Abstract

Today we unveil a groundbreaking roadmap to establish ourselves as the first privacy-centric Ethereum Layer 2. Robust privacy protection is missing from Ethereum today, preventing countless valuable use cases from being developed. While transparency is a critical feature of blockchain, the inability to protect the information that should be private is harmful to users and to the potential growth of Web3 as an industry. Just as HTTP evolved to HTTPS, so must blockchains.

COTI V2 will unlock this opportunity for the Ethereum ecosystem.

Leveraging a cutting-edge technology, COTI V2 will ensure lightning fast, scalable privacy on L2 while utilizing the security and liquidity of Ethereum.

At the heart of COTI’s advanced privacy protection is a cryptographic technology known as Garbled Circuits that will allow users to process transactions without exposing their sensitive information like the value they transmit, vote, or other sensitive data. COTI’s research breakthrough will make COTI’s infrastructure ten times faster and lighter than existing ZK solutions. It opens up countless use cases including the fields of finance, healthcare, social media, and beyond.

COTI has a comprehensive plan for 2024, featuring major releases each quarter, both on technical and business aspects. Scheduled for a Q2 2024 Devnet release, COTI V2’s roadmap includes subsequent testnet and mainnet launches, marking a transformative era for blockchain business adoption. Armed with a client base and products, a strategic approach, an experienced team, and a commitment to filling critical privacy gaps, COTI V2 is poised to reshape the Web3 landscape.

Intro

Each generation of blockchain solves a limitation from the last, while at the same time posing an entirely new paradigm to the builders of the next. When Bitcoin launched in 2009, it demonstrated how an economy could be built with no central authority, solving decentralization. Shortly after, Ethereum brought in the second generation of blockchain with smart contracts, solving programmability. The third generation set its sights on scaling, and with L2’s emerging as the dominant solution, the industry is now focused on the next challenge: privacy.

While many have made progress, confidentiality and transactional privacy remain largely unsolved on public blockchains.

As Vitalik Buterin stated: “One of the largest remaining challenges in the Ethereum ecosystem is privacy. By default, anything that goes onto a public blockchain is public.”

COTI has long understood the privacy issue regarding surrounding payments. Consumers and merchants generally don’t want their payment history to be publicly available. But privacy goes far beyond just payments. An increasing number of Web3 use cases revolve around managing sensitive data, everything from financial information to private medical records and beyond. With the growing power and influence of AI and machine learning, this information needs to be protected in the same way it is in Web2. Simply put, just as HTTP evolved to HTTPS, so must blockchains.

Current privacy solutions usually run outside of the Ethereum ecosystem, limiting their potential adoption. These solutions are also very limited; in particular, they do not address use cases where the operation involves private information of multiple users, as is further detailed below.

But what if we could offer a scalable solution, that can settle on Ethereum and has an innovative solution for privacy and confidentiality? A place where performance meets privacy.

COTI V2 will do just that. We’re taking everything that works in COTI’s current ecosystem and bootstrapping it to the most advanced, privacy-centric Web3 infrastructure to date.

The Early Days

COTI’s Evolution

When launching back in 2017, COTI set out with a very clear mission: to develop a cost-effective and robust crypto infrastructure that solved many of the payment problems that traditional financial systems still face today. Everything from the cost and speed of transactions to the inclusion of a truly global user base.

The major blockchains at the time were also experiencing similar limitations such as congestion and high fees, along with complexity and lack of accessibility.

In the years since, COTI has managed to build one of the most unique and feature-rich payment networks in the industry. This included a completely novel type of DAG-based base protocol and infrastructure that is scalable, fast, inclusive, low cost, and optimized for finance.

COTI became known as the “Enterprise L1”, with technology solutions such as COTI Pay Business, ADA Pay, Djed and the Private Payment Network due to launch soon.

In addition, COTI was able to deliver multiple products and features to support and improve the entire ecosystem. This included, among others, the VIPER Wallet in 2020 and the COTI Treasury in 2022. These achievements were underscored by the opening of tens of thousands of VIPER wallets and the deposit of over 500M $COTI into the Treasury, marking significant milestones in our journey.

With high network liquidity, global media coverage, and regular invitations to participate in industry events, our dedication and efforts have gained recognition and acclaim.

