Setting Up Anonymous Governance for Trading Protocols

Anonymous governance is a design pattern for decentralized autonomous organizations (DAOs) that prioritizes participant privacy. In a trading protocol context, this means a user's voting power—often derived from their token holdings or delegated stake—is not publicly linked to their on-chain identity or wallet address. This separation mitigates risks like vote buying, targeted coercion, and social engineering attacks that can skew governance outcomes. Protocols like Aztec Network and Tornado Cash (pre-sanctions) have pioneered privacy-preserving architectures that inspire these systems.

The core technical challenge is enabling verifiable, weighted voting without revealing the voter's identity or the specific weight of their vote until it's aggregated. This is typically achieved through cryptographic primitives like zero-knowledge proofs (ZKPs) and commit-reveal schemes. A voter first commits a hash of their encrypted vote. Later, they reveal the vote and a ZK proof that validates both the vote's legitimacy and their right to vote (e.g., proof of sufficient token balance in a private state), without exposing the underlying data.

Implementing this starts with defining the privacy-preserving asset. For a trading protocol, this is often a shielded version of the governance token. Users can deposit standard ERC-20 tokens into a smart contract that mints an equal amount of a private, zk-SNARK-compatible token (like a zkERC-20). The governance contract must then be modified to accept votes from this shielded system. A basic commit-reveal structure in Solidity might look like:

solidityCopy
function commitVote(bytes32 commitment) public {
    require(!hasCommitted[msg.sender], "Already committed");
    commitments[msg.sender] = commitment;
}

function revealVote(uint proposalId, bool support, bytes32 salt, bytes calldata zkProof) public {
    bytes32 computedCommitment = keccak256(abi.encodePacked(proposalId, support, salt));
    require(computedCommitment == commitments[msg.sender], "Invalid reveal");
    require(verifyZKProof(zkProof, msg.sender, proposalId), "Invalid proof");
    // Tally the verified vote
}

The verifyZKProof function is the critical component. It would verify a proof generated off-chain by the voter's client, confirming that the voter holds a valid, unspent note in the shielded pool for the governance token and that they haven't already voted. Frameworks like Circom and snarkjs are used to construct these circuits. The system's security relies on the soundness of the ZKP and the correct implementation of the nullifier scheme to prevent double-voting. Auditing these circuits is as important as auditing the smart contracts themselves.

Key trade-offs include increased gas costs for proof verification, complexity in user experience, and the legal and regulatory scrutiny associated with privacy-enhancing technologies. Furthermore, complete anonymity can conflict with the need for accountability. Some protocols adopt a hybrid model, using semi-anonymous delegation where reputational delegates vote on behalf of shielded token holders, or delay functions that reveal voter identity only after a dispute period. The choice depends on the protocol's threat model and values.

For teams building this, the path involves: 1) Selecting a ZK framework (e.g., Circom, Halo2), 2) Designing the shielded token and voting circuit, 3) Integrating with an existing governance platform like OpenZeppelin Governor, 4) Conducting rigorous audits, and 5) Planning for key management and user onboarding. The goal is not just privacy, but creating a more robust and sybil-resistant governance layer where decisions reflect the true will of the token-holding community, free from external pressure.

Anonymous governance allows protocol participants to vote on proposals without revealing their identity or voting power until a tally is complete. This setup requires a foundational understanding of zero-knowledge proofs (ZKPs) and secure multi-party computation (sMPC). Before writing any code, ensure you have a development environment with Node.js (v18+), a package manager like npm or yarn, and access to a blockchain testnet such as Sepolia or Holesky. Familiarity with a ZK framework like Circom or Halo2 is essential for constructing the cryptographic circuits that underpin anonymity.

The core setup involves deploying three key smart contracts: a proposal manager, a commit-reveal voting contract, and a ZK verifier contract. The proposal manager handles proposal creation and lifecycle. The voting contract uses a commit-reveal scheme where users first submit a cryptographic hash of their vote and later reveal it. The verifier contract, generated from your ZK circuit, validates that a revealed vote corresponds to the original commitment without exposing the voter's identity or stake. Use Hardhat or Foundry for local development and testing of these contracts.

You must generate the ZK circuit that proves a user possesses a valid voting token and has correctly computed their vote commitment. Using Circom, you would write a circuit (.circom file) that takes a private voter's secret, their token balance, and the vote option as inputs, and outputs a commitment hash. This circuit is then compiled and a trusted setup ceremony is performed to generate the proving and verification keys. The verification key is what gets deployed to your verifier contract. Tools like snarkjs are commonly used to manage this pipeline.

