Aztec ($AZTEC) Explained: Private Smart Contracts on Ethereum

Blockchains are transparent by design. Every transaction, every wallet balance, every smart contract interaction sits on a public ledger for anyone to inspect. That openness is a feature for trust and verification, but it creates a serious problem when you try to build real financial infrastructure on top of it. Imagine if your bank account balance, every payment you made, and every person you transacted with were all visible to the entire internet. That is essentially how Ethereum works today.

Aztec is a Layer 2 zkRollup built on Ethereum that tries to fix this. It is not just a privacy coin or a mixer. It is a fully programmable smart contract platform where privacy is baked into the architecture from the ground up. Developers can write contracts that handle encrypted, private state alongside traditional public state, all within the same application. The goal is to recreate the full smart contract experience of Ethereum but with the ability to keep sensitive information hidden.

Zac Williamson, the Co-founder and CEO of Aztec Labs, has been pretty direct about why this matters. His argument is that the lack of privacy on blockchains is the single biggest barrier preventing them from becoming global financial infrastructure. In Web2, your identity and data are private by default. In Web3, everything is transparent by default. Aztec wants to close that gap so that decentralized applications can handle things like payroll, medical records, private lending, and identity verification without exposing user data to the world.

The Origin Story: From Private Debt Markets to Zero-Knowledge Proofs 

Aztec did not start out as a blockchain privacy project. Back in 2017, the founders were trying to build traditional financial products for the private debt market. They quickly ran into a wall. The financial instruments they wanted to create required confidentiality, and the existing blockchain infrastructure simply could not provide it. So they pivoted. Instead of building the financial products themselves, they started building the privacy technology those products would need.

That pivot turned out to be one of the more consequential decisions in the zero-knowledge proof space. During the development process, the Aztec team invented PLONK, a zero-knowledge proof system that has since become one of the most widely adopted proving systems across the entire blockchain industry. Projects far beyond Aztec now rely on PLONK or its derivatives for their own ZK implementations. The team also created Noir, a high-level programming language specifically designed for writing zero-knowledge circuits and smart contracts.

Eight years of development have gone into what Aztec is today. That is a long runway, even by crypto standards, and it reflects the sheer difficulty of building a system where private computation and public composability coexist in the same environment.

How AZTEC Actually Works: The PXE and AVM Split 

The core architectural innovation in Aztec is the separation of execution into two distinct environments. This is not just a theoretical distinction. It fundamentally changes where computation happens and what information is exposed to the network.

The Private Execution Environment (PXE), pronounced "pixie," is a client-side library that runs directly on the user's device. When a user interacts with a private function in an Aztec smart contract, all of the computation happens locally. The PXE manages the user's keys, processes private state updates, and generates zero-knowledge proofs. The critical point here is that sensitive data never leaves the user's machine. The network only ever sees the proof that something valid happened, not the underlying data itself.

The Aztec Virtual Machine (AVM) is the network-side execution environment. It is conceptually similar to the Ethereum Virtual Machine and handles public functions. When a smart contract has components that need to be visible on the public ledger, the AVM processes those operations remotely, just like a normal blockchain would.

What makes this architecture unique is the directional flow between these two environments. A transaction always starts in the private context on the user's device. Private functions can then "enqueue" public functions to be executed later by the AVM. But the reverse is not allowed. Public functions cannot call private functions. This one-way flow is what preserves privacy while still allowing private applications to interact with public DeFi protocols.

This directional model is also what separates Aztec from simple privacy coins like Monero or Zcash. Those projects offer private transfers, but they do not support programmable smart contracts with composable private and public logic. Aztec does, and the PXE-to-AVM flow is the mechanism that makes it possible.

Private State, Public State, and the UTXO Model

Aztec manages state differently depending on whether it is private or public. Understanding this split is important because it affects how developers build on the platform and how users interact with their own data.

Private State uses a UTXO (Unspent Transaction Output) model. If you have used Bitcoin, the concept is similar. Private data is stored as encrypted "notes" in an append-only Merkle tree. When a user wants to "spend" or update a note, they do not delete it. Instead, they add a nullifier to a separate nullifier tree. This nullifier proves that the note has been consumed without revealing which specific note it was. Outside observers can see that something was nullified, but they cannot link that action back to any particular piece of data.