Alongside all of this, COTI has fostered a vibrant and loyal global community of over 300K people across multiple platforms.

But a lot has changed since then.

The Evolution of an Industry

In the early years, most of the major blockchains were dealing with issues surrounding congestion and scalability. Many of them could claim they were secure and sufficiently decentralized, but they would often fall short when it came to the third prong of the blockchain trilemma — scalability.

Today is a completely different story. With the introduction of technologies like L2 and Side Chains, many of these concerns are now a thing of the past.

With this fairly recent upgrade, it’s become clear that Ethereum will continue to dominate the Web3 space for the foreseeable future. Not only does it enjoy more liquidity than any other blockchain in the industry, but Solidity has emerged as the default programming language for Web3 developers making EVM compatibility a must.

Despite this dominance, Ethereum has the same fundamental problem shared by all public blockchains. Every transaction, every asset and every wallet address is laid bare for the world to see. While originally touted as an advantage, the inherently transparent nature of a blockchain has unfortunately become an obstacle to its own growth. As more and more businesses across Web3 begin to collect and manage sensitive information, solutions for privacy aren’t just convenient, they’re crucial for survival in the future.

In fact, when speaking to our many partners and enterprise clients about their challenges and needs moving forward, they signal privacy as one of the main problems that will require solving over the coming years. Enterprises are obligated to confidentiality in how they handle transactions.

Why Privacy for Layer 2 is the Next Frontier in Web3

For all the freedoms cryptocurrencies enable, the transparent nature of a blockchain means that all of your financial activity is laid bare for anyone to view at any time. As soon as you know the entity behind a wallet address, their history, spending habits, DAO votes and anyone they have ever interacted with acts as a permanent and public record.

But it’s not just Vitalik that sees privacy as an essential next step for blockchain. In a company-wide blog issued in August 2023, Coinbase’s CEO, Brian Armstrong shared 10 ideas that he is most excited about for crypto’s future. A “Privacy for Layer 2” was one of them.

Conversations with partners and industry leaders shared similar sentiments. Businesses and enterprises say that they need privacy, both by law and by their customer preferences.

Privacy adds a protective layer to every transaction between two users or businesses. It involves many aspects that go beyond just concealing information. It encompasses protection, preserving sovereignty, and the ability to decide which data, or with whom I’m willing to disclose my information.

People take this type of privacy for granted in Web2, so why not in Web3? Privacy is a fundamental human right protected by international law and it should apply to all layers of the internet.

Without privacy in Web3, certain nefarious behaviors will escalate. For instance, MEV bots use the transparent nature of blockchain to frontrun transactions and profit off retail users. Then there are hackers and malicious actors that target users based on their on-chain activity. Finally, when the details of large transactions can be monitored in real time, it can lead to active market manipulation, to the detriment of everyday investors.

Institutions have attempted to solve this dilemma, but their approach has typically been met with regulatory opposition. Projects like TornadoCash focused on crypto user anonymity first and foremost, neglecting regulation and any kind of AML compliance. While this approach was popular among users for various reasons, the service was eventually shut down for non-compliance. And while there are legitimate use cases for mixer services, TornadoCash has become a cautionary tale for developers to work in compliance with regulatory bodies, not in spite of them.

In other words, a different approach is needed.

COTI — Evolving Into the Future

Part of COTI’s resilience comes down to being able to adapt to an ever-changing landscape with many moving parts. Technologies improve, laws change and markets evolve — and those who don’t adapt will get left behind.

In order to realize its full potential, COTI must evolve.

To inform where COTI is headed, stock must be taken of what COTI already has versus what it will need in the future. At the same time, this must align with what the market is demanding.

Right now, COTI has clients and tier one business partnerships, an active and global community, an advanced Treasury with substantial TVL, extensive exchange listings and substantial liquidity. Moving forward, COTI will require EVM compatibility, 3rd-party development and access to Ethereum’s liquidity. This will create a rich, developer-friendly ecosystem that is connected to a growing liquidity pool worth hundreds of billions of dollars. But more importantly, COTI needs to solve the privacy challenge in a truly revolutionary way.

Today, COTI is proud to introduce COTI V2: Privacy Network as a Layer 2 over Ethereum.