Integrating this system requires a front-end or bot that can generate ZK proofs client-side. Users will need a wallet (like MetaMask) to sign transactions and a library such as snarkjs in the browser or a backend service to generate proofs. The flow is: 1) User commits a vote hash on-chain, 2) After the commit phase, the user generates a ZK proof attesting to their legitimate vote, 3) The user submits the reveal transaction with the proof. The verifier contract checks the proof before accepting the vote. Ensure your application handles proof generation times, which can be several seconds.

Thorough testing is critical. Write unit tests for your contracts' commit and reveal logic. Use Hardhat's local blockchain to simulate multiple anonymous voters. Most importantly, you must conduct adversarial testing on your ZK circuit itself to ensure it cannot be tricked into validating false statements. Consider using formal verification tools for the circuit logic. Finally, plan for upgradeability and key management; if your trusted setup is compromised, the entire system's security fails. Frameworks like Aztec's zk.money or Semaphore offer audited libraries for anonymous voting that can serve as a reference or starting point.

Anonymous governance for a trading protocol requires a foundational architecture that decouples identity from voting power. The system typically employs a commit-reveal scheme using zero-knowledge proofs (ZKPs). Users first commit their vote in an encrypted form, then later reveal it after the voting period ends. This prevents vote buying and coercion, as the final tally is unknown until the reveal phase. Core components include a snapshot mechanism to record token holdings at a specific block, a voting contract to manage the commit-reveal lifecycle, and a relayer network to allow users to submit votes without paying gas fees directly, preserving their on-chain identity.

The privacy layer is built using cryptographic primitives like zk-SNARKs or zk-STARKs. A user generates a ZKP that cryptographically proves they own voting rights (e.g., from a snapshot of token balances) and have cast a valid vote, without revealing their wallet address or the vote's direction. This proof is submitted to the voting smart contract. Frameworks like Semaphore or Aztec provide libraries for constructing such anonymous voting systems. The contract only verifies the proof's validity, ensuring the process is trustless and the voter's identity remains hidden within the anonymity set of all participants.

Integrating this with a trading protocol like a DEX or options platform adds specific considerations. Governance proposals might involve adjusting fee parameters, whitelisting new asset pools, or upgrading core contract logic. The architecture must ensure that only successful, verified anonymous votes can trigger these sensitive actions via a timelock contract. Furthermore, sybil resistance is critical; the system must tie voting power to a genuine economic stake, such as protocol tokens or LP positions, verified in the zero-knowledge proof, not just to anonymous identities that could be cheaply replicated.

A practical implementation involves several smart contracts. A TokenSnapshot contract records balances. An AnonymousVoting contract handles commit-reveal and ZKP verification. A RelayerRegistry compensates relayers for submitting transactions. Finally, a TimelockExecutor enforces a delay on executed proposals. Developers can use Circom or Halo2 to write the circuit logic for the ZKP and Solidity verifiers. Testing requires simulating multiple anonymous voters, which tools like Hardhat or Foundry can facilitate by generating proofs from test wallets.

The main challenges in this architecture are user experience and cost. Generating ZKPs client-side can be computationally heavy. Solutions include using cloud provers or specialized co-processors. Gas costs for proof verification on-chain can also be high, making layer-2 solutions like zkRollups or Optimistic Rollups attractive deployment targets. Despite complexities, this architecture enables a new paradigm for governance where decision-making power is derived purely from stake, free from social bias or retaliation, which is particularly valuable for contentious protocol upgrades.

The foundation of anonymous governance is a zero-knowledge circuit that proves a user's eligibility to vote based on their token balance at a specific block. We use the Circom language to write this circuit. The primary inputs are private signals (the user's secret) and public signals (the on-chain verification criteria). The circuit's job is to prove a user holds at least a minimum threshold of governance tokens (e.g., 100 $GOV) in a specified Merkle tree, which represents a snapshot of all token holders.

The circuit performs several cryptographic checks. First, it verifies a Merkle proof. The private inputs are the user's leaf (a hash of their address and balance) and the Merkle path siblings. The public input is the Merkle root, which is stored on-chain. The circuit hashes the leaf with the siblings to reconstruct the root, proving the leaf's inclusion. Second, it checks that the balance contained within the leaf exceeds the minimum threshold. All computations happen inside the circuit, so the actual balance and address remain hidden.

