Starknet Launches Shadow Accounts to Enhance Privacy in DeFi

Ethereum Layer 2 network Starknet has introduced a new privacy feature called Shadow Accounts. It allows users to trade, lend, and manage positions in decentralized finance (DeFi) without publicly linking their activity to main crypto wallets.

Shadow Accounts enable the use of separate identities for applications without revealing the connection to users' main wallet addresses. The transactions and balances themselves remain publicly visible—only their linkage to main wallets is hidden. Users can fund Shadow Accounts through protected STRK20 balances and manage multiple positions simultaneously. Integration is possible via the Starknet Wallet API interface.

The feature was announced on October 13 and is built on the STRK20 privacy system. Users can maintain active positions under different identities while keeping main wallet addresses private. Each account is created based on user data, the chosen application, and a unique nonce identifier. However, account operations remain publicly accessible, and observers can audit their records. Thus, Shadow Accounts do not make every financial operation invisible: once an observer identifies a specific Shadow Account, its actions are still available for analysis. The function's goal is to separate DeFi activity from main wallets so that transactions cannot be consolidated into one public history.

The system works alongside STRK20, which uses zero-knowledge proofs to verify operations while maintaining data privacy. When interacting with an application, users can choose a private mode before making a deposit. Funds are then moved from a protected balance to a designated Shadow Account, allowing position management through a persistent address when accessing the application. Developers can configure fund return operations from the Shadow Account, specifying exact amounts for withdrawal.

StarkWare has made Shadow Accounts accessible to DeFi developers through the Starknet Wallet API, allowing existing applications to integrate this feature. There is no data on the number of applications that connected Shadow Accounts at launch; the company also did not disclose targets for the number of users or transaction volume.