To meet the crypto needs of 2024 and beyond, COTI will evolve into the ultimate Web3 infrastructure to handle sensitive data over Ethereum. It’s everything that is great about COTI’s business structure (global listings, community, products) combined with the scalability of an L2 like Arbitrum, the security and liquidity of Ethereum, and unique privacy features to handle sensitive data.

COTI holders will have access to an EVM-compatible ecosystem that is also connected to Ethereum’s wider liquidity pool. This opens up a world of new products and services from DeFi to gaming to hardware wallets and much more. Built as an L2, users will enjoy drastically reduced gas fees while benefiting from the security of the Ethereum base layer.

For developers, the permissionless environment and Solidity make COTI V2 both accessible and familiar for building. In thriving developer communities, dApps multiply, leading to increased network usage, greater fee generation and higher token demand. But even more than that, COTI holders will have a front-row seat to the launch of our industry-first privacy, identity and compliance tools that are coming with COTI V2.

To summarize all the upgrades that come with COTI V2, see the following table:

What can be built with COTI V2? What are the potential use cases?

As part of the COTI Foundation’s charter, a dedicated business development team will work with strategic partners to build tools and applications, ready for use on day one. With confidential transactions, COTI V2 will unlock not only confidential payments and exploit-free DeFi, but also a host of other applications, including:

DEXs

• Keep your transaction history private.
• Encrypted transaction data helps to minimize slippage/loss from MEV attacks.

Artificial Intelligence

• dApps that enable businesses to process and analyze encrypted data to glean insights without exposing the underlying data to the dApp service providers.

Real-World Asset Management

• dApps that allow the tokenization and trade of real-world assets, like real estate, while keeping the identities of buyers and sellers confidential.
• Privacy-preserving dApps for supply chains that allow businesses to verify the authenticity and journey of products without revealing sensitive business relationships or logistics to competitors.

Gaming, GameFi and GambleFi

• On-chain gaming can leverage the privacy features of COTI V2.

Decentralized Social Networks and Messaging Apps

• Censorship-resistant social media platforms.
• Surveillance-proof instant messaging.
• Protection of freedom of speech.

Bridging

• With COTI V2, users can store the private key for various chains, dramatically reducing the overall complexity of bridging.

Marketplaces

• Silent auctions where bid amounts must be kept hidden.
• Privacy measures for NFT ownership and transfer, allowing collectors to hold and trade digital assets without exposing their investment strategies or personal tastes.
• GDPR compliance.

Governance

• Confidential on-chain voting.
• Decentralized and anonymous voting applications where the privacy of voter choices is paramount to prevent coercion and to maintain the integrity of the electoral process.
• Ensuring the privacy of DAO members and their voting patterns to protect against undue influence and to maintain the focus on the merit of proposals.

Identity dApps

• Identifying yourself without the need to provide sensitive data.
• Import digital identities from trusted organizations.
• dApps that manage subscriptions without revealing customer identity or subscription details, protecting against targeted advertising and third-party tracking.
• dApps could allow users to prove creditworthiness without disclosing personal financial details, potentially opening up access to loans without compromising privacy.

Healthcare & Legal

• Secure and private storage of healthcare records, where patients have control over who can access their data and can grant permissions without exposing all of their personal health information.
• Smart contracts that execute the terms of legal agreements without making the details public, thus maintaining the confidentiality of the parties involved.

Regulated DeFi / Institutional DeFi

• Can enforce policies.
• Can enforce GDPR compliance.

Central Bank Digital Currencies

• Retail CBDC’s that comply with anti-money laundering (AML) provisions, anti-terror financing regulations and pathways to counter tax evasion.
• Privacy-enhancing digital currency free from social credit implications.

How $COTI Effectively Benefits From the Launch of COTI V2

COTI V2 isn’t about starting from scratch. In fact, the launch of COTI V2 will enable some amazing potential benefits to the existing COTI ecosystem.

Easier Development for Third-Party Developers: By providing a more secure and private framework for transactions and smart contract interactions (EVM), COTI V2 significantly lowers the barrier for third-party developers. This ease of development is likely to attract a broader spectrum of developers to the COTI ecosystem.
> More development, wider ecosystem, increased usage

New Use Cases and dApps Development: COTI V2 paves the way for a plethora of new applications, particularly those requiring high levels of privacy, trust and secure data computation. This technology allows for the creation of sophisticated dApps that can operate on encrypted data, opening doors to innovative use cases in finance, healthcare, and other sectors where data confidentiality is paramount. For example, it could enable secure data marketplaces, privacy-focused financial services, or confidential supply chain tracking systems, each of which represents potential new income sources.
> Bigger ecosystem, more usage, increased demand.

