How to Build a Privacy-Preserving Yield Aggregator

introduction

INTRODUCTION

Launching a Privacy-Preserving Yield Aggregator

This guide details the architecture and implementation of a yield aggregator that protects user transaction privacy on-chain.

A privacy-preserving yield aggregator is a DeFi protocol that automates yield farming strategies while obscuring sensitive user data from public blockchain ledgers. Unlike traditional aggregators like Yearn Finance, which expose deposit amounts, withdrawal timings, and wallet linkages, a privacy-focused version uses cryptographic primitives—such as zero-knowledge proofs (ZKPs) or trusted execution environments (TEEs)—to shield this activity. The core value proposition is enabling users to pursue optimal yields across lending pools (Aave, Compound) and automated market makers (Uniswap V3, Curve) without revealing their capital allocation or strategy footprint to competitors and front-running bots.

The technical architecture typically separates the strategy execution layer from the privacy layer. The execution layer consists of smart contracts that interact with external protocols to deposit, harvest rewards, and rebalance funds. The privacy layer, which is the critical innovation, might be built using a zk-rollup like Aztec Network or a application-specific zk-circuit. For example, a user could deposit funds into a shielded pool via a private smart contract. The aggregator's manager then batches these private deposits to execute public yield strategies, with all profit calculations and fee distributions verified by ZKPs, ensuring correctness without leaking individual user balances.

Implementing this requires careful design of the commitment scheme. When a user deposits, they generate a cryptographic commitment (e.g., a Pedersen commitment) representing their balance, which is posted on-chain. A nullifier prevents double-spending. The strategy manager works with the aggregate committed value. Off-chain, a zk-SNARK circuit proves that a strategy interaction (like claiming COMP tokens on Compound) was performed correctly relative to the input commitments, outputting new commitments for updated balances. Libraries like circom and snarkjs are used to develop these circuits. The on-chain verifier contract is lightweight, checking the proof validity to update the state.

Key challenges include managing gas efficiency for proof verification and maintaining composability with existing DeFi legos. Privacy pools must be funded with gas tokens for public operations, which can be abstracted via meta-transactions or a relayer network. Furthermore, integrating with protocols that have whitelisted functions or time-locks requires the privacy system to maintain compliance without deanonymization. Solutions like zk-rollups batch hundreds of operations into a single proof, amortizing cost. Emerging frameworks like Aleo's Leo or Polygon's zkEVM can simplify development of private smart contracts that interact with Ethereum's yield sources.

For builders, starting with a minimal viable product (MVP) involves selecting a single yield source and a privacy technology stack. A reference flow: 1) Users deposit to a ShieldedVault contract, 2) A keeper bot monitors yields, 3) A zk-circuit generates a proof for a harvest transaction, 4) A verifier contract validates the proof and executes the public harvest. Open-source bases like the Aztec Connect bridge code or Semaphore for anonymous signaling can be adapted. The end goal is a system where a user's yield farming portfolio and APY are knowable only to them, restoring financial privacy as a default in DeFi.

prerequisites

FOUNDATIONS

Prerequisites

Before building a privacy-preserving yield aggregator, you need a solid technical foundation. This guide outlines the core concepts, tools, and infrastructure you must understand.

A privacy-preserving yield aggregator is a complex system that automates DeFi yield farming while obscuring user transaction details. At its core, it combines two advanced Web3 domains: automated yield strategies and privacy-enhancing technologies (PETs). You'll need a strong grasp of Ethereum Virtual Machine (EVM) fundamentals, smart contract security patterns, and the mechanics of major DeFi protocols like Aave, Compound, and Uniswap V3. Understanding how yield is generated from lending, liquidity provision, and staking is non-negotiable.