Here is a simplified Circom template for the core verification logic. This circuit, VotingPowerVerifier, takes the secret leaf data and path, and outputs 1 only if the Merkle proof is valid and the balance is sufficient.

circomCopy
include "circomlib/merkleTree.circom";
include "circomlib/comparators.circom";

template VotingPowerVerifier(levels) {
    signal input root;
    signal input threshold;
    signal private input leaf;
    signal private input path_elements[levels];
    signal private input path_indices[levels];

    signal output verified;

    // Component to compute Merkle root from private inputs
    component merkleProof = MerkleTreeChecker(levels);
    merkleProof.leaf <== leaf;
    for (var i = 0; i < levels; i++) {
        merkleProof.path_elements[i] <== path_elements[i];
        merkleProof.path_indices[i] <== path_indices[i];
    }
    merkleProof.root === root; // Public root must match

    // Component to extract balance from the leaf hash and compare
    component balanceChecker = GreaterEqThan(252); // Assuming 252-bit balance
    balanceChecker.in[0] <== leaf - pedersenHash(address); // Extract balance
    balanceChecker.in[1] <== threshold;

    verified <== merkleProof.out * balanceChecker.out;
}

The verified signal is 1 only if both conditions are met, generating a proof of valid voting power.

After writing the circuit, you must compile it to generate the R1CS constraint system and the proving/verification keys. Use the Circom compiler (circom circuit.circom --r1cs --wasm --sym) and a trusted setup ceremony (e.g., using snarkjs) to create these keys. The verification key, a small JSON file, will be deployed with your on-chain verifier contract. This setup is critical; a compromised trusted setup can break the system's security, so consider using a perpetual powers-of-tau ceremony.

Finally, integrate this circuit with your application. A user's client-side code (using snarkjs or a similar library) will generate a proof by providing the private inputs (their leaf and Merkle path) and the public inputs (the root and threshold). This zk-SNARK proof is submitted to the governance contract. The contract uses the verification key to check the proof in constant time, confirming the user has sufficient voting power without learning anything else about them, enabling private voting.

The governance contract is the central authority for your protocol's decision-making. For a trading protocol, this contract must be designed to handle proposals that can modify critical parameters like protocolFee, whitelistedTokens, or keeperRewards. We recommend using a battle-tested, upgradeable proxy pattern like the Transparent Proxy from OpenZeppelin. This allows you to fix bugs or add features in the future without migrating the entire governance system. Deploy the implementation logic contract first, followed by the proxy that points to it.

Key functions to implement include propose(), vote(), queue(), and execute(). To preserve anonymity, the vote function should accept a cryptographic commitment (like a hash of voterAddress + secretSalt + voteChoice) instead of a directly linked address. Votes are tallied off-chain, and only the final merkle root of the vote results is submitted on-chain for verification. Use a timelock contract (e.g., OpenZeppelin's TimelockController) as the executor. This introduces a mandatory delay between a proposal passing and its execution, giving users time to react to malicious proposals.

When deploying, you must initialize the contract with the correct parameters. This typically includes setting the votingDelay (blocks before voting starts), votingPeriod (blocks voting is active), proposalThreshold (minimum tokens needed to propose), and the address of the timelock. For a trading protocol, a short votingPeriod (e.g., 3 days) balances agility with sufficient deliberation. Set the proposalThreshold high enough to prevent spam but low enough to be accessible to legitimate community members.

Security is paramount. Use require() statements to enforce that only the timelock can execute successful proposals. All state-changing functions should be protected with access controls like onlyGovernance. Thoroughly test the contract on a testnet (like Sepolia or Goerli) using a framework like Foundry or Hardhat. Simulate full governance cycles, including proposal creation, commitment-based voting, result finalization, and timelock execution.

After deployment, verify and publish the source code on a block explorer like Etherscan. This builds trust with your community by providing transparency into the governance mechanics. The final step is to transfer control of the protocol's core admin functions (e.g., owned by a multisig) to the timelock contract address. This completes the setup, making the protocol's future truly governed by the anonymous voting process you've established.

A private voting mechanism for on-chain governance requires a cryptographic system that separates a user's identity from their vote. The core components are a commit-reveal scheme and a zero-knowledge proof (ZKP). First, a voter generates a secret, cryptographic commitment to their vote (e.g., for or against a proposal) and submits this commitment to the smart contract. This commitment, often a hash like keccak256(voteChoice, secretSalt), hides the actual vote. The ZKP, typically a zk-SNARK or zk-STARK, is then used to prove the submitted commitment corresponds to a valid vote without revealing the underlying choice or salt.

To implement this, you need a verifier contract and a trusted setup. Using a library like Circom or SnarkJS, you define a circuit that proves two things: 1) the computed commitment hash is correct, and 2) the hidden vote is a valid option (e.g., 0 for against or 1 for for). After a trusted setup ceremony generates proving and verification keys, you deploy a verifier smart contract. Voters use a client-side tool to generate their proof off-chain and submit the proof along with their public commitment to the verifier contract. The contract checks the proof's validity before recording the commitment.