Reduced Costs for Users: The low transaction costs on an L2 are, among other reasons, a byproduct of the lower computational complexity of the garbling protocol as a privacy engine. This will likely translate into lower transaction fees for users, making the COTI network more cost-effective and accessible.
> Lower fees, more frequent usage, increased demand.

Increased Brand Awareness: By being one of the first to deploy garbling protocol technology in an Ethereum-based L2 solution, COTI V2 positions itself at the forefront of blockchain privacy solutions. This will enhance brand visibility and recognition within the wider blockchain community. In an era where data breaches and privacy concerns are rampant, COTI V2’s could be a key factor in winning over users who prioritize these aspects.

Enhanced Network Impact: As an EVM network, coupled with the compelling appeal of COTI V2’s distinctive features and capabilities, there is an anticipation of attracting a growing community of users and developers transitioning from the Ethereum ecosystem. This heightened engagement, characterized by increased transaction volumes and a diverse range of decentralized applications (dApps), fosters a more dynamic ecosystem. Subsequently, this vitality serves as a magnet for additional users and developers, setting in motion a self-sustaining cycle of growth and innovation. Notably, this impact is accentuated by the expanded access to the abundant liquidity within the Ethereum ecosystem.

Attracting Institutional and Enterprise Clients: The advanced privacy and security features of COTI V2 could be particularly appealing to institutional and enterprise clients who require robust data protection and confidentiality in their transactions. This could open up lucrative opportunities for COTI in sectors like banking, healthcare, and government services.

Compliance and Regulatory Advantages: By meeting higher standards of data protection, COTI could position itself favorably in jurisdictions with strict regulatory requirements, potentially attracting a wider user base that values compliance.

Potential for New Revenue Streams: Capitalizing on its advanced features, COTI V2 has the capacity to drive an upsurge in transaction volumes, leading to increased revenue through transaction fees. Additionally, it lays the foundation for the exploration of fresh business models and revenue streams, stemming from heightened utility and the introduction of new capabilities like smart contract deployments.

The COTI Foundation

As recently announced, the COTI Foundation was established to set the stage for COTI’s network growth as a global and permissionless network.

The foundation is an autonomous, non-profit organization strategically positioned to play a pivotal role in propelling the growth, adoption, and worldwide expansion of COTI’s innovative protocol.

The establishment of the COTI Foundation signifies a crucial step in COTI’s ongoing commitment to achieving a truly decentralized and permissionless network. As part of this transformation, COTI will become a fully permissionless, self-custodial, L2 technology solution, and therefore, verification of end users (KYC) will not be needed for participation in the COTI V2 protocol.

Technology

Privacy solutions have been around for a while, but were always limited due to constraints in achieving full confidentiality and computational overhead. COTI V2 introduces a novel approach that ensures performance without sacrificing privacy.

To enable a performant solution with strong privacy guarantees, COTI V2 will utilize a novel combination of well-established privacy-preserving technologies (PETs), with the main ingredient being a Garbling Protocol.

What are Garbling Protocols?

In the field of secure multi-party computation (MPC), a garbling protocol enables two or more parties to jointly compute a function while keeping both their inputs and intermediate variables private. Introduced initially in the 1980s, garbling protocols have become a cornerstone for privacy-preserving technologies.