On the privacy front, you must be familiar with the current technological landscape. This includes zk-SNARKs (e.g., using circuits with Circom or Halo2), trusted execution environments (TEEs) like Intel SGX, and secure multi-party computation (MPC). Each approach has distinct trade-offs in trust assumptions, computational overhead, and on-chain verification costs. For on-chain integration, knowledge of privacy-focused L2s or appchains like Aztec, Aleo, or Secret Network is valuable, as they provide specialized environments for private computation.

Your development stack will be crucial. Proficiency in Solidity for core vault and strategy contracts is essential, alongside a testing framework like Foundry or Hardhat. For off-chain components (the "aggregator" engine), you'll need skills in a language like TypeScript (for bots and APIs) or Rust (for performance-critical computation). You must also understand how to interact with blockchain nodes via providers like Alchemy or Infura, and how to use The Graph or similar for indexing complex cross-protocol data.

core-components

ARCHITECTURE

Core System Components

Building a privacy-preserving yield aggregator requires integrating several specialized components. This guide covers the essential systems for generating, shielding, and settling yield.

Yield Source Integration

The aggregator must connect to multiple DeFi protocols like Aave, Compound, and Uniswap V3 to source yield. This involves writing secure adapter contracts for each protocol to standardize deposit, withdrawal, and reward claiming functions. Key considerations include managing different token standards (ERC-20, ERC-4626) and handling protocol-specific risks like impermanent loss or liquidation thresholds.

EXPLORE

Zero-Knowledge Proof Circuit

Privacy is achieved by using zk-SNARKs or zk-STARKs to prove yield generation without revealing underlying positions. Developers must design a circuit that takes private inputs (user deposit amount, protocol choice) and public inputs (total aggregated TVL, net APY) to generate a valid proof. This typically requires frameworks like Circom or Halo2.

Circuit Logic: Validates deposit authenticity and calculates accrued yield.
Trusted Setup: Requires a secure multi-party ceremony for SNARKs.
Proof Verification: A smart contract verifies the proof on-chain.

EXPLORE

Shielded Pool Manager

This component manages the pool of anonymized assets. It uses a commitment scheme (like a Merkle tree) to track deposits. When a user deposits, they generate a secret nullifier and a public commitment. The contract adds the commitment to the tree. For withdrawal, the user must provide a zk-proof that they know the nullifier for a commitment in the tree, without revealing which one. This design, inspired by Tornado Cash, breaks the on-chain link between deposit and withdrawal.

Strategy Router & Optimizer

An off-chain or on-chain service that calculates the optimal yield strategy across integrated sources. It analyzes real-time data for:

APY rates and fee structures.
Protocol security and smart contract risk.
Gas costs for rebalancing.

The router executes automated harvesting and rebalancing transactions, often via a keeper network like Chainlink Automation. The goal is to maximize net returns after all costs.

EXPLORE

Proof Verification Smart Contract

The on-chain anchor of the system. This contract performs several critical functions:

Verifies ZK proofs submitted by users for deposits and withdrawals.
Manages the shielded pool's Merkle root and validates inclusion proofs.
Holds custodial funds and interacts with yield source adapters.
Distributes fees to the protocol treasury.

It must be gas-optimized, as proof verification can be expensive. Using precompiled verifiers for specific proof systems (e.g., Groth16) is common.

Relayer Network

To preserve privacy, users cannot submit their own transactions, as the gas payment would link their wallet. A permissionless relayer network allows a third party to submit the user's shielded transaction and pay the gas fee, receiving a small reward from the protocol. The relayer must be unable to censor or steal the transaction. This requires careful design of transaction mempools and incentive mechanisms to ensure liveness and decentralization.

architecture-overview

BUILDING A YIELD AGGREGATOR

System Architecture Overview

A privacy-preserving yield aggregator requires a modular architecture that separates fund management from user identity. This overview details the core components and data flow.

The system is built on a foundation of smart contracts deployed on a privacy-focused blockchain like Aztec, Polygon zkEVM, or a custom zk-rollup. The primary goal is to separate the user's on-chain identity from their financial activity. User funds are deposited into a shielded pool or vault, where they are aggregated with other users' capital. This pooled capital is then deployed to various yield-generating protocols (e.g., Aave, Compound, Uniswap V3) via a strategy manager contract.

