Bridging Economic Model and Blockchain: ZKP Empowered Privacy Preserving Payment Channel with Intermediary Pricing

Abstract

In blockchain based decentralized finance, cross-chain payment channel is a crucial component for achieving the interoperability among different software-defined blockchain systems. However, there are still some challenges in existing payment channels scenarios. First, payment channels need to be established through intermediaries with service fees, but no one has developed a suitable strategy for pricing the service fees currently. Second, these scenarios disclose sensitive information when intermediaries are engaged with cross-chain requests. Last but not least, the payment channel established currently tend to lack robust mechanisms for protecting the details of transactions during trading phase. To address the above challenges, this paper proposes a zero knowledge empowered payment channel to enhance privacy and transaction details protection with intermediary pricing strategy. Specifically, we develop the pricing strategy based on GARCH model with market dynamics. Moreover, we design a mechanism based on Pedersen commitments for verifiable proofs to preserve privacy in cross-chain requests. Finally, we construct the payment channel with zk-SNARKs to guard transaction details during trading phase. The experiment demonstrates our approach develops optimal pricing strategy and offer enhanced privacy and anonymity assurances.