The Mechanism of Garbling Protocols

The primary idea behind a garbling protocol is relatively straightforward, yet incredibly powerful. Imagine two parties, Alice and Bob, who wish to compute a function without revealing their inputs to each other. To do this, they use a Garbled Circuit, which works as follows:

• Function Representation: First, the function they wish to compute (which may be initially given as a mathematical formula or as a code written in high level programming language) is translated to a Boolean circuit. A Boolean circuit is a computational model that supports only a basic set of operations (also known as logical gates, like AND, OR, NOT) that can handle binary inputs (Booleans).
• Circuit Garbling: Alice, who takes the role of the ‘garbler,’ then encrypts or ‘garbles’ this circuit. However, instead of a traditional encryption, which works on data, garbling is an encryption that works on functions. The gates in the circuit and the inputs are encrypted in such a way that the output (of the circuit evaluation on the inputs) can only be understood if one has the correct ‘evaluation keys’.
• Circuit Evaluation: Following an interaction between Alice and Bob (known in the literature by oblivious transfer, or OT), in which Bob obtains these evaluation keys, Bob can evaluate the garbled circuit. As mentioned above, such evaluation will not leak to Bob the inputs or the intermediate variables; only the output of the function will be revealed.

Advantages of Garbling Protocols

The primary advantage of garbling protocols is their ability to preserve the privacy of individual inputs while still allowing for joint computation. This makes them particularly useful in scenarios where confidential data needs to be computed upon but cannot be shared in plain, such as in privacy-preserving auctions, joint data analysis between organizations, or secure voting systems.

In the context of COTI V2, garbling protocols offer a revolutionary approach to handling transactional privacy. They can enable transactions and smart contract executions where the details (such as the amount of funds transferred, or the specific conditions of the contract) remain private between the involved parties. This level of privacy is particularly important in decentralized finance applications where transaction confidentiality can be as critical as transaction integrity.

Novelty and comparison to other solutions

While other privacy solutions in Web3 are currently being developed, many of them rely on scaling technologies such as Zero-knowledge (ZK) cryptography to achieve transactional confidentiality.

Despite their effectiveness, ZK solutions aren’t without their limitations, especially when it comes to confidential transactions involving multiple parties. In this scenario, confidential data has to be stored and processed off-chain, either by the initiating user or a third party. This leads to an increase in centralization, as well as a dependency on what could potentially be an insecure storage solution. This is the case for privacy solutions like Secret, Obscuro, and Oasis, technologies that rely fully on secure enclaves such as Intel and SGX. Worse still, these enclaves haven’t been as secure as advertised, attracting numerous data breaches over the past few years.

Additionally, ZK proofs incur a significant cost for on-chain verification and offer a suboptimal user experience. At present levels, SNARK-proof verification costs around 200k gas on the EVM and may take up to a few seconds to compute on the client device.

COTI V2’s use of garbling protocols takes a completely novel approach. Unlike ZK solutions which support a single data source (or owner), and are expensive on the client side, garbling protocols enable computation on private data coming from many sources (or owners). Furthermore, they’re able to maintain private storage in addition to Ethereum’s standard public global state.

Garbling protocols already allow for a very efficient client, however, with breakthroughs made by COTI V2, the technology is up to ten times lighter and performs ten times faster than ZK based solutions without negatively impacting the user experience. This means that the technology has the ability to run on almost any device, expanding the range of potential use cases in the future. Adopting a privacy solution that supports operation on private data from multiple sources also helps in mitigating Maximal Extractable Value (MEV) losses, as a portion of crucial data remains encrypted at all times.

When it comes to the security of the network, COTI V2 is predicated on the fact that a threshold of the network nodes operate faithfully. While COTI plans to use secure enclaves for an additional layer of protection, they are not a necessity for the integrity of the system. Additionally, this design allows users to withdraw directly from L1 without needing L2’s permission, further emphasizing the secure nature of COTI V2.

COTI V2’s cryptographic protocols are both secure and efficient, allowing parties to jointly evaluate functions over their private data without leaking information. What sets COTI V2 apart is its unique integration of a garbling protocol within a larger MPC solution to facilitate confidential transactions and smart contract interactions on a layer 2 platform. This synergy not only enhances privacy by ensuring inputs remain encrypted throughout the computation process, but also significantly reduces the risk of data exposure or manipulation by malicious actors.

Economy

The $COTI Token

The introduction of COTI V2 as an EVM-compatible L2 represents a groundbreaking leap forward in privacy-preserving technologies. With an approach not seen on any other network to date, this solution solves long-standing limitations in transactional confidentiality and smart contract operations. This innovative approach harnesses the power of Garbled Circuits, ensuring users can conduct transactions and interact with dApps while keeping their data confidential.