A critical component is the relayer network. Since transactions within a zk-circuit (like a deposit or withdrawal) cannot pay gas fees directly, a permissionless set of relayers submits these proofs to the main contract and covers the gas cost. They are compensated via small protocol fees. This ensures users can interact with the system without ever revealing an Ethereum address linked to their wallet, maintaining transaction privacy.

The architecture employs Zero-Knowledge Proofs (ZKPs), specifically zk-SNARKs or zk-STARKs, to validate state transitions. When a user withdraws, they generate a proof demonstrating they own a commitment in the shielded pool without revealing which one. The contract verifies this proof and releases funds. All internal accounting—user balances, total assets under management (AUM), and yield accrual—is managed cryptographically within this private state tree.

Strategy execution is handled by a set of keeper bots or a decentralized autonomous organization (DAO). These entities monitor off-chain data (e.g., APY rates across DeFi) and call permissioned functions on the strategy manager to rebalance the aggregated funds. Because the underlying capital is a single, large, anonymized pool, these management actions do not leak individual user information, enhancing strategy privacy.

For users to track their position, the system issues a private receipt token, akin to a zk-ERC20. This token is a cryptographic commitment representing a user's share of the pool and accrued yield. Users can view their balance in a private wallet interface by generating proofs locally. The entire system's security relies on the correctness of the zk-circuit logic and the economic incentives for honest relayer operation.

CORE INFRASTRUCTURE

Privacy Technology Comparison

Comparison of core cryptographic primitives for building a privacy-preserving yield aggregator.

Feature / Metric	ZK-SNARKs	ZK-STARKs	FHE (Fully Homomorphic Encryption)
Cryptographic Assumption	Discrete Log / Pairing	Collision-Resistant Hashes	Learning With Errors (LWE)
Proving Time	~10-30 sec	~1-5 min	~5-15 min
Verification Time	< 1 sec	< 1 sec	~2-10 sec
Proof Size	~200-500 bytes	~45-200 KB	~10-100 KB
Trusted Setup Required
Quantum Resistance
Native Programmable Logic	Circom / Halo2	Cairo	TFHE-rs / Concrete
Gas Cost (EVM Verification)	High (~500k gas)	Very High (~2M+ gas)	Not Viable On-Chain

implementation-steps

IMPLEMENTATION STEPS

Launching a Privacy-Preserving Yield Aggregator

This guide details the technical steps to build a yield aggregator that protects user privacy, focusing on smart contract architecture, zero-knowledge proofs, and integration with privacy-focused DeFi protocols.

The core of a privacy-preserving yield aggregator is a set of smart contracts that manage deposits, strategy execution, and withdrawals while obscuring the link between a user's identity and their on-chain activity. Start by designing a vault contract that accepts deposits of a privacy token like zkSNARK-shielded ETH or a privacy-focused stablecoin. This vault must be non-custodial, meaning users retain control of their funds via cryptographic proofs. The contract logic should separate the deposit and withdrawal processes, using a commitment scheme where a user submits a cryptographic commitment (like a hash) representing their deposit without revealing the amount or their address publicly on-chain.

Integrating with yield-generating strategies requires a privacy-preserving relayer or operator system. Since direct interactions with public DeFi protocols (e.g., Aave, Compound) can leak information, you must route transactions through a trusted execution environment (TEE) or a zk-rollup sequencer. For example, the operator can batch multiple users' yield-farming instructions into a single transaction submitted to a strategy contract on Ethereum L1, using zk-proofs to validate that the batch operations are correct without revealing individual user data. The strategy manager contract must be upgradeable via a transparent proxy pattern (like OpenZeppelin's) to allow for strategy optimizations while maintaining a clear audit trail.