Public State operates like a traditional account-based ledger, similar to how Ethereum works. Balances and contract storage are openly readable and updatable by the network.

This hybrid approach gives developers flexibility. A DeFi application on Aztec could keep user balances and trade details private through the UTXO model while still exposing aggregate liquidity pool data publicly through the account-based model. The two systems coexist within the same contract.

Native Account Abstraction and the Multi-Key System

One of the more forward-thinking design choices in Aztec is that every account is a smart contract. There are no Externally Owned Accounts (EOAs) like on Ethereum. This native account abstraction means that the logic governing how a user authenticates and authorizes transactions is entirely customizable.

Some practical examples of what this enables:

• Biometric Authentication like FaceID or fingerprint scanning to approve transactions
• Web2 Credential login through Google OAuth or similar identity providers
• Custom spending logic such as daily transfer limits, multi-signature requirements, or time-locked withdrawal

Beyond account abstraction, Aztec uses a multi-key architecture that is significantly more complex than the single key pair model on most blockchains. Each account has several specialized keys that serve different purposes:

• Nullifier Keys are used for spending or consuming private state (notes)
• Incoming Viewing Keys allow users to decrypt notes that have been sent to them
• Signing Keys are managed by the account contract and used for transaction authorization

There is also a security feature called app-siloing. Nullifier keys are scoped to specific contracts, so if a key associated with one application is compromised, it does not affect the user's keys in other applications. This prevents correlation attacks where an attacker could link activity across multiple apps to the same user.

However, there is a significant caveat here. Protocol-level keys like nullifier and viewing keys are permanent once an account is deployed. If they are compromised, they cannot be rotated. The user has to deploy an entirely new account. This is a real operational risk that advanced users and developers need to be aware of.

The $AZTEC Token: Supply, Sale, and Staking Details

The $AZTEC token is an ERC-20 asset deployed on Ethereum L1. It serves three primary functions within the network: staking for node operation, governance participation, and transaction fee payment.

The genesis supply is set at 10,350,000,000 tokens. A public Open Auction will sell up to 14.95% of the total supply, with a floor price based on a $350 million fully diluted valuation (FDV). According to the project, this floor price represents an approximate 75% discount compared to the valuation from Aztec Labs' most recent equity financing round.

The token distribution breaks down as follows:

Running a Sequencer node requires a minimum stake of 200,000 $AZTEC. Sequencers are responsible for ordering transactions and producing blocks. They earn revenue through transaction fees paid in Mana, which is Aztec's equivalent of Ethereum's gas. The Mana fees are converted to $AZTEC through exchange rates that Sequencers update on a regular basis.

There is also a deflationary mechanism built into the fee structure. A "Privacy Premium" or congestion multiplier can be applied to fees during high-demand periods. That premium portion gets burned, which helps offset the inflation created by staking rewards.

What Makes Aztec Different From Every Other Privacy Project

Most privacy projects in crypto fall into one of two categories. They are either privacy coins that handle confidential transfers but lack programmability, or they are Layer 2 scaling solutions that improve throughput but do nothing for privacy. Aztec sits in neither category. It is a fully programmable smart contract platform where privacy is the default architecture, not an optional add-on.

The PXE and AVM split, the UTXO-based private state model, the directional execution flow, native account abstraction, and the multi-key system all work together to create something that does not really have a direct competitor right now. The team's track record of inventing PLONK and building Noir gives them credibility that most projects in this space simply do not have.

Whether Aztec can deliver on its full vision is still an open question. Eight years of development is a long time, and the jump from testnet to a production mainnet with real users and real money is always the hardest part. But for anyone who believes that privacy is a prerequisite for blockchain's next phase of adoption, Aztec is one of the most serious attempts at solving that problem. The testnet is live, the token economics are public, and the technical documentation is extensive. The next 12 to 18 months will show whether the architecture holds up under real-world conditions.