In order to fully realize the potential of the network, a native token is essential. This token serves as the lifeblood of the ecosystem, facilitating transactions, securing the network, incentivizing nodes, and providing the means to access and utilize the advanced privacy features of COTI V2. In essence, the token is the cornerstone of this transformative solution, bridging the gap between cutting-edge privacy technology and the practical functionality that users and developers require within the Ethereum ecosystem.

The current $COTI token holds a central and indispensable role within the ecosystem since the inception of the COTI mainnet in 2019. Serving as a foundational DAG-based cryptocurrency, it plays a vital part in covering transaction fees and managing various ecosystem functions like staking, rewards, and incentivization. COTI recognizes a great value proposition both for $COTI holders and to the COTI V2 future community in retaining the token’s central position in the new economy, enabling it to grow in importance and relevance as the network’s capabilities expand.

As such, it needs to undergo a comprehensive technological upgrade, prompting the need for an improved token infrastructure that will gradually replace the current native one. Instead of introducing an entirely new token with a new and unrelated economy, COTI has opted for a migration plan that secures and augments the token’s usage within the COTI ecosystem, ensuring it remains firmly in the hands of $COTI holders.

In early 2024, we intend to launch a dedicated campaign in which $COTI holders, both native and ERC20, will be allowed to swap their tokens in advance, receiving an additional reward of the new COTI V2 tokens upon launch of the COTI V2 mainnet. Once launched, the one-way migration from COTI V1 tokens to COTI V2 tokens will be done at a 1:1 ratio. Until the swapping phase is completed for users, merchants and apps — COTI will preserve both V1 and V2 mainnets.

gCOTI will continue its role as the governance token, broadening its impact to the entire COTI ecosystem, by also governing some areas of the network itself. Consequently, it will need to undergo a similar technical upgrade as part of the migration process to align with the new network’s requirements, all while delivering added benefits to long-term holders.

Specific details on the upgrade and migration plan will be released throughout 2024.

New Economy

COTI V2 introduces a fundamentally different economic framework compared to its predecessor, the existing COTI network. This evolution is driven by the network’s unique features and its compatibility with Ethereum Virtual Machine (EVM), allowing developers, DAOs, and dApps to seamlessly integrate and utilize the network.

COTI V2 embraces an open, public, permissionless network model. Such openness, coupled with proper incentives, paves the way for a diverse array of developers and entities to harness its capabilities, fostering innovation and growth. With EVM compatibility, developers aren’t required to learn new or obscure coding languages, easing the transition to building dApps within the COTI mainnet.

To create a thriving ecosystem, capable of supporting increased traffic and advanced functionality while preserving the value of the existing ecosystem, a flexible incentivization structure becomes imperative. The COTI tokenomics established in 2019 were tailored to the Layer 1 Payments network use case, emphasizing a hard-capped fixed supply and semi-annual token releases for liquidity and fee distribution, aligning with COTI pay and enterprise layer 1 business applications. Setting up the new network as an open and permissionless Layer 2 presents a distinct array of hurdles and necessitates an adjustment of the current tokenomics. This adaptation is essential for significantly enlarging the ecosystem, fostering enduring token growth to stimulate network adoption and expansion, while fortifying network security.

In the past year, COTI has conducted a comprehensive study of leading Layer 1 and Layer 2 networks, gleaning insights into how they structured their economies for scalability. This research, coupled with the distinctive features of COTI V2, is the basis for the redefined network’s economic model. COTI has embraced the challenges associated with transitioning from a well-established five-year-old Layer 1 ecosystem to a reinvigorated Privacy over Layer 2 network and have taken deliberate measures to ensure a smooth and efficient transformation while safeguarding the value and utility of the COTI token.

The blockchain industry has witnessed a dynamic shift in use cases over the recent years, with projects continuously innovating to address contemporary challenges and opportunities. As new business models emerge, token economics must adapt accordingly, reflecting the evolving landscape of the blockchain space. Notably, projects like Chainlink, IOTA, Cosmos, Polygon and others, have recently adjusted their emission plans or tokenomics significantly in response to these shifts. COTI V2 is poised to embrace this evolution, creating an ecosystem that seamlessly combines flexibility, growth, and value preservation. This positions COTI V2 to meet the evolving needs and expectations of the industry.

