETUAL RISK
Anatomy of a Liability: Why 'Toxic Waste' is Forever
The cryptographic secret generated during a trusted setup ceremony is a permanent, uninsurable liability for any protocol that uses it.
Toxic waste is a permanent liability. The secret parameters generated during a ceremony are a single point of failure for the entire system. If leaked, an attacker can forge fraudulent proofs, invalidating the protocol's security guarantees forever.
This risk is fundamentally uninsurable. No insurance pool can cover the existential collapse of a multi-billion dollar ZK-rollup like zkSync or Polygon zkEVM. The failure mode is binary and total, making traditional risk models useless.
The liability outlives the team. Projects like Aztec, which pioneered these ceremonies, must maintain secure custody of this secret for decades after the founding team disbands. This creates an unsolved governance and custodial nightmare.
Evidence: The 'Perpetual Powers of Tau' ceremony for Groth16 proofs has over 10,000 participants, demonstrating the extreme, ongoing effort required to mitigate this single point of failure that newer systems like Nova aim to eliminate.
risk-analysis
THE COST OF TRUSTED SETUPS
The Investor's Risk Matrix
Trusted setups are a critical, often under-priced liability in ZK systems, creating persistent counterparty risk and technical debt.
01
The Ceremony is a Permanent Leak
A trusted setup ceremony creates a secret parameter (the 'toxic waste'). If compromised, it allows infinite counterfeit proofs, invalidating the entire system's security. This is a single point of failure that persists for the protocol's lifetime.
- Risk: Permanent backdoor if any single participant is malicious.
- Reality: Most ceremonies rely on a small, known set of entities (e.g., founding team, VCs), creating concentrated trust.
1 of N
Failure Point
Permanent
Risk Duration
02
Zcash's Original Ceremony: A Cautionary Tale
The 2016 Zcash Powers of Tau ceremony involved 6 participants using air-gapped machines. While likely secure, it established the model: security = trust in a handful of experts. This creates non-technical, legal, and physical risks (coercion, hardware tampering) that investors cannot audit.
- Legacy: Set the precedent for trust-minimized, not trustless, ZK rollups.
- Investor Blind Spot: Due diligence cannot verify the secret was truly destroyed.
6
Original Participants
2016
Protocol Age
03
The MPC Band-Aid & Its Limits
Modern multi-party computation (MPC) ceremonies (e.g., zkSync, Polygon Hermez) scale to 1000+ participants, improving security. However, they are complex, one-time events vulnerable to sophisticated attacks and require assuming honest majority. The security model shifts from 'trust these 6 people' to 'trust that 51% of these 1000 people are honest'—still a probabilistic trust assumption.
- Overhead: Requires massive coordination and ~$1M+ in operational costs.
- Opaque: Post-ceremony, the system's security is a black box.
1000+
Modern Scale
51%
Honest Assumption
04
The Escape Hatch: Transparent & Recursive Proofs
The endgame is eliminating trusted setups entirely. STARKs (used by StarkNet) are transparent, requiring no initial secret. Recursive proofs (e.g., Nova) can fold incremental computation, making perpetual setup ceremonies obsolete. This is the only path to truly trustless, credibly neutral ZK infrastructure.
- Leader: StarkWare has operational advantage with transparent proofs.
- Future: Systems like Plonky2 and Boojum aim for recursive, upgradeable proving.
0
Setup Participants
Eliminated
Trust Assumption
05
Valuation Impact: Pricing the Trust Discount
Protocols with trusted setups should trade at a persistent discount to their transparent counterparts. This discount represents the unhedgeable tail risk of a setup breach. Investors must model this as a liability on the balance sheet—similar to a contingent claim that could wipe out the network's value.
- Metric: Compare ZK Rollup A (trusted) vs. ZK Rollup B (transparent) TVL multiples.
- Action: Allocate capital to stacks moving toward recursive/transparent proofs.
20-30%
Hypothetical Discount
Tail Risk
Risk Type
06
The Aztec Example: When Trust Fails
Aztec, a privacy-focused ZK rollup, paused its network in 2023 due to a vulnerability in its PLONK trusted setup ceremony (managed by a small set). This is a live case study: a theoretical risk became an operational halt, directly impacting users and asset value. Recovery required a new, audited ceremony—doubling down on the flawed model.
