Kinexys by J.P. Morgan (formerly known as Onyx by J.P. Morgan) released a whitepaper examining the state of institutional on-chain privacy and identity, including Avalanche-based AvaCloud Privacy Solutions (APS) – Project EPIC: Fueling tokenized finance with on-chain enterprise privacy, identity and composability.

The report, authored by Kinexys Digital Assets (formerly known as Onyx Digital Assets) and Kinexys Labs (formerly known as Onyx Blockchain Launch), evaluated working Proof-of-Concepts (PoCs) to assess the suitability of today’s blockchain-based privacy landscape for the institutional space. The highlighted use cases focused on the asset management industry for institutional investors, fund managers, and transfer agents. AvaCloud’s tooling demonstrated a range of tangible benefits and capabilities, reinforcing Avalanche’s position as a key player in institutional blockchain adoption.

The whitepaper draws upon critical takeaways from Kinexys by J.P. Morgan’s PoC under Project Guardian last year, which demonstrated how blockchain technology, smart contracts, and tokenization could help fund managers feasibly include alternative investments in discretionary client portfolios and ultimately revolutionize the asset and wealth management industry. One of the outcomes of the PoC highlighted that privacy solutions and robust digital identity frameworks would be essential for institutional adoption and scalability of the tokenized funds space.

AvaCloud Privacy Solutions

Through its acquisition of EtraPay, AvaCloud has brought to market a suite of advanced privacy technologies designed for institutions to harness the full potential of blockchain technology while safeguarding sensitive data.

“Our privacy protocols represent a breakthrough in blockchain technology,” said AvaCloud CEO Nicholas Mussallem. “This move combines the strengths of public and private blockchains, unlocking unprecedented possibilities for secure, private data exchange across various industries. APS allows for confidential transactions and portfolio balances on Avalanche’s Layer 1 blockchains while preserving full auditability and composability.”

By utilizing a combination of zero-knowledge (ZK) proofs through a solution called ‘Avacy’ and Distributed Homomorphic Encryption (DHE), APS enables confidential transactions and computations without compromising performance or functionality. The solutions also leverage Distributed Identity (DID) and the Avalanche network’s native interoperability capabilities to create a versatile and secure blockchain framework.

APS Applications in Financial Services 

Within the Kinexys by J.P. Morgan report, AvaCloud’s PoC aligned with various business outcomes, including:

1. How fund managers and allocators could protect their investment edge when issuing funds on public chains
2. How fund managers could avoid ‘runs’ when the funds trade on transparent marketplaces
3. How privacy features and portable identity could improve investor participation in an inefficient marketplace like illiquid secondaries
4. How transfer agents can differentiate their offerings by enabling speed and scale for fund managers and investors

Aimed at financial institutions, asset managers, transfer agents, institutional investors, and technology professionals, the PoC demonstrated three specific use cases:

Investor Onboarding – AvaCloud’s solutions were first applied to the investor onboarding process. Using ZK proofs and cryptographic commitments, Avacy protected sensitive data–e.g., participant credentials, transaction, and balance details–ensuring confidentiality and compliance. DIDs further enhanced KYC/AML capabilities while preserving visibility for stakeholders–e.g., investors, banks, and transfer agents–on a need-to-know basis.

Capital Deployment into Funds – Next, APS was applied to the capital commitment and deployment processes. Here, Avacy and DIDs were also leveraged to verify investor credentials and eligibility, as well as to facilitate fund subscriptions without revealing investor identity and committed notionals. Concealed transactions enabled non-custodial asset purchases, while atomic settlements ensured simultaneous fund token and cash transfer.

Secondary Market Trading – Finally, APS enabled private secondary market trading during an on-chain auction process among several institutional participants. Avacy and encrypted credentials once again protected investor portfolios and market liquidity. Meanwhile, DHE–a confidential execution solution that uses Multiparty Computation (MPC) and (threshold) Fully Homomorphic Encryption (FHE)–was applied to auction logic and final settlement. All computations within the Auction smart contract were performed homomorphically, negating the need to decrypt underlying data thanks to DHE’s efficiency. Settlement of the winning bid and fee payments occurred confidentially and atomically within the same block. Transfer agents, fund managers, banks, and auditors gained access strictly to the information essential to their roles, preserving privacy across the process.

 “Tokenization and blockchain are poised to bring the next wave of financial transformation,” said Head of Product, Kinexys Digital Assets, Keerthi Moudgal. “Through our own journey, we’ve recognized that scalable, on-chain privacy and digital identity solutions, which are easy to build atop and re-use, are necessary for bringing this vision to life.”

Through these use cases, AvaCloud’s solutions demonstrated a range of capabilities in driving forward blockchain-based asset management and capital markets, including continuous market activity, composability, high performance, and enhanced security.

Source: Avalanche