Token Emissions and Allocations

To foster the expansion of tokens within the ecosystem, and as of 2025, COTI V2 will incrementally increase the total supply of $COTI tokens from 2 Billion. Starting in 2025 with the release of the new mainnet, COTI V2 will maintain a declining maximum inflation rate, adapting to the evolving demand and utilization levels in the network. The gradual expansion of the supply aligns with the protocol’s evolving requirements.

In the new network, transaction fees paid in $COTI will be aggregated into a dedicated Treasury. This Treasury, overseen by the community and governed by gCOTI holders, will exercise governance over the allocation of these fees. The community’s decisions will determine whether to allocate these fees as additional rewards to participants within the network or to enact a deflationary measure by burning them.

Details regarding this mechanism will be outlined in the COTI V2 whitepaper, however preliminary simulations indicate that the expected inflation rates, contingent on specific assumptions, will range from approximately 12% throughout the first year, to 5% in year 5, to less than 2% in year 10 onwards. In case transaction fees will be burned, these rates will be significantly lower and even negative from year 8 onwards.

Even though the redefined model does not entail a predetermined maximum supply, similarly to ETH, DOT, SOL and many other leading coins, the data, also presented in the chart below, clearly demonstrates that under certain assumptions, the growth in the total supply can be curtailed, rendering the protocol deflationary. In such scenarios, the supply of tokens would actually decrease, showcasing the protocol’s adaptability and sustainable dynamics.

As per the redefined model, the estimated annual token issuance rate, even in the initial years, will remain notably lower than that of most comparable Web3 ecosystems. This holds particularly true when making comparisons to a multitude of Layer blockchains and Layer 2 networks. This contrast becomes even more pronounced when juxtaposed with recently launched networks: according to our research, for established projects with a track record of three or more years, the average annual inflation rate hovers around 7%. However, in the case of newer networks, those with a history of fewer than three years, inflation rates can surge to as high as 20–30% or even higher. Notably, when scrutinizing leading projects that have substantially revised their tokenomics within the current year, such as Chainlink, Cosmos, or IOTA, their average annual inflation after the change has surged to more than 15%. This underscores the meticulous design and management of the COTI V2 token economy, which maintains a relatively lower inflation rate even in its early stages compared to many counterparts in the evolving Web3 landscape.

Demand generates more long-term value than scarce supply. COTI tokens are not NFTs whose value depends solely on scarcity rather are utility gas tokens whose value depends on demand. By opening up to unique use cases around privacy, and by offering solidity and EVM compatibility, new projects will launch on COTI V2 and demand will increase. When done well, demand will increase more than the supply inflation, which gradually decreases with time. We have a clear business model, and we plan to launch the network with a few strategic partners already developing on top of it.

COTI V2 token economy, as envisioned by the COTI Foundation, involves a structured allocation framework. With each issuance of the newly minted tokens, predetermined portions will be allocated to fulfill three core objectives:

1. Rewards, Incentives and Airdrops — 58%: The biggest share of the newly created tokens will be dedicated to reward holders, stakers and potentially validators as well as other network participants, encouraging active participation and securing the network. The initial recipients of this allocation will be the existing holders which will hold 100% of the supply when the network will be launched, so their “dilution” is minimal (less than 5% after the first year), while even after 10 years when total supply can grow by 50%, the existing holders will still retain 85% of the supply!
2. Development — 18%: Another portion will be earmarked for development efforts, ensuring the continuous improvement, innovation, and scalability of the COTI V2 ecosystem.
3. Ecosystem — 24%: A designated segment will be allocated to the foundation, allowing it to support various initiatives, including grants for developers and dApps, incentive programs, strategic investments and liquidity provisions. This allocation plays a vital role in fostering the growth and vibrancy of the COTI V2 ecosystem, similar to other L1 and L2 networks.

Following is a chart of the estimated evolvement of $COTI’s total supply from 2025 onwards, based on the assumptions above:

Ecosystem Fund

To further the development of their ecosystems, many of the larger Web3 projects set aside a portion of their funds for future investment. Ethereum has Consensus, Solana is driven by Solana Labs and Project Catalyst on Cardano actively funds developer startups.

Likewise, COTI V2 will be supported by the newly created COTI Foundation and its Ecosystem Fund.