- Consequence: Network downtime and loss of user confidence.
- Proof: Trusted setups are an active, not historical, threat surface.
Paused
Network Status
2023
Incident Year
counter-argument
THE LINGERING LIABILITY
The Rebuttal: "But MPC Ceremonies Are Secure Enough"
MPC ceremonies introduce a persistent, non-eliminable trust assumption that contradicts the core value proposition of zero-knowledge technology.
MPC ceremonies are not trustless. They replace a single trusted party with a distributed committee, but the trust assumption persists. The ceremony's security collapses if a single participant is malicious or compromised, creating a permanent backdoor.
This creates a systemic liability. The ceremony's output—the Structured Reference String (SRS)—is a single point of failure for every proof generated. A compromised SRS invalidates the security of the entire ZK-rollup, like zkSync Era or Polygon zkEVM, retroactively.
The cost is perpetual vigilance. Projects must maintain expensive, ongoing ceremony audits and monitor participants for life. This operational overhead and existential risk are antithetical to the 'trust-minimized' promise of ZK tech.
Evidence: The Tornado Cash governance attack demonstrated how a single compromised key from a multi-sig can seize control. A malicious MPC participant has analogous, catastrophic power over a ZK system's foundational parameters.
investment-thesis
THE LIABILITY
The Capital Allocation Imperative
Trusted setups impose a permanent, non-productive capital burden that directly competes with protocol incentives and staking rewards.
Trusted setups are capital sinks that lock millions in non-productive assets, creating a persistent liability on the balance sheet. This capital generates zero protocol revenue and competes directly with staking rewards for investor attention.
The cost compounds over time as the security budget must be maintained indefinitely. Unlike a one-time audit, this is a recurring operational expense that drains resources from R&D and growth initiatives.
Compare ZK-Rollups to Optimistic Rollups: Optimism and Arbitrum allocate capital to staked ETH in their fraud-proof systems, which earns yield. A ZK system with a trusted MPC often ties capital in a multi-sig, earning nothing.
Evidence: A typical 7/11 multi-sig for a major ZK chain can require a $50M+ security deposit. This capital could otherwise fund a developer grant pool or be staked in EigenLayer for additional yield and security.
takeaways
THE TRUSTED SETUP LIABILITY
TL;DR for Busy Builders
Trusted setups are a single-point-of-failure in ZK systems, creating a permanent, unquantifiable risk that undermines the entire security model.
01
The Ceremony is a Ticking Time Bomb
A trusted setup ceremony generates the initial secret parameters (CRS) for a ZK system. If the secret is ever leaked, all proofs become forgeable. This creates a permanent, unexpiring liability for protocols like zkSync Era and Polygon zkEVM that rely on them.\n- Risk is binary: Either 100% secure or 100% broken.\n- No retroactive fix: Compromise invalidates all past and future transactions.
1
Single Point of Failure
∞
Liability Duration
02
The MPC 'Solution' is a Game of Hot Potato
Multi-Party Computation (MPC) ceremonies, used by Scroll and Taiko, distribute the secret among many participants. This improves security but does not eliminate trust—it just dilutes it. You now must trust that at least one participant was honest and destroyed their key share.\n- Security scales with participant quality, not quantity.\n- Ceremony complexity introduces new implementation and coordination risks.
N-of-M
Trust Assumption
High
Op. Complexity
03
Transparent Setups: The Only Trustless Path
Systems like Starknet (using STARKs) and Halo2 (via the cycle of curves) employ transparent setups. The proving/verification keys are public and require no secret parameters, eliminating the trusted setup risk entirely. This is the gold standard for long-term security.\n- Verifiable from genesis: No hidden assumptions.\n- Future-proof: Security model is sustainable for decades.
0
Trust Assumption
STARKs/Halo2
Leading Tech
04
The Investor's Dilemma: Unpriced Systemic Risk
VCs pour billions into L2s without pricing the tail risk of a compromised trusted setup. This risk is non-diversifiable and correlates across multiple protocols using similar ceremonies. A single leak could collapse $10B+ in TVL across several major chains simultaneously.\n- Due diligence theater: Audits can't verify secret destruction.\n- Asymmetric downside: Unlimited loss for finite protocol upside.
$10B+
Correlated TVL Risk
Unpriced
Tail Risk
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