Launching a Privacy-Preserving Token Sale for Accredited Investors

Traditional fundraising often forces a trade-off between regulatory compliance and participant privacy. Public blockchains expose wallet addresses and transaction amounts, creating a public ledger of investment activity. For accredited investors participating in a private sale, this transparency can be a significant deterrent. Privacy-preserving fundraising uses cryptographic techniques to enable compliant capital formation while shielding sensitive investor data from the public eye. This approach is critical for adhering to regulations like the SEC's Regulation D 506(c), which mandates verification of accredited investor status but does not require public disclosure of investor identities.

The core mechanism involves separating the proof of compliance from the on-chain transaction. A typical architecture uses a zero-knowledge proof (ZKP) system. First, investors undergo an off-chain KYC/Accreditation verification with a licensed provider. Upon successful verification, the provider issues a verifiable credential or a cryptographic attestation (like a signed message or a zero-knowledge proof) that confirms the investor's eligibility without revealing their identity. This credential is the key that unlocks participation in the on-chain sale contract.

The smart contract for the sale must be designed to accept these proofs. A basic structure involves a mint or purchase function that requires a valid ZKP as an input parameter. For example, using the Aztec Network or zkSNARK circuits, the contract can verify that the caller possesses a valid credential from a trusted issuer, signed with a known public key, before allowing the token purchase. The on-chain transaction then appears as an anonymous interaction, with only the contract's state change (e.g., total tokens sold) being public.

Implementing this requires careful setup. The fundraising team must:

• Integrate with a KYC provider capable of issuing verifiable credentials (e.g., Fractal, Civic).
• Deploy a verifier contract on-chain that contains the public key of the trusted issuer and the logic to validate the ZKP.
• Develop the sale contract that calls the verifier and mints tokens upon successful proof verification.
• Use a privacy-focused L2 or appchain like Aztec, Aleo, or a custom zk-rollup to batch transactions and further obscure links between deposit and minting events.

This model offers distinct advantages. It reduces regulatory risk by ensuring only verified participants can invest. It enhances investor confidence by protecting their financial privacy from competitors and the general public. Furthermore, it future-proofs the fundraising process for evolving global regulations like the EU's MiCA, which emphasizes data protection. However, teams must conduct legal review, as the regulatory treatment of ZKPs for securities compliance is still evolving. The technical stack, while maturing rapidly, requires expertise in cryptography and smart contract security auditing.

Before writing a single line of code, you must establish the legal framework. For a sale targeting accredited investors, compliance with regulations like the SEC's Regulation D (Rule 506c) in the US is non-negotiable. This requires implementing a robust Know Your Customer (KYC) and Accredited Investor Verification process. You will need to partner with a specialized provider like Chainalysis KYT, Veriff, or Jumio to handle identity verification and accreditation checks off-chain, generating a proof of verification that can be used on-chain.

The core technical challenge is building a system that protects investor privacy on the public blockchain while proving regulatory compliance to the issuer. This is achieved using zero-knowledge proofs (ZKPs). You will need to design a circuit that can verify an investor's accredited status—based on the off-chain KYC proof—without revealing their identity or sensitive financial details. Frameworks like Circom or libraries such as SnarkJS are essential for this development phase.

Your development environment must be configured for ZKP and smart contract work. Essential tools include Node.js (v18+), a package manager like npm or yarn, and the Hardhat or Foundry framework for Ethereum development. You will also need to install the Circom compiler and SnarkJS for circuit creation and proof generation. Set up a .gitignore file to exclude sensitive files like circuit intermediate files (*.r1cs, *.ptau) and private keys.

For testing, you need access to zk-SNARK trusted setup parameters (the Powers of Tau). For development, you can use a small ceremony file, but for production, a secure multi-party ceremony is mandatory. You should also configure connections to IPFS (e.g., via Pinata or Infura) for storing verification keys and proofs, and to an oracle service like Chainlink to potentially fetch attested KYC results on-chain in a privacy-preserving manner.

