The round started in January but hit bumps along the way due to a decline in the crypto funding landscape.
However, the privacy-focused startup announced on 25 October that its seed round has successfully closed, having raised funds from participators including Polychain Capital and Ethereum co-founder Vitalik Buterin.
While specifics about the company’s valuation after the round were not disclosed, the raised capital is expected to fuel the development and roll-out of Nocturne’s innovative privacy protocol on the Ethereum blockchain.
Nocturne Labs seed fundraise
Nocturne is a new protocol that is aiming to give users the option to make anonymous transactions in the Ethereum blockchain and wider ecosystem. The demand for this has been recognised by Nocturne as all transaction via Ethereum are currently completely transparent.
The $6m seed round raised by Nocturne is going towards accelerating the production and deployment of the privacy protocol. It will also be used to fund the team’s legal work amid the difficult crypto regulatory environment in the US, where the platform is based.
The crypto startup’s financial boost was co-led by Bain Capital Crypto and Polychain Capital, with participation from significant industry figures including Buterin, Hack VC, Bankless Ventures, and others.
Alex Evans, Partner at Bain Capital Crypto, said: “It’s hard to imagine satiating consumer or institutional demand for permissionless, composable applications without privacy. But it’s also hard to imagine most users adopting new platforms purely for privacy’s sake.”
But he added: “Nocturne seeks to close this gap by bringing privacy to existing applications and assets while striving for feature parity as a minimum requirement. We believe that approach is valuable.”
How does Nocturne Labs work?
Nocturne Labs describes itself as “a forward-thinking blockchain technology company committed to addressing the most critical privacy and user experience challenges within the Ethereum ecosystem”.
The technology under development by Nocturne incorporates elements of stealth addresses, zero-knowledge proofs, and account abstraction, all geared towards creating private accounts on Ethereum.
These accounts are designed to operate like regular Ethereum accounts but with an added layer of privacy, shielding user balances and transaction details from public view.
Regulatory hurdles for privacy projects
However, privacy-oriented projects in the cryptocurrency space often attract intense scrutiny from regulatory bodies, raising concerns about compliance and legality. Crypto mixers, known for offering transaction privacy, have faced sanctions, underscoring the tight regulatory environment surrounding crypto-based privacy tools.
In response to these regulatory challenges, Luke Tchang, CEO and co-founder of Nocturne, highlighted the protocol’s proactive approach to compliance.
The company plans to implement a two-step, permissioned deposit process designed to prevent illicit deposits. This strategy involves utilizing advanced technologies and data analytics providers, including tools like TRM, to identify and filter out illegal activities.
By integrating these mechanisms, Nocturne aims to lay the groundwork for gradually transitioning to a permissionless system in the future while ensuring that the protocol adheres to regulatory requirements. This balanced approach, known as “proof of innocence,” is intended to navigate the delicate line between user privacy and regulatory compliance.