User withdrawals are the most critical privacy component. Implement a zero-knowledge proof system (using libraries like Circom or SnarkJS) that allows users to generate a proof demonstrating they own a commitment for a certain share of the vault without revealing which specific commitment. The withdrawal contract verifies this proof on-chain and releases funds to a fresh address provided by the user. To prevent timing attacks and chain analysis, incorporate withdrawal batching and a tornado.cash-like anonymity set by allowing withdrawals only during fixed epochs after a sufficient number of users have deposited.

Off-chain components are essential for scalability and user experience. Build a proof generation client (in Rust or WASM for performance) that users run locally or access via a secure web interface. This client generates the zk-proofs for deposits and withdrawals. You'll also need an indexer or subgraph (using The Graph) to track private commitments and vault share balances off-chain, presenting this encrypted data to users via a secure API. Ensure all off-chain services do not log IP addresses or other metadata that could compromise privacy.

Finally, audit and test rigorously. Privacy systems have unique failure modes, such as cryptographic bugs or anonymity set collapses. Engage specialized auditing firms like Trail of Bits or Least Authority to review your zk-circuit logic and smart contracts. Use a multi-sig wallet (e.g., Safe) controlled by respected community members for deploying upgrade proxies and managing emergency pauses. Launch initially on a testnet like Goerli with incentivized bug bounties to uncover vulnerabilities before a mainnet release on an L2 like zkSync Era or Polygon zkEVM, which offer lower fees for zk-proof verification.

IMPLEMENTATION

Code Examples

Vault and Strategy Architecture

A privacy-preserving yield aggregator's core consists of a Vault contract that manages user deposits and a Strategy contract that executes yield farming. The vault uses zk-SNARKs to shield deposit amounts and balances.

solidity
// SPDX-License-Identifier: MIT
pragma solidity ^0.8.19;

import "@openzeppelin/contracts/token/ERC20/IERC20.sol";
import "@matter-labs/contracts/ZkSync.sol";

contract PrivacyVault {
    IERC20 public immutable asset;
    uint256 private _totalShares;
    mapping(bytes32 => uint256) private _nullifierHashes; // Prevents double-spending
    
    struct DepositCommitment {
        bytes32 commitment;
        uint256 timestamp;
    }
    DepositCommitment[] public deposits;
    
    function deposit(
        uint256 _amount,
        bytes32 _commitment,
        bytes calldata _proof
    ) external {
        require(verifyProof(_commitment, _amount, _proof), "Invalid proof");
        asset.transferFrom(msg.sender, address(this), _amount);
        deposits.push(DepositCommitment(_commitment, block.timestamp));
        _totalShares += _amount;
    }
}

The strategy contract interacts with protocols like Aave or Compound via their interfaces, while the vault's state is updated with zero-knowledge proofs to maintain privacy.

private-compounding-logic

ARCHITECTURE GUIDE

Implementing Private Compounding

This guide details the core technical architecture for building a privacy-preserving yield aggregator, focusing on the mechanics of private compounding.

A privacy-preserving yield aggregator allows users to earn yield on their assets without exposing their wallet balances, transaction history, or profit details on-chain. The core challenge is designing a system where the compounding logic—the periodic harvesting and reinvestment of rewards—can be executed trustlessly while maintaining user privacy. This requires a combination of zero-knowledge proofs (ZKPs) to validate state transitions and a carefully designed smart contract architecture that separates public settlement from private computation. Unlike transparent aggregators like Yearn, every action must be provably correct without revealing the underlying user data.

The system architecture typically involves three main components: a User Client (for generating private transactions and ZK proofs), a Prover Network (off-chain servers that compute reward accrual and generate proofs), and a Verifier Contract (on-chain logic that validates proofs and updates commitments). When a user deposits, they submit a cryptographic commitment (e.g., a Pedersen commitment) of their balance to the contract. The prover network, aware of the current yield opportunities across DeFi protocols like Aave or Compound, periodically calculates the accrued interest for all private deposits and generates a zk-SNARK proof attesting that the new, larger commitment is the valid result of applying the correct yield rate to the old one.