Engineered to drive growth, the Ecosystem Fund’s primary objective is to incentivize developers, groups, and projects to create groundbreaking and impactful solutions on COTI V2. It will do this through a combination of research, experimentation, and the development of new and innovative use cases.

The Foundation intends to utilize the Ecosystem Fund to expand COTI’s ecosystem, strengthen community ties, and enhance outreach efforts. This may involve reinforcing treasury rewards, improving liquidity across exchanges, securing additional token listings, or initiating targeted strategic campaigns.

Through the Ecosystem Fund, COTI Foundation has the potential to accelerate the development, deployment, and utilization of privacy-centric Web3 applications. In fact, several developers have already been engaged to ensure that COTI launches with unique projects running on day one.

A total of two 200M $COTI token tranches from the existing supply will be earmarked for the Ecosystem Fund over the next 12 months. These tokens will be granted with locking conditions and will be conservatively reflected in the circulated supply once allocated. Upon the launch of the COTI V2 mainnet, the newly minted tokens designated for the ecosystem allocation will be directed to the Ecosystem Fund. The governance and management of the fund is entrusted to the COTI Foundation, underscoring our dedication to cultivating a vibrant and sustainable ecosystem.

Startups or developers interested in applying for funding through the COTI Ecosystem Fund will be able to submit their applications early next year. COTI looks forward to supporting innovative Web3 startups and expanding the COTI ecosystem.

Timeline

The development roadmap will be segmented into different phases.

Education and Design (Q1 2024)

• MPC Protocol & End-to-end private data protection on-chain
• Introduction of the Ecosystem fund and first fund deployment.
• Co announcement of the full launch of PPN with the enterprise client.
• Treasury upgrades in preparation for COTI V2.
• Innovative System Architecture and Privacy Solution: Comprehensive design and environment setup.

Genesis: Foundational Development: Devnet Release (Q2 2024)

• Release of COTI V2 Whitepaper.
• Introducing COTI V2 Grant Program.
• Design partners onboarding.
• Innovative System Architecture: Comprehensive design and environment setup.
• Advanced Garbling Protocol:
• Development of a robust 2-party garbling protocol.
• Creation of a specialized compiler supporting a subset of the EVM instruction set for efficient circuit integration.

Fusion: Testnet Release (Q3 2024)

• EVM Integration: An innovative EVM extension compatible with an MPC Simulator, including new opcodes and variable types in Solidity for secret data operations.
• Client Module.
• Testnet Rollout: A comprehensive testnet environment that:
• Seamlessly connects the EVM extension.
• Implements stateful parties ready for transaction processing.
• Features a JIT compiler for dynamic garbled circuit assembly.
• Provides at least one Solidity smart contract for real-world testing.
• Commencing migration of clients and products from COTI V1 to COTI V2 including COTI and other CMD tokens, PPN clients, and more.

Rebirth: Mainnet Release (Q4 2024)

• Enhanced Security Framework:
• Implementation of advanced measures to detect and prevent malicious garblers.
• Efficient L2 Off-Ramp:
• Regular MPC updates of Ethereum balances.
• Simplified user fund withdrawal directly from Ethereum, enhancing user experience and trust.
• MainNet Execution:
• Design partners launching.
• Integration and testing of all preceding developments.
• Flexibility to increase the number of MPC parties.
• Continuous refinement of the client module.
• Finalize the migration process of clients and tokens.

Evolution: Enhanced Mainnet Release (Q1 2025)

• Enhanced Network Scalability.
• Enhanced Decentralization.

Summary

As markets and industries evolve, so too must COTI to meet the crypto needs of 2024 and beyond. In order to drive adoption, COTI needs to be accessible to developers, have a fast and secure network, and solve the one, fundamental challenge that exists on every public blockchain.

Privacy.

For this reason, COTI will be evolving into COTI V2.

COTI V2 will be an EVM-compatible L2 with privacy features not seen on any other network to date. We’ll have access to Ethereum’s liquidity and the scale of L2s while providing a developer-friendly ecosystem that is easy to build upon.

COTI V2 isn’t about starting from scratch or even launching a new token. All the value, experience and technology built along the way will be brought along for the upgrade. COTI has built a dedicated team, amassed a loyal and vibrant community and gained invaluable industry experience that enables a head start for the next generation of Web3 platforms.

Stay COTI!