The privacy track is shifting from early adversarial anonymity to a composable and compliant infrastructure form. As institutional participation deepens, regulatory frameworks take shape, and zero-knowledge technologies mature, privacy has become an unavoidable key variable in crypto finance, developing towards programmable compliance and systematization. This article is adapted from a piece by BitMart Research, organized, translated, and written by Foresight News.
(Background: Why is the privacy track the core narrative of crypto in 2026?)
(Additional context: SlowMist Yu Xian: Zcash’s non-default enforced privacy balances architecture changes for compliance doors)

Table of Contents

• 1. Current State of Privacy Track: Structural Recovery in 2025
• 2. Why Privacy Track Is Key: Preconditions for Institutional and Complex Applications
• 3. Path to Regulatory Compliance in Privacy Track: From Regulatory Confrontation to Programmable Compliance
• 4. High-Potential Privacy Projects Overview
  • 1. Zcash: A Compliance Model in Privacy Track
  • 2. Aztec Network: The Key Execution Layer for Ethereum Privacy DeFi
  • 3. Railgun: Real-World Deployment of Protocol-Level Privacy Relay Layer
  • 4. Nillion / Zama: Privacy Computing as Next-Generation Infrastructure
  • 5. Arcium: Privacy Computing “Joint Brain” for AI and Finance
  • 6. Umbra: Invisible Cloak in DeFi Ecosystem and Compliance Pioneer
  • 7. MagicBlock: High-Performance Privacy Execution Layer on Solana Centered on TEE
• 5. Outlook for Privacy Track in 2026: From Optional Features to System Defaults

1. Current State of Privacy Track: Structural Recovery in 2025

Over the past few years, privacy has been one of the most controversial and misunderstood sectors in the crypto market. On one hand, the transparent and open nature of blockchain is seen as its core value. On the other hand, privacy needs have always existed and have been amplified in finance, commerce, and security. By 2025, with deeper institutional involvement, the gradual formation of regulatory frameworks, and the maturation of cryptographic technologies like zero-knowledge proofs, the privacy sector is transitioning from early adversarial anonymity to a more systematic, composable, and compliant infrastructure form. Privacy is becoming an unavoidable key variable in crypto finance.

From a market perspective, the second half of 2025 saw a clear phase of recovery in privacy assets. Traditional privacy assets like Zcash and Monero outperformed the market, with Zcash’s highest increase approaching 1100% within the year, temporarily surpassing Monero, reflecting a revaluation of optional privacy and compliance flexibility. Unlike earlier privacy coins mainly as niche hedging assets, this rebound more accurately reflects a long-term reassessment of privacy infrastructure value.

Technologically and ecologically, the privacy sector is undergoing a paradigm upgrade. Early privacy projects mainly focused on hiding transaction paths, solving transfer anonymity issues, represented by Monero, early Zcash, Tornado Cash, etc. This phase can be seen as Privacy 1.0, aiming to reduce on-chain traceability but with limited functions and compliance flexibility, unable to support complex financial activities. Moving into 2024–2025, privacy is evolving towards Privacy 2.0. The new generation of projects no longer just hide data but attempt to perform computations and collaboration in encrypted states, making privacy a universal capability. For example, Aztec launched Ethereum-native ZK Rollup supporting privacy smart contracts. Nillion proposed a blind computation network emphasizing data use without decryption. Namada explores cross-chain privacy asset transfers within the Cosmos ecosystem. These projects collectively point to a trend: privacy is shifting from an asset attribute to an infrastructure attribute.

2. Why Privacy Track Is Key: Preconditions for Institutional and Complex Applications

The re-emergence of privacy as a core issue is not due to ideological shifts but the result of practical constraints. From a long-term perspective, privacy also has significant network effects. Once users, assets, and applications gather on a certain privacy infrastructure, migration costs increase sharply, giving privacy protocols a potential “bottom-layer moat.”