The smart contract's primary function is compoundAndVerify. This function does not process individual user balances. Instead, it accepts a batch proof from the prover network that demonstrates: 1) All old commitments are correctly included in a Merkle tree, 2) A valid yield rate was fetched from a trusted oracle, and 3) Each new commitment is the cryptographically sound output of applying that rate. Upon verification, the contract updates the root of the Merkle tree holding all user balance commitments. This design ensures the contract state is always correct and the aggregate funds are solvent, without leaking information about any single user's position.

Key technical considerations include selecting the right proving system for efficiency (e.g., Groth16, PLONK), designing a robust oracle mechanism for fetching yield rates, and managing gas costs for proof verification. The prover logic must account for variable APYs and the specific reward token mechanics of each integrated protocol. A critical security aspect is ensuring the system's privacy isn't broken by correlation attacks, which can be mitigated by using stealth addresses for interactions and implementing uniform transaction patterns for all users, regardless of their action size or frequency.

For developers, implementing this starts with a circuit written in a ZK-DSL like Circom or Noir. A simplified circuit logic checks: newCommitment = oldCommitment * (1 + yieldRate) over a finite field. The front-end client uses libraries like snarkjs to generate witness data, while a backend prover service handles the heavy computation. The final step is integrating with a relayer network that submits the verified transactions on behalf of users, paying gas fees to further obscure the origin. This architecture moves the computational burden off-chain while maintaining a cryptographically secure and verifiable ledger of all aggregated yields on-chain.

resource-links

GUIDES

Resources and Tools

Tools and protocols developers use to design, implement, and audit privacy-preserving yield aggregators. Each resource focuses on a specific layer: private execution, confidential state, MEV resistance, or zero-knowledge proof generation.

Zero-Knowledge Circuits with Circom

Circom is the most widely used DSL for building zk-SNARK circuits used in private DeFi logic such as hidden balances, shielded deposits, and private reward accounting.

Common yield-aggregator use cases:

Proving deposit validity without revealing amounts
Enforcing strategy allocation rules privately
Computing yield distribution off-chain with on-chain verification

Practical considerations:

Pair with snarkjs for proof generation and Solidity verifier exports
Use Poseidon or MiMC hashes to reduce circuit constraints
Expect circuit sizes of 50k to 300k constraints for nontrivial yield logic

Circom is best suited when you want full control over privacy logic and are comfortable managing trusted setups and prover infrastructure.

EXPLORE

Aztec for Private DeFi Execution

Aztec provides a production-ready privacy-first Layer 2 where smart contracts execute with private state by default using zk-proofs.

Why Aztec fits yield aggregation:

Private balances and transfers at the protocol level
Native support for private DeFi primitives
Eliminates the need to design custom zk circuits for every strategy

Implementation notes:

Write contracts in Noir, Aztec’s Rust-inspired language
Yield strategies typically live as private functions with public settlement hooks
Users interact via private accounts, reducing wallet-level metadata leakage

Aztec is suitable if you want end-to-end private yield aggregation without maintaining your own zk proving stack.

EXPLORE

Confidential EVM with Oasis Sapphire

Oasis Sapphire is an EVM-compatible runtime that enables confidential smart contracts using trusted execution environments (TEEs).

How it supports private yield aggregation:

Strategy parameters and user balances remain encrypted at runtime
Solidity contracts run with minimal code changes
Supports private oracle reads and private transaction inputs

Developer considerations:

Privacy relies on TEE security assumptions, not zero-knowledge proofs
Suitable for fast iteration and complex logic that would be expensive in zk
Often combined with zk proofs for hybrid privacy models

Sapphire is a practical option when you need private execution with EVM tooling and lower development overhead than zk-first designs.