Finally, define your token economics and sale parameters clearly. Determine the token standard (likely ERC-20), total supply, sale price, individual investment caps, and the vesting schedule. These parameters will be hardcoded into your sale contract and ZKP circuit. Having this business logic finalized is a prerequisite for writing the core smart contract that will mint tokens only to addresses presenting a valid, unspent proof of accreditation.

A privacy-preserving token sale for accredited investors combines regulatory compliance with cryptographic privacy. The core challenge is to verify an investor's accreditation status—a sensitive financial document—without exposing their identity or personal data on the public blockchain. Traditional KYC/AML solutions require submitting documents to a centralized verifier, creating a data silo and privacy risk. The modern approach uses zero-knowledge proofs (ZKPs). A user can generate a ZK proof that cryptographically attests they hold a valid accreditation letter from a trusted authority, without revealing the letter's contents or their identity. This proof is then submitted to a verifier smart contract on-chain.

The technical architecture typically involves three main components. First, a trusted issuer, like a legal firm or regulated platform, signs a verifiable credential asserting an individual's accredited status. Second, the investor uses a client-side prover application to generate a ZK-SNARK or ZK-STARK proof from this credential. Third, a verification smart contract on the sale's blockchain (e.g., Ethereum, Polygon) checks the proof's validity against the issuer's public key. Only addresses presenting a valid proof can call the contract's mint or purchase function. This system ensures compliance is enforced by code while investor data remains private.

Implementing this requires careful selection of tools and circuits. For Ethereum, Circom is a common language for writing the arithmetic circuits that define the proof statement, such as 'the signer's public key matches the trusted issuer and the credential has not expired.' The SnarkJS library is used to generate and verify proofs off-chain. On-chain, verifier contracts are often deployed using libraries like snarkjs's generated Solidity verifier or the Semaphore framework for identity proofs. A critical step is the secure setup of the trusted setup ceremony (Phase 1 Powers of Tau) for your specific circuit, which is necessary for SNARK-based systems to prevent proof forgery.

From a compliance perspective, the issuer's role is paramount. The verifier contract only checks the cryptographic signature. It does not and cannot evaluate the legal validity of the underlying credential. Therefore, the sale operator must perform due diligence on the credential issuer off-chain. The smart contract must also include gating logic for the sale itself: tracking contribution caps, enforcing sale periods, and managing a whitelist of verified, anonymous public keys (nullifiers) to prevent proof reuse. This creates a transparent and auditable record of compliant participation with minimal on-chain privacy leakage.

Developers should be aware of the UX and cost considerations. Generating a ZK proof client-side can be computationally intensive, requiring a few seconds to minutes in a web browser, depending on circuit complexity. Gas costs for on-chain verification are also significant, often ranging from 300k to 1M gas per verification, making Layer 2 solutions like zkSync or Polygon zkEVM attractive for cost reduction. Open-source frameworks like zkKYC or Polygon ID provide foundational templates, but customizing circuits for specific accreditation criteria requires advanced cryptographic knowledge. Testing with tools like Hardhat or Foundry is essential to ensure the verifier contract correctly rejects invalid proofs before mainnet deployment.

A privacy-preserving token sale for accredited investors requires a mechanism to verify eligibility without exposing the investor's identity or financial details on-chain. This is achieved using zero-knowledge proofs (ZKPs). The core component is a verifier smart contract that validates a ZK proof, which cryptographically confirms the prover meets the required criteria—such as a minimum income or net worth—without disclosing the underlying data. We'll build this using the Circom circuit language and the SnarkJS library for proof generation, with a Solidity contract for on-chain verification.

The first step is defining the verification logic in a Circom circuit. This circuit takes private inputs (the investor's secret data) and public inputs (a commitment and the sale parameters). For example, a circuit can check that a hashed financial statement matches a public commitment and that the income value within that statement exceeds a threshold. The circuit output is a proof. We compile this circuit to generate verification keys (verification_key.json) and a Solidity verifier contract template using SnarkJS's snarkjs zkey export solidityverifier command.

