Stablecoins: The Need for Privacy to Real Scale

28-04-2025
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Stablecoins have come a long way since their inception. Today, they are increasingly recognized as everyday payment instruments and safe stores of value, filling the gaps that traditional currencies have not yet addressed. With transaction volumes set to reach $15.6 trillion by 2024, surpassing the amount processed by Visa, and a market capitalization exceeding $230 billion, stablecoins are becoming an important pillar in the digital financial ecosystem. Major financial institutions such as PayPal, JPMorgan, and Visa are eager to integrate stablecoins into their services, demonstrating the unstoppable growth of this asset class.

However, one major obstacle is hindering the next step for stablecoins: the lack of privacy. Current transactions on stablecoins like USDC or Tether are recorded on a public ledger, where anyone can track the amount, transaction time, and associated wallet address. While this transparency is in line with the spirit of open blockchains, in practice it poses significant risks for both individual users and large institutions.

The Privacy Challenge

As someone who has spent years researching security solutions in blockchain technology, I have seen the strong growth of stablecoins but at the same time witnessed a major problem that has not been solved: privacy. On-chain transactions reveal a lot of information that users may not even realize, from purchase history, transaction patterns, to relationships with other wallets. This is a significant vulnerability for both individuals and businesses.

For businesses, the risk is even more serious. Public transaction data can expose sensitive information, such as employee payroll or supplier payment details, that competitors can exploit. Imagine paying a contractor with a stablecoin, only to find out later that your competitor now knows exactly how much you spent. This openness makes many businesses wary, even though they acknowledge the benefits of stablecoins.

The Transparency Dilemma

Privacy is not a luxury, it’s a necessity. In the traditional banking system, transactions are discreet, with a balance between privacy and compliance. You can’t know a competitor’s account balance or payroll just by looking at their bank statements. With stablecoins, on the other hand, a blockchain explorer can easily reveal anyone’s entire transaction history.

This excessive transparency directly impacts users’ autonomy and sense of security. When sending money to a friend, you may feel comfortable sharing that you’ve made a payment, but you don’t want to reveal your entire financial history. Mapping on-chain activity allows third parties to determine a user’s spending habits, personal interests, and business relationships. This not only raises concerns for users, but also raises issues for regulators, as criminals and law-abiding citizens are both monitored in the same public system.

Currently, financial regulations do not take into account the complexities of public ledgers. Regulators want to monitor illegal activity, but at the same time understand that everyday transactions should not become public records. The UK, for example, has been holding off on issuing formal guidance, while the European Commission is considering how to protect users without stifling innovation. In the United States, officials see stablecoins as a tool to bolster the dollar’s global position. But that potential is hampered by a big question: how to ensure strong privacy for users without making every transaction public?