Privacy coins certainly have their use cases. What they haven’t had until recently is a way to acquire or divest these tokens untraced. It’s like having a speed-limitless autobahn rolling out straight and flat ahead of you, but with a police cruiser at every on- and off-ramp.
“If someone knows of one transaction you made on a centralized exchange, they can find out almost every trade you ever made,” warns the pseudonymous Draeth, captain of the all-volunteer team who developed Pirate Chain.
Draeth’s project, which is informed by earlier work done at Zcash, accounts for about $250 million of the $13 billion privacy coin space. Pirate Chain’s ARRR coins, encrypted using Zero-Knowledge Succinct Non-interactive Arguments of Knowledge, or zk-SNARKs, prove possession of certain information without revealing that information, and without any interaction between the prover and verifier. The project then offers an array of secure, user-friendly wallets in which to store ARRR.
The remaining challenge, then, was to empower the wider world and onboard potential ARRR users with the benefits of Pirate Chain. That’s where wrapped ARRR, or wARRR, comes in.
In September 2021, as wARRR was rolled out, 5% of the supply of ARRR was made available on the Binance Smart Chain (BSC), which was selected for its low fees.
“Ethereum is insane with fees,” according to Draeth. “One trade that could cost between $60 and $200 costs only around 20 cents on PancakeSwap,” a BSC-compatible decentralized exchange.
As a wrapped token, wARRR is pegged 1:1 to the analogous ARRR. A 1% fee on all wARRR transactions goes to incentivize liquidity stakers and to fund Pirate Chain marketing and development.
Just as a pirate ship needs the high seas, a cryptocurrency needs liquidity. So wARRR enables any holder to be rewarded for providing it.
“If you provide liquidity, you’re entitled to a share of half a percent on all transactions,” Draeth says.
It bears a brief mention that the 1% transaction fee also applies to staking and unstaking.
“Liquidity staking carries risk in the form of impermanent loss,” Pirate Chain’s website cautions. “Impermanent loss happens when the price of your wrapped tokens changes compared to when you deposited them in the pool. The larger the change is, the bigger the loss.”
The site further notes, though, that “impermanent loss can still be counteracted by trading fees. In fact, even pools on Uniswap that are quite exposed to impermanent loss can be profitable thanks to the trading fees.”
Still, there’s no substitute for doing your own research before making any financial decision.
From the captain’s chair
It also bears mentioning that, up to now, Pirate Chain has been a passion project for all involved. Despite providing a resource with a quarter billion dollars in market cap, none of the Pirate Chain crew has been drawing a salary. wARRR’s minimal transaction fee will be going to fund their further efforts as well as to reward liquidity providers.
Even so, it’s unlikely to give each ARRR developer a chestful of doubloons and pieces of eight. Draeth’s frigate is crewed by true believers dedicated to the mission of promoting online privacy.
“I’m a huge privacy advocate,” the captain says. “It started when I came across an app on my Android phone that collected data and couldn’t be uninstalled. Then, when I became an early adopter of crypto, I thought, ‘This is something that had to happen for the good of the world.’ It’s mind boggling how privacy is violated without people even knowing.”
As popular cryptocurrencies and exchanges proved to be less “nonpublic” than envisioned, Draeth focused his attention on privacy coins. Now that Pirate Chain is well established, he expresses the need to take it to the next level by offering wARRR in addition to ARRR.
“wARRR extends the ARRR use case by easing entry,” Draeth says. “This makes the whole project more well rounded.”