Original title: Why do stablecoins need privacy? - Part 1
Original author: Rishabh Gupta
Original translation: Block unicorn
Introduction
In December 2024, three German marketing professors did something that should terrify every business that accepts cryptocurrency payments. They decoded 22.7 million retail stablecoin transfers, reconstructing complete customer intelligence for eight direct-to-consumer (D2C) brands — including wallet shares, order frequency, average order value, peak sales times, and everything in between.
No hacking skills needed. No internal permissions required. Just public blockchain data and a few lines of Python scripts. This is the stablecoin privacy paradox of 2025.
Stablecoins are achieving great success. These data are shocking: the use of stablecoins on Base is no longer a niche experiment. Analysis from Token Terminal shows that in just the first quarter of 2025, the total transaction volume on L2 reached approximately $3.81 trillion — a record high, surpassing the early growth curve of mainstream credit card networks.
Main on-chain stablecoin trading volume
Even after deducting internal jumps, this figure remains in the trillions. 65% of Ethereum's total locked value — approximately $130 billion — is now concentrated in stablecoins. Tether holds nearly $120 billion in U.S. Treasury bonds, with quarterly profits reaching a billion dollars. Businesses using stablecoin payments sell to twice as many countries as those not using stablecoin payments.
From every key metric, stablecoins have achieved product-market fit so large that traditional fintech companies have no choice but to take it seriously. So why am I writing about privacy for an industry that is already raking in profits?
Because the success of stablecoins has made them the most dangerous payment method in the world. Dangerous not for users, but for businesses. Every transaction is a data point for your competitors to analyze. Every salary you pay becomes workplace intelligence. Every invoice you settle exposes your supply chain. Every customer payment reveals your business model. In the rush to adopt stablecoins, we have built a global financial surveillance system, where your business intelligence is just a search away on Etherscan.
Ironically, we created the most efficient cross-border payment system in history, but it broadcasts your financial strategies to anyone interested in viewing. This is not about ideology or cyberpunk dreams. It is a harsh reality: your competitors may know your customer acquisition costs better than your chief marketing officer. As stablecoin payments are projected to reach $2 trillion by 2028, this issue will become even more severe.
Why are we heading towards $5 trillion, and why is it terrifying?
Stablecoins have broken every growth record in the crypto space. 65% of Ethereum's total locked value — approximately $130 billion — is now in stablecoins, and institutional funds are pouring in at an unprecedented rate. We are witnessing a complete transformation of global payments.
The promise is real: instant cross-border transactions, minimal fees, around-the-clock operation. No wonder businesses using stablecoin payments sell to twice as many countries as those not using stablecoin payments. But few mention: all these benefits come with a hidden cost — complete financial transparency.
Current privacy nightmares
Salary comparison trap
Alice, a founder who just raised $500,000, of which $200,000 is cryptocurrency. She hired three developers from India, Vietnam, and Argentina, with salaries set according to local market rates. Everyone prefers cryptocurrency payments — because they are faster, cheaper, and free from the hassle of bank procedures.
Then reality hits. Every developer discovers others' salaries on-chain. Those with lower salaries begin hinting at pay raises. Alice wants to help, but the budget is tight. Although each salary is competitive locally, transparency breeds discontent. The 'jealousy tax' research proves this is not an isolated case — but a quantifiable phenomenon. Companies either pay more for high performers or accept the reality of team morale being damaged. This is not theory. It is happening in many crypto-native (and now internet capital market, non-crypto native) startups.
Related reading: https://x.com/madhavanmalolan/status/1873450008504107189
Nightmare of privacy rights
Bob is a blockchain developer working at a well-known L2 protocol, earning $12,000 a month. He deposits his salary into a hardware wallet — safe and professional. But now he needs to buy groceries, pay rent, and live. If he spends directly from his salary account, his landlord, ex, and competitors can know precisely his income and assets. So, Bob does what thousands of others do: he 'mixes' funds through a centralized exchange or obscures his financial trail through 3-4 bridging transactions and multiple conversions.
Ironically, we built decentralized finance (DeFi) to escape intermediaries, but privacy issues are forcing users back to centralized services — now with added costs, tax complexities, and compliance risks.
Competitive intelligence disaster
Charlie runs a successful online pharmacy in Argentina, accepting USDC payments. His competitor Don notices Charlie's growth and decides to investigate. After hours of on-chain analysis, Don discovers that 80% of Charlie's transactions are concentrated in specific time periods. Further digging reveals Charlie's entire customer acquisition strategy — target demographics, regions, effective marketing channels. Don gains access to the business intelligence Charlie worked hard to accumulate for free. No corporate espionage required. Just Etherscan.
Institutional time bombs
These are just retail-level issues. The institutional level impacts are life-or-death. When every fund movement is visible, when every strategic trade is public, when your competitors can track your cash flow in real time — how do you compete? How do you negotiate? How do you maintain strategic advantage?
· Corporate financial reality: imagine a Fortune 500 multinational considering rebalancing $2 billion between its Asian subsidiaries.
· Traditional channels: 3 days settlement, $50,000 fees, zero transparency.
· Transparent stablecoins: instant settlement, $100 fees, but strategies are completely exposed.
Some financial rebalancing reveals regional performance. Each vendor payment exposes supply chain relationships and pricing. Each internal transfer between jurisdictions indicates which markets are prioritized and underperforming. Payment time patterns can leak company plans or market entry strategies months in advance. Using stablecoins significantly improves efficiency. The cost of privacy, however, is lethal. Institutions claim privacy is their primary concern, yet they build on transparent chains. This disconnect between established demand and actual infrastructure is a disaster.