A critical implementation detail is preventing double-voting and ensuring only eligible token holders participate. The ZKP circuit must also verify that the prover owns a sufficient balance of governance tokens at a specific snapshot block. This is done by including a Merkle proof as a private input to the circuit, proving inclusion of the voter's address and balance in the snapshot Merkle tree. The circuit logic ensures the hidden vote is weighted by this balance. After the voting period ends, voters reveal their votes by submitting the original voteChoice and secretSalt, allowing the contract to verify it matches the commitment and tally the results.

Once the voting period concludes, the system must compute the final tally without revealing individual voter choices. This is achieved through cryptographic aggregation. For a zk-SNARK-based system, the smart contract collects all submitted VoteCommitment proofs. A designated relayer or a decentralized network of nodes then aggregates these proofs off-chain to generate a single, succinct zk-SNARK proof of the final result. This proof cryptographically verifies that the tally was computed correctly from all valid, unspent nullifiers, without exposing the link between any voter and their vote.

The aggregated proof is submitted back to the governance smart contract. The contract verifies the proof using a pre-defined verification key. Key checks include: verifying all vote nullifiers are unique (preventing double-voting), confirming votes came from eligible token holders, and validating that the tally arithmetic is correct. Upon successful verification, the contract state is updated with the proposal's final result—for example, votesFor: 850, votesAgainst: 150. This process ensures the outcome is tamper-proof and publicly verifiable while maintaining voter anonymity.

For developers, implementing the tally contract function involves integrating a verifier, often generated by a circuit compilation tool like snarkjs. A simplified interface might look like this:

solidityCopy
function tallyVotes(
    uint256 proposalId,
    uint256[2] memory a,
    uint256[2][2] memory b,
    uint256[2] memory c,
    uint256[3] memory input
) public {
    bytes32 proposalHash = keccak256(abi.encodePacked(proposalId));
    require(proposalEndTime[proposalHash] < block.timestamp, "Voting ongoing");
    require(!proposalTallied[proposalHash], "Already tallied");
    
    // Public inputs (input[0], input[1], input[2]) could be:
    // - Merkle root of eligible voters
    // - Total votes for
    // - Total votes against
    bool verified = verifierContract.verifyProof(a, b, c, input);
    require(verified, "Invalid tally proof");
    
    proposalTallied[proposalHash] = true;
    emit ProposalResult(proposalId, input[1], input[2]);
}

This function finalizes the process, emitting an event with the results.

After the tally, the protocol must handle the execution of the proposal if it passed. This often involves a timelock mechanism, where the approved actions are queued for execution after a mandatory delay. This delay provides a final safety window for the community to react if any issues are discovered post-reveal. The entire cycle—from anonymous commitment to verified execution—creates a robust governance framework that balances privacy, security, and transparency for trading protocols and other decentralized applications.

The primary goal of this setup is to decouple voting power from on-chain identity. By using a system like Aztec's zk.money for private asset holding and a zk-SNARK-based voting contract, you ensure that a delegate's voting weight and specific votes remain confidential. This protects delegates from targeted attacks or market manipulation based on their governance positions. The final execution of passed proposals can be routed through a relayer or a contract like Tornado Cash Nova to further anonymize the transaction origin.

For production deployment, rigorous testing is non-negotiable. You must audit the entire flow: the privacy of the vote tally, the correctness of the zk-SNARK circuits, and the resilience of the execution relayers. Consider using formal verification tools for critical contracts. Furthermore, establish clear operational security (OpSec) guidelines for your governance delegates, covering secure wallet management and communication channels to prevent social engineering attacks.

Looking ahead, you can extend this system's capabilities. Integrate with zk-rollups like zkSync or StarkNet to batch multiple governance actions into a single private transaction, reducing costs. Explore MACI (Minimal Anti-Collusion Infrastructure) for more complex voting mechanisms that prevent coercion. The field of private governance is rapidly evolving, with new primitives like semaphore and zk-proof of personhood emerging to solve different aspects of anonymous coordination.

To stay current, monitor developments from privacy-focused research teams such as the Ethereum Foundation's Privacy & Scaling Explorations group and 0xPARC. Engage with the community on forums like the EthResearch category for governance. The next step is to iterate on your implementation, gather feedback from a trusted group of initial users, and gradually decentralize control of the system's upgrade keys to the anonymous governance body itself.