On-chain institutionalization cannot do without privacy infrastructure: In any mature financial system, asset allocation, trading strategies, compensation structures, and business relationships cannot be fully public. Fully transparent ledgers have advantages in experimental stages but become obstacles once large-scale institutional participation occurs. Privacy does not weaken regulation; rather, it is a technical prerequisite for “selective transparency,” enabling compliance disclosures and business secret protections to coexist.

On-chain transparency is creating real security risks: As on-chain data analysis tools mature, the cost of linking addresses to real identities continues to decline, leading to increased extortion, scams, and personal threats related to wealth exposure in recent years. This turns “financial privacy” from an abstract right into a real security need.

The integration of AI and Web3 raises higher privacy requirements: In scenarios involving AI agents participating in transactions, executing strategies, and cross-chain collaboration, systems need to verify compliance while protecting model parameters, strategy logic, and user preferences. These needs cannot be met by simple address anonymity alone and require advanced privacy computing technologies like zero-knowledge proofs, MPC, FHE.

3. Path to Regulatory Compliance in Privacy Track: From Regulatory Confrontation to Programmable Compliance

The core constraints faced by the privacy sector have shifted from uncertain policy risks to highly defined institutional restrictions. For example, the EU Anti-Money Laundering Regulation (AMLR) indicates that major jurisdictions are explicitly banning financial institutions and crypto asset service providers from handling “anonymity-enhanced assets,” including mixing, ring signatures, stealth addresses, and other techniques that weaken traceability. The regulatory logic is not to deny blockchain technology but to systematically strip its “anonymous payment” attribute, embedding KYC, transaction tracing, and travel rules into most crypto transaction scenarios. Under the threat of hefty fines, licensing risks, and preemptive enforcement, centralized channels’ tolerance for fully anonymous assets approaches zero, fundamentally changing the survival conditions of privacy coins within mainstream finance.

In this context, the privacy sector is restructuring from “strong anonymous assets” to “compliant privacy infrastructure.” After the Tornado Cash incident, industry consensus has emerged: completely untraceable anonymous designs are unsustainable under global anti-money laundering frameworks. Since 2025, mainstream privacy projects have shifted towards three paths: optional privacy, reserving compliance interfaces for institutions and exchanges; auditable privacy, enabling selective disclosure via zero-knowledge proofs or viewing keys; rule-based compliance, embedding regulatory logic directly into protocol layers to prove compliance cryptographically rather than through post-hoc data tracing. Regulatory attitudes have also become more nuanced, shifting from whether privacy is allowed to what kind of privacy is permitted. Strong anonymity tools and compliant privacy technologies are now clearly distinguished. This transformation grants privacy infrastructure higher long-term certainty compared to traditional privacy coins, with privacy and regulation evolving from opposition to a component of next-generation verifiable financial systems.

4. High-Potential Privacy Projects Overview

1. Zcash: A Compliance Model in Privacy Sector

Zcash remains one of the most representative projects in the privacy sector, but its positioning has fundamentally changed. Compared to Monero’s “default strong anonymity,” Zcash has adopted a selective privacy architecture from inception, allowing users to switch between transparent addresses (t-address) and shielded addresses (z-address). Although this design was questioned by some privacy advocates early on, it has become a major advantage under current regulatory environments. Recently, the Zcash Foundation has continued to push cryptographic upgrades, such as Halo 2 proof system, significantly reducing zero-knowledge proof costs and paving the way for mobile and institutional applications. Meanwhile, wallets, payment tools, and compliance modules around Zcash are continuously improving, gradually transforming it from an “anonymous coin” to a “privacy settlement layer.”

From an industry perspective, Zcash demonstrates that privacy and compliance are not necessarily mutually exclusive. As institutional participation deepens, Zcash is more likely to serve as a regulatory reference in the privacy sector rather than a speculative asset.