But the problem is: they have no choice. Most activity happens on public chains. Liquidity dominates there. 90% of DeFi protocols run there. Stablecoins settle there. Composability with existing infrastructure is non-negotiable for many participants. For instance, Paypal was the first to launch its stablecoin on Solana. A central crypto bank I spoke with mentioned that their current 'solution' is to process order execution departmentally, with one team managing position information and another team handling execution — this is done to ensure no one person has the full picture.
Even Bitcoin's biggest corporate advocate, Michael Saylor, understands this danger. He strongly warns against making wallet addresses public, stating, "No institutional-grade or corporate security analyst would think that making all traceable wallet addresses public is a good idea." However, despite Saylor's cautious approach, the blockchain analytics platform Arkham Intelligence has gradually tracked MicroStrategy's Bitcoin holdings. By February 2024, they announced the identification of 98% of MicroStrategy's Bitcoin holdings, and by May 2025, they discovered an additional 70,816 BTC, tracking a total of 525,047 BTC (approximately $54.5 billion) — accounting for 87.5% of the company's total holdings. Related reading: https://x.com/arkham/status/1927786538869334095
The danger is not limited to finances. In France, four masked men recently attempted to kidnap Paymium CEO Pierre Noizat's daughter and grandson in broad daylight in downtown Paris. The family became targets precisely because blockchain transparency exposed their wealth to criminals. This is not an isolated incident. Jameson Lopp maintains a comprehensive database documenting hundreds of physical attacks against crypto holders. The pattern is clear: blockchain transparency leads to real-world violence.
New cases every year:
· Home invasions, victims tortured to hand over private keys
· Kidnapping incidents demanding cryptocurrency ransom
· Targeted robberies at meetings and gatherings
· Attacking family members to force compliance
When your wallet address is public, you expose more than just your financial strategy. You and your family become targets. The 'five-dollar wrench attack' is no longer a theoretical issue — it has become a growing pattern with hundreds of verified cases. Related reading: https://x.com/farokh/status/1922260790914003123
Scaling disaster
What’s truly frightening is: these issues multiply as adoption scales.
· $100 billion: annoying but manageable
· $1 trillion: serious competitive disadvantage
· $5 trillion: complete collapse of business secrets
We are building a global financial system where everyone can see each other's cards. This is not a feature — it's a catastrophic flaw. With stablecoin payments expected to reach $2 trillion by 2028, we are not discussing future problems. We are already experiencing it. Every day we delay, more business intelligence leaks, more salary data is exposed, and more competitive advantages evaporate. The issue is not whether stablecoins need privacy, but whether we will implement privacy protections before the transparency tax becomes too costly.
Why all 'solutions' have failed (to date)
The crypto industry has been trying to solve privacy issues for years. Billions in venture capital, thousands of hours of developer time. However, by 2025, Bob will still need to perform four bridging operations to pay rent privately. Let's face the reason why (aside from mixers) all solutions have failed to scale.
Privacy chain
"We will build privacy from scratch!" Dozens of L1 and L2 chains have promised.
Reality check:
· Bridging delays: funds entering require a 20-minute wait, and exiting requires another 20 minutes
· New wallet setup: download special software, create new keys, learn new interfaces
· Chain synchronization issues: "Why does my balance show zero? Oh, still syncing..."
· Liquidity desert: Want to exchange? Good luck dealing with 15% slippage
· Ghost town problem: privacy transactions only work under network effects
· Why it fails: asking users to leave their current chain for privacy is like asking them to move to another country for better privacy laws. This friction kills it before the application even starts.
Additional privacy tools
Some protocols have tried different approaches: providing privacy on existing chains. But there are downsides:
User experience:
· Need to download new software (hopefully not malware)
· Need to generate zero-knowledge proofs (ZK proofs)
· Need to pay 10 times the Gas fees for private transactions
· Need to trust other users to comply (they often do not)
· Pray that smart contracts have no vulnerabilities (they might)
Centralized exchange (CEX) mixing
The reality is: people use Binance or other CEX as privacy tools. Deposit from one address, then withdraw to another address. Centralized mixing requires extra steps.
Question:
· KYC (real-name verification) undermines the original intention
· Trading platforms may freeze your funds
· A tax nightmare for many users
· Not available in many jurisdictions
· User experience significantly declines
Why ‘effective’: because it is readily available. This illustrates the state of privacy tools.
Are there regulatory concerns about introducing privacy features into stablecoins?
Keep in mind that regulators do not oppose confidentiality itself — they oppose privacy enabling malicious actors and law enforcement being unable to act.
Here are the measures we believe are necessary:
· Key access review: there should be an appropriate access control list allowing certain views of keys for inspection when problems are discovered.
· On-demand transparency: amounts and counterparties are encrypted by default, but a court order can unlock the full transaction trail — no forks required, no need to reissue tokens.
Real-time anti-money laundering/anti-terrorist financing screening — each time liquidity is brought into a privacy protocol, it should be checked to ensure its source is legitimate, whether the address has interacted with high-risk addresses, or is itself a high-risk address. This is not limited to sanctions but also covers terrorism financing, human trafficking, and other significant vulnerabilities.
· Anti-mixing safeguards: funds should not be completely untraceable.
· Emergency freeze switch: tokens can be locked immediately via multi-signature, but proper procedures must be followed.
While providing regulators with the same subpoena-level access as today, avoid permanently exposing everyone’s salaries, invoices, and trading strategies to the world.
What's next?
Stablecoins are one of the most efficient payment systems in history, but unfortunately, they function as surveillance networks, with every commercial transaction being public data. Stablecoin trading volume is approaching $5 trillion, and every dollar broadcasts your strategies to competitors. This is not a long-term sustainable plan. Clearly, the solution is not to abandon stablecoins — but to add privacy protections that are compatible with existing infrastructure and regulatory requirements.
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