EXPLORE

MEV-Resistant Execution with Flashbots SUAVE

Flashbots SUAVE is a confidential execution environment designed to reduce MEV leakage and transaction-level information exposure.

Relevant yield-aggregator use cases:

Private routing of rebalance transactions
Hiding strategy execution timing from searchers
Coordinating private batch executions across chains

Technical details:

Combines confidential compute with sealed transaction submission
Integrates with existing Ethereum tooling and builders
Often used alongside private mempools or encrypted RPC flows

SUAVE is valuable when strategy alpha depends on execution privacy, not just hidden balances.

EXPLORE

Railgun Privacy System for DeFi Integration

Railgun is a zk-SNARK-based privacy system that enables shielded DeFi interactions while remaining compatible with existing protocols.

Why developers use Railgun:

Users interact with public DeFi protocols via private balances
Supports private swaps, lending, and yield farming
Mature wallet and relayer ecosystem

Integration patterns:

Yield aggregator logic remains public, user positions stay private
Combine with relayers to prevent transaction origin leakage
Useful for frontends targeting privacy-focused users without new L1s

Railgun is best when you want to add user-level privacy to an existing yield aggregator without migrating to a new execution environment.

EXPLORE

DEVELOPER FAQ

Frequently Asked Questions

Common technical questions and troubleshooting for developers building privacy-preserving yield aggregators using protocols like Aztec, Penumbra, and Fhenix.

A privacy-preserving yield aggregator is a DeFi protocol that automatically allocates user funds to the highest-yielding strategies while keeping all transaction details confidential. Unlike standard aggregators like Yearn Finance, which operate on transparent blockchains, privacy aggregators use zero-knowledge proofs (ZKPs) or fully homomorphic encryption (FHE) to shield deposit amounts, yield sources, and profit calculations.

Key technical differences include:

On-chain privacy: User balances and transactions are encrypted or represented by cryptographic commitments, visible only to the user.
Strategy obfuscation: The specific DeFi pools or lending protocols where funds are deployed are hidden from public view.
Proof-based verification: Users receive cryptographic proofs (e.g., a ZK-SNARK) that their funds were managed correctly, without revealing the underlying data.

This architecture, used by networks like Aztec and Penumbra, prevents front-running and protects user financial data from being exploited by competitors.

conclusion

LAUNCH CHECKLIST

Conclusion and Next Steps

You have now built the core components of a privacy-preserving yield aggregator. This section outlines the final steps to launch and how to evolve your protocol.

Before a mainnet launch, a rigorous security audit is non-negotiable. Engage a reputable firm like Trail of Bits, OpenZeppelin, or CertiK to review your smart contracts, especially the novel TornadoCash-inspired vaults and the aggregator logic. A successful audit report is a critical trust signal for users. Concurrently, develop and test a comprehensive monitoring dashboard that tracks total value locked (TVL), anonymized user deposits, aggregate yield performance, and vault health metrics. This transparency is key for user confidence.

Your go-to-market strategy should target privacy-conscious DeFi users. Consider launching first on a Layer 2 like Arbitrum or zkSync Era to benefit from lower fees and a tech-savvy user base. Develop clear documentation explaining the privacy model: emphasize that you aggregate yield, not identities. Initial liquidity can be bootstrapped by deploying your own privacy pools with major assets like WETH, USDC, and wstETH. Partner with established yield sources like Aave, Compound, and Curve to ensure competitive returns from day one.

The architecture you've built is a foundation for expansion. Future development paths include: integrating zk-SNARKs for on-chain proof of yield generation without revealing the underlying strategy, creating a governance token for decentralized protocol upgrades and fee sharing, and developing cross-chain vaults using messaging layers like LayerZero or Axelar. Continuously monitor emerging privacy-preserving technologies, such as Nocturne or Aztec, to integrate new primitives that enhance user anonymity while maintaining composability with the broader DeFi ecosystem.