The Promise and Peril of Stablecoins
Stablecoins are rapidly emerging as the internet's native form of everyday money and represent arguably the most successful form of crypto adoption to date. They offer speed, global reach, programmability, and one-click settlement finality. It is no surprise that in 2024, they moved more value than Visa. However, in their current public-by-default form, stablecoins pose a significant privacy risk, effectively turning financial life into open surveillance.
This radical on-chain transparency exposes individuals and businesses to potential profiling, exploitation, extortion, front-running, and competitive intelligence leaks. Real economic harm can arise from this visibility, including insurance discrimination, business-to-business espionage, predatory pricing, targeted remittances, and Miner Extractable Value (MEV) extraction, by making sensitive financial behavior visible to anyone with a scraper or a bot.
The urgent need is for confidential, compliant stablecoins. These would offer private-by-default transfers with selective disclosure capabilities through advanced cryptography such as Zero-Knowledge proofs (ZK) and Trusted Execution Environments (TEEs), along with encrypted audits. This approach preserves regulation and trust without transforming everyone's finances into public data.
Financial transactions reveal more about individuals than search history ever could, exposing what they value, who they rely on, and where they are vulnerable. If stablecoins continue to scale in their current form, this data becomes accessible to competitors, bots, insurance adjusters, and even criminals. Without privacy built into stablecoins from the ground up, this is the direction we are headed.
Illustrative Scenarios of Privacy Risks
To better understand why confidential, compliant stablecoins are urgently needed, consider the following thought experiments:
Insurance Redlining via On-Chain Spend
Imagine refilling a prescription using one of today's public stablecoins. These transactions are visible to anyone, including health insurers. Insurers already leverage off-chain data such as shopping habits, zip codes, and browser cookies to profile customers. With perfect on-chain visibility, if a stablecoin wallet shows regular payments to a cancer center or a rehabilitation clinic, individuals could face higher insurance premiums or even become uninsurable.
The solution requires transaction confidentiality by default, with the ability for selective disclosure only to authorized parties.
B2B Espionage as a Service
Consider a mid-sized hardware startup that purchases parts from ten different suppliers, paying them all in stablecoins on-chain. A competitor would not need to hire an investigator; they could simply run a blockchain scraper to gain insights into the startup's operations. This would reveal their suppliers, transaction volumes, and payment timings. The competitor might infer an upcoming product launch from a sudden increase in orders or identify a key supplier to undercut pricing.
This scenario highlights the logical consequence of radical transparency for businesses. Corporate procurement data is a rich source of competitive intelligence, and on-chain B2B payments effectively turn business operations into public strategy leaks. Confidential stablecoins would enable transfers where amounts and counterparties are hidden but remain auditable to regulators and tax authorities.
Predatory Terms for Small Businesses
Focusing on small businesses, imagine a bakery that uses stablecoins to pay for rent and flour. If a large buyer notices a decrease in the bakery's deposits over a month, they could deduce that the bakery's balances are low and it is experiencing financial strain. With public stablecoins, small businesses lose their ability to negotiate from a position of strength, as large buyers can exploit this publicly available information as leverage in negotiations.
Privacy is crucial for restoring balance in these situations. Shielded accounts prevent counterparties from accessing a business's financial details unless explicitly invited, mirroring how most normal business relationships function. Confidential stablecoins would extend this logic to the digital age.
Remittances as Extortion Beacons
A migrant worker sends $300 in stablecoins to their family. While the transaction is fast and cheap, it is now public. Criminal cartels can scrape blockchain data, and subsequently, individuals may face threats or extortion targeting their families. This type of risk, already present with off-chain remittances and communication platforms like WhatsApp, is amplified with public stablecoin flows due to their complete traceability and immutability.
Remittances should not pose a personal risk to individuals or their families. Confidential transfers address this concern by allowing remittance receipts to be validated by money transfer operators without being readable to malicious actors.
Bots Front-Running Your Paycheck
If individuals are paid in stablecoins on the first of the month, MEV bots are likely to monitor and exploit these predictable flows. These bots can observe upcoming stablecoin swaps in the mempool, execute trades before the intended transaction, and ensure that the paycheck buys slightly less. This repeated action effectively constitutes an MEV tax. In 2025, for instance, Coinbase reportedly lost over $300,000 when MEV bots exploited a misconfigured treasury contract, and sandwich bots earned millions by exploiting predictable transaction patterns.
Encrypting the transaction path, by sending stablecoin swaps through a private execution layer or an encrypted relay, is a key solution to mitigate these risks.
Privacy and Compliance: Not Mutually Exclusive
A critical takeaway from these scenarios is that privacy and compliance are not opposing forces. Existing technologies like Zero-Knowledge proofs, Trusted Execution Environments, and encrypted audit logs already facilitate essential functions such as:
- •Selective disclosure to regulatory bodies.
- •Providing proofs of Know Your Customer (KYC), Anti-Money Laundering (AML), and tax compliance.
- •Implementing jurisdictional controls, such as geo-fencing.
It is entirely feasible to achieve private execution of stablecoin transfers while incorporating built-in compliance mechanisms. There is no inherent need to expose sensitive information like salaries, supplier relationships, or family remittances.
The Future is Confidential Stablecoins
The future of finance cannot be public-by-default. It must evolve into an environment where both individuals and institutions can selectively share necessary information to demonstrate compliance, meet audit requirements, adhere to local laws, and no more. Stablecoins are already foundational to crypto adoption and are too vital to falter on the privacy front. Without adequate privacy, they risk becoming a more significant threat than even the data surveillance problems of Web2.
In the past, concerns were about "Big Brother." Without confidential stablecoins, the risk is that everyone effectively becomes "Big Brother." Confidential, compliant stablecoins offer a clear path to avoiding such a future.