Private DeFi

Decentralized finance has demonstrated enormous potential with over $147 billion in total value locked, yet current DeFi protocols are constrained to overcollateralized lending, public asset trading, and other use cases that function with only public data. The vast majority of traditional financial services cannot be replicated in DeFi because they require verification of private financial information. Swarm Network removes this constraint, enabling a new generation of private DeFi applications that combine blockchain transparency with real-world financial privacy.

Undercollateralized Lending

Traditional lending institutions assess borrower creditworthiness using private financial information including income, employment history, existing debts, and payment records. This assessment enables loans with collateral requirements far below 100%, making credit accessible to borrowers who lack substantial assets. Current DeFi lending protocols cannot replicate this model because they cannot verify private financial information, forcing them to require overcollateralization that limits accessibility and capital efficiency.

Swarm Network enables DeFi lending protocols to verify borrower creditworthiness using zero-knowledge proofs of private financial data. A borrower can prove that their income exceeds a threshold, their debt-to-income ratio falls within acceptable ranges, and their payment history demonstrates reliability—all without exposing exact salary, specific debts, or detailed financial records. The lending protocol receives cryptographic proofs that borrower qualifications are met, enabling it to offer undercollateralized loans with confidence.

This capability fundamentally changes DeFi lending economics. Protocols can offer competitive interest rates to creditworthy borrowers, expand their addressable market to include borrowers without substantial crypto assets, and improve capital efficiency by reducing collateral requirements. Borrowers benefit from access to credit without needing to lock up excessive collateral, while maintaining privacy over their financial details. The result is a DeFi lending market that combines the transparency and efficiency of blockchain with the accessibility and sophistication of traditional finance.

Credit-Based Derivatives

Sophisticated financial derivatives often depend on credit events, corporate financial performance, or other private information. Traditional derivatives markets can access this information through centralized data providers and trusted intermediaries, but DeFi derivatives have been limited to public data like token prices and publicly traded asset performance. This limitation prevents DeFi from addressing many real-world hedging and speculation needs.

Swarm Network enables DeFi derivatives that reference verified private data. A protocol might offer credit default swaps that settle based on verified corporate financial distress without exposing confidential business information. Income-linked derivatives could allow individuals to hedge their employment income risk without revealing their specific salary or employer. Derivatives could settle on verified real-world events like policy changes, product launches, or market shifts that are not immediately reflected in public price data.

These derivatives create new opportunities for risk management and speculation. Businesses can hedge risks that were previously unhedgeable in decentralized systems. Traders can speculate on outcomes derived from private information that they have special insight into, creating more efficient information markets. The derivatives themselves remain transparent and trustless, with settlement occurring automatically based on cryptographically verified conditions, but the underlying data remains private.

Privacy-Preserving Staking

Many DeFi protocols implement staking mechanisms where users lock tokens to participate in network operations, governance, or yield generation. Current staking systems treat all participants identically regardless of their real-world attributes, missing opportunities to optimize incentives based on participant characteristics. For example, a protocol might want to offer enhanced rewards to participants who demonstrate long-term commitment, professional expertise, or other desirable attributes—but verifying these attributes typically requires exposing private information.

Swarm Network enables staking protocols to verify participant attributes without compromising privacy. A protocol could offer preferential staking terms to participants who prove they are accredited investors, industry professionals, or long-term community members—all through zero-knowledge proofs that don’t reveal unnecessary personal details. Participants benefit from enhanced rewards while maintaining privacy, and protocols can optimize their participant base.

This capability also enables compliance-aware staking where protocols verify that participants meet regulatory requirements without collecting or storing personal information. A protocol operating under securities regulations could verify that stakers are qualified investors without maintaining a database of personal information that creates privacy risks and regulatory burdens.