This post presents the investment thesis for Shutter (ticker: SHU), a project with strong growth potential as it addresses critical issues in the Ethereum ecosystem. Shutter's innovative solutions target censorship and malicious MEV, positioning it for deployment across multiple chains. Moreover, the valuation is extremely attractive, and key stakeholders are aligned for the long term.

For a detailed explanation of how Shutter functions on a technical level, along with a comprehensive analysis of token distribution, check our in-depth overview: https://x.com/AntaresIntel/status/1846189066099839128

Key Problems Shutter Solves

Problem 1: Censorship and Credible Neutrality

Ethereum was designed to ensure fairness, decentralization, and neutrality, giving all users equal access to transaction processing. However, centralization in recent developments has challenged this vision.

With the move to proof-of-stake, MEV-Boost was introduced to separate block builders from validators, aiming to make Maximal Extractable Value extraction more equitable. However, centralized relays like Flashbots, which comply with sanctions, can censor transactions, threatening Ethereum’s censorship resistance and neutrality.

Similarly, Layer 2 solutions improve scalability but rely on centralized sequencers, making them vulnerable to censorship and bias, further undermining Ethereum’s fairness and neutrality. In both cases, centralization weakens Ethereum’s core principles of decentralization and trustlessness.

Ethereum censorship dashboard: https://censorship.pics/

Problem 2: Malicious MEV

Malicious MEV refers to actors exploiting transaction order to maximize profits at the expense of users. Techniques like front-running, back-running, and sandwich attacks are commonly used. Since the Ethereum Merge in 2022, these activities have caused $855 million in user losses, hindering broader DeFi adoption.

While Flashbots address MEV issues through private transaction ordering, they rely on Trusted Execution Environments (TEEs), which introduce complexity and potential vulnerabilities. This method can also allow secret deals and preferential treatment, compromising blockchain fairness and transparency.

Recently, two block builders, Beaverbuild and Titan Builder, have dominated the market (producing 88.7% of all blocks), driven by Exclusive Order Flow (XOF). XOF reduces competition in block building, limiting shared transactions and concentrating power.

The Solution: Shutter

Shutter addresses both malicious MEV and transaction censorship by integrating cryptographic protections directly into the protocol.

• Threshold Encryption: Similar to a safe that requires multiple keys, decryption keys in Shutter are split among Keypers. Only when enough Keypers combine their key pieces can the data be unlocked, preventing any single entity from accessing or altering transaction data.

• Distributed Key Generation: DKG ensures that the keys used in threshold encryption are generated independently by participants, so no one ever sees the full key. Shutter uses long-term Eon keys for security and short-term Epoch keys to encrypt transactions for specific time periods.

How Shutter Protects Transactions:

1. Transaction Encryption: Transactions are encrypted immediately using a public key, keeping details hidden.

2. Key Management and Decryption: Only a threshold of Keypers can decrypt transactions.

3. Batch Processing: Transactions are grouped into batches, with details revealed after finalization, preventing front-running.

Shutterized Gnosis Chain

Shutter’s Gnosis Chain deployment showcases its encrypted mempool on a live mainnet, enhancing privacy and security. Though currently accessible via a specific RPC, the goal is to make encryption the default for all users and mandatory for validators. This system prevents front-running and censorship while maintaining validator neutrality and compliance benefits.

Catalyst

Now that Shutter is live on both the Gnosis mainnet and the OP Stack testnet, much of the technical groundwork has been completed. The team is now focused on expanding to additional chains. Their targets include Optimism, Mode, and potentially Arbitrum. Integration with Espresso is also on the horizon, which would enable support for various rollups using Espresso. Ultimately, their long-term goal is to deploy Shutter on Ethereum L1.

Supply Dynamics and Protocol Economics

Shutter’s token has a low circulating supply with no major supply overhang:

• 4% of the supply is circulating from the Liquidity Bootstrapping Pool (LBP).

• 56% is untouched in the DAO treasury.

• The remaining 40% is allocated to the team, contributors, investors, and airdrops. (genesis allocation)

From the genesis allocation, 23 wallets control 75%, and only 3% of their tokens have been sold (with just 36% vested). Most sales occurred at TGE (10x higher), indicating these holders are long-term aligned with the project.

The effective circulating supply is around 6.8%:

• 4% from LBP,

• 0% from the DAO treasury,

• 0.8% from 23 biggest genesis wallets,

• 2% from the rest of genesis (assuming 50% sale rate).

Token Metrics:

• Price: $0.02

• Market Cap: $3.6M

• Effective Market Cap: $1.4M

• Fully Diluted Valuation (FDV): $20M

https://dexscreener.com/ethereum/0x7a922aea89288d8c91777beecc68df4a17151df1

The token is trading below its two private rounds ($35M and $40M) and well below the LBP price ($222M). With a $5.5M treasury and a $250K monthly burn rate, Shutter has a strong runway to continue building and forming new partnerships.

treasury 1: 0x36bd3044ab68f600f6d3e081056f34f2a58432c4
treasury 2: 0xbf1a121a3ddd82b34f15aae3fa1f53e4d29dbf7b

Revenue model

Shutter’s revenue is challenging to model because there isn’t an active market yet for its product. However, it can be estimated in two ways:

1) As a cut from the MEV prevented: In theory, users might be willing to pay up to the amount of MEV they would otherwise lose. To estimate this, we would need to assume the total MEV (which fluctuates between $100M and $1B+ per year). The table below provides yearly revenue estimates based on different MEV values and Shutter’s cut.

2) Based on additional transaction fees: Another way to estimate revenue is by assuming Shutter charges a percentage of existing transaction fees. By multiplying this by the number of transactions fees on different chains, we can estimate potential revenue. The table below shows projections for various chains using the past 12 months of transaction data and different fee tiers for Shutter.

These estimates provide an idea of the potential opportunity but are based on past data in a rapidly growing industry, and Shutter's fee cut is speculative, so actual figures may vary.

Investment thesis key points:

• Solves censorship and MEV on Ethereum and its ecosystem

• Low circulating supply

• Compelling valuation

• Strong treasury and huge revenue potential