2. Aztec Network: The Key Execution Layer for Ethereum Privacy DeFi

Aztec is currently one of the closest projects to a “core infrastructure” in the privacy sector. It chooses Ethereum as the security layer and implements privacy smart contracts via ZK Rollup, enabling privacy features to be natively composable within DeFi. Unlike traditional privacy protocols that pursue extreme anonymity, Aztec emphasizes programmable privacy: developers can define which states are private and which are public at the smart contract level. This design allows Aztec to support complex financial structures such as privacy lending, private transactions, and privacy DAOs, not just transfer obfuscation.

From a long-term perspective, Aztec’s potential value lies in whether it can become the default “privacy execution environment” within the Ethereum ecosystem. Once privacy becomes a necessary condition for institutional DeFi, native ZK privacy rollups like Aztec will have a strong path dependency advantage.

3. Railgun: Real-World Deployment of Protocol-Level Privacy Relay Layer

Railgun’s uniqueness lies in that it is not an independent blockchain but a protocol that provides privacy capabilities for existing assets. Users do not need to migrate assets to a new chain but can achieve privacy interactions for ERC-20 tokens, NFTs, etc., through Railgun’s shielded pools. This “relay layer privacy” mode offers lower user migration costs and easier integration with existing wallets and DeFi protocols. The rapid growth in transaction volume in 2025 reflects strong demand for “privacy without ecosystem change.” Notably, Railgun is exploring regulatory-compliant interaction methods, such as restricting sanctioned addresses from entering privacy pools, indicating it is not heading towards full adversarial anonymity but exploring sustainable models under real-world constraints.

4. Nillion / Zama: Privacy Computing as Next-Generation Infrastructure

If Zcash and Aztec belong to blockchain privacy, Nillion and Zama represent broader privacy computing infrastructure. Nillion’s “blind computation” network emphasizes data storage and computation without decryption, aiming not to replace blockchain but to serve as a privacy collaboration layer between data and applications. Zama focuses on Fully Homomorphic Encryption (FHE), attempting to enable smart contracts to execute logic directly on ciphertext. The potential markets for these projects are not limited to DeFi but extend to AI inference, enterprise data sharing, RWA disclosures, and larger-scale applications. In the medium to long term, they are closer to the Web3 “HTTPS layer,” and once mature, their impact could far surpass traditional privacy coins.

5. Arcium: Privacy Computing “Joint Brain” for AI and Finance

While some privacy projects mainly serve blockchain-native scenarios, Arcium aims at broader data-intensive industries. It is a decentralized parallel privacy computing network, striving to become a “joint brain” for AI and high-sensitivity sectors like finance. Its core innovation is integrating MPC (MPC), FHE (FHE), and ZKP (ZKP) into a unified framework, dynamically optimizing combinations based on task privacy and performance needs, enabling collaborative computation under full encryption. This architecture has attracted NVIDIA’s (NVIDIA) official attention and was selected for the Inception program, focusing on privacy AI scenarios. On the application layer, Arcium is building decentralized dark pools for large institutional orders to match under full privacy, avoiding front-running and market manipulation. Arcium thus represents a frontier where privacy intersects deeply with AI and high-level finance.

6. Umbra: Invisible Cloak in DeFi Ecosystem and Compliance Pioneer

Umbra’s positioning is pragmatic: becoming an easily integrable privacy payment layer within mainstream DeFi ecosystems. Initially gaining attention for its “invisible address” mechanism on Ethereum, it has expanded to high-performance chains like Solana. By generating one-time, untraceable addresses for payees, Umbra makes each transfer difficult to trace back to the main wallet, effectively providing a “cloak” for on-chain payments. Unlike solutions emphasizing absolute anonymity, Umbra actively introduces “auditable privacy” concepts into protocol design, leaving room for compliance auditing, which significantly enhances its institutional adoption potential. In October 2025, Umbra raised over $150 million via ICO, confirming market recognition of its approach. Its ecosystem expansion follows a “Lego-style” strategy, simplifying SDKs for low-cost integration