The generated verifier contract contains a single function, verifyProof, which expects the proof and public inputs as parameters. However, for a sale, we need a wrapper contract that manages sale-specific state and access control. This ZKVerifierSale contract would store the verification key's trusted setup, track which commitments have already been used to prevent double-dipping, and mint tokens upon successful verification. The critical function claimTokens(bytes32 _commitment, uint256[] calldata _publicInputs, uint256[8] calldata _proof) would call the embedded verifier.

Security is paramount. The contract must ensure the verification key is set correctly in the constructor and is immutable. It must also validate that the public input _commitment has not been used previously, linking the proof to a specific, one-time eligibility claim. All state changes, like minting tokens, should occur only after a successful verifyProof call. Using OpenZeppelin libraries for access control and ERC20 tokens is recommended for auditability and security.

To test the system, developers use SnarkJS to generate a proof offline with dummy private inputs that satisfy the circuit. This proof and its public inputs are then passed to a forked mainnet test or a local Hardhat test to call claimTokens. Successful verification should mint tokens to the caller. This end-to-end test validates the integration between the ZKP toolkit and the Solidity contract, ensuring the cryptographic guarantee translates to correct on-chain execution.

This architecture offers a powerful pattern for regulatory compliance in DeFi. By decoupling proof generation (off-chain, private) from verification (on-chain, public), it minimizes on-chain data exposure while providing immutable proof of compliance. Future enhancements could include supporting multiple verification circuits for different jurisdictions or integrating with zkKYC providers like Polygon ID or Sismo for reusable, attested credentials.

A compliant private sale contract must verify investor accreditation without exposing sensitive personal data on-chain. Our contract uses a commit-reveal scheme with zk-SNARKs. An investor first submits a cryptographic hash (a commitment) of their accreditation proof to the contract. Later, they can reveal a zero-knowledge proof that validates their accredited status against the original commitment, without disclosing the underlying documents. This ensures privacy-by-design while creating an immutable, verifiable audit trail for regulators.

The core contract state manages the sale parameters and investor commitments. Key variables include the saleToken (the ERC-20 being sold), usdcToken (the payment currency), price (tokens per USDC), and a hardCap. A mapping, investorCommitments, stores each investor's hashed accreditation data. The contract also tracks the total funds raised and implements a timelock on the commitment phase before the reveal phase begins, preventing front-running and ensuring a fair process.

The primary user interaction is the commitAccreditation(bytes32 _commitment) function. An investor calls this, passing a hash generated off-chain from their accreditation details and a secret salt. This action reserves their spot in the sale. No funds are transferred at this stage. The function enforces that the caller has not already committed and that the sale is in the commitment phase, which is controlled by the contract owner.

To participate, an investor must later call contribute(uint256 _usdcAmount, bytes calldata _zkProof, bytes32 _salt). This function is where verification and payment occur. It requires the zero-knowledge proof _zkProof and the original _salt used to create the commitment. The contract uses a verifier contract (pre-deployed with the zk-SNARK verification key) to validate the proof. Only if the proof is valid does the function transfer the specified _usdcAmount and mint the corresponding sale tokens to the investor.

The contract owner has administrative functions to manage the sale lifecycle: startRevealPhase(), finalizeSale(), and withdrawRaisedFunds(). The reveal phase must be started manually after the commitment period ends, allowing investors to submit their proofs. Once the sale concludes, the owner can withdraw the accumulated USDC. A safety mechanism allows the owner to emergencyHalt() the sale, disabling contributions, which is critical for responding to security vulnerabilities or regulatory changes.

This architecture demonstrates how blockchain can automate compliance with privacy. By separating commitment from contribution and leveraging zk-SNARKs, the contract ensures that sensitive investor data never touches the public ledger, while providing cryptographic proof of compliance. Developers can extend this pattern, integrating with KYC providers like Circle's Verite or using attestation protocols like Ethereum Attestation Service (EAS) to further streamline the verification process.