#12: Privacy Stablecoins: The Next Battleground for Digital Money

What are privacy tokens?

• Privacy tokens (also called “privacy coins”) are cryptocurrencies designed so that sender, receiver, and amount are hidden or shielded, ensuring anonymity for users. Common examples include Monero (XMR) or Zcash (ZEC). 

• They emerged to satisfy demand for confidential value transfer — in contexts where financial privacy matters more than public visibility.

What are privacy stablecoins?

• A “privacy stablecoin” tries to combine two attributes: the stability of stablecoins and the privacy of a privacy token.

• In other words: stablecoin convenience + privacy-coin anonymity.

• The concept started gaining traction only more recently, as developers realized, that many real-world use cases require both price stability and privacy.

• Some market participants see privacy-stablecoins as an emerging category at an “inflection point,” with privacy tech (e.g. zero-knowledge proofs) maturing, and stablecoins becoming a core part of crypto’s monetary stack. 

Why privacy coins and stablecoins are gaining renewed interest

• Growing concerns around financial surveillance, data tracking, and loss of privacy in digital payments.

• Geopolitical instability and capital controls driving demand for censorship-resistant, privately transferable money.

• Stablecoins have become core financial infrastructure on-chain, exposing the downside of transparent public ledgers where all transactions are visible.

• Businesses and institutions need confidential payments not exposed to competitors or the public.

• Strong demand for private cross-border transfers and remittances without revealing sender, receiver, or amount.

• Advances in cryptography (especially zero-knowledge proofs) now make practical, compliant privacy solutions possible.

• Regulatory pressure on traditional privacy tokens pushing innovation toward hybrid, compliant privacy-stablecoin designs.

• Early privacy-stablecoin projects gaining real traction, signaling emergence of a new category rather than a niche experiment.

• The rise of autonomous agents and agentic AI increases the need for programmable, private digital money — positioning privacy stablecoins as a natural fit.

Examples of Projects with Privacy Stablecoins

According to a recent overview, several initiatives aim to build “privacy-first stablecoins.”

Projects fall into two broad categories:

1) Shielded transfers on top of traditional stablecoins

(Privacy layer applied to existing USDC/USDT rather than issuing a new stablecoin)

Examples:

• Railgun + USDC/USDT – Enables private transfers of existing stablecoins using zk-SNARKs within shielded pools.

• Aleo private payments with USDC – Uses zero-knowledge programmability to enable confidential stablecoin payments.

• Aztec Network + bridged stablecoins – Adds privacy rails to existing assets using zk-rollups.

• Namada shielding for IBC-stablecoins – Provides asset-agnostic shielding across chains.

Key idea: privacy as an overlay network, not a new currency.

2) New reserve-backed privacy stablecoins

(built for privacy from day one)

Examples:

• SILK (Shade Protocol / Secret Network) – Basket-backed stablecoin with built-in privacy using Secret Network’s encrypted smart contracts.

• ZUSD / Zcash stablecoin pilots – Exploring native shielded stable money inside Zcash’s privacy architecture.

• Haven Protocol’s xUSD – Private algorithmic-style stablecoin inside a fully private ecosystem.

• MobileCoin’s MOB-USDC hybrid model – Focused on frictionless private payments in consumer apps.

Key idea: privacy is the core feature, not a bolt-on enhancement.

While still niche compared to major stablecoins, these projects highlight growing developer and community focus on privacy-compliant stablecoin architectures. 

Use Cases for Privacy Stablecoins

Privacy stablecoins could unlock applications where both value stability and transactional privacy matter:

• Confidential remittances or cross-border payments — amount, sender and receiver remain shielded.

• Private salary or payroll payments for individuals or employees who want discretion.

• Business-to-business payments where confidentiality of supplier lists or payment volumes matters.

• Treasury management or corporate payments where financial flows should remain private.

• Private DeFi or on-chain finance — enabling compliant financial contracts while preserving user privacy.

Limitations & Risks

• Regulatory scrutiny — privacy coins (and by extension privacy-stablecoins) are often under higher regulatory pressure (AML / KYC concerns, de-listing risk). 

• Liquidity & adoption challenges — privacy-stablecoins are still niche, with far less liquidity than major stablecoins (like USDT or USDC), limiting usability. 

• Transparency vs. privacy trade-off — maintaining reserve transparency while offering privacy is difficult. Many privacy-stablecoin designs have to balance auditability, compliance, and privacy — sometimes mutually exclusive goals. This is sometimes called the “stablecoin privacy trilemma.” 

• Technical complexity — shielded transactions often rely on advanced cryptographic constructs (like zero-knowledge proofs), and require specialized infrastructure (privacy-aware wallets, smart-contract support), which are not yet universally available. 

My Take

Privacy stablecoins sit at the intersection of two powerful forces:

(1) the institutionalization of stablecoins as global digital money rails and

(2) the rising demand for financial privacy in an increasingly transparent world.

Regulation will ultimately determine whether privacy-stablecoins become mainstream or remain underground. But history suggests that once a technology aligns with real demand — and can operate in a decentralized, censorship-resistant form — it is extremely difficult to stop or regulate away.

Crypto’s privacy movement is not going away.

And if programmable digital money becomes the standard for global value transfer — privacy may shift from niche preference to basic requirement.

Thanks for reading in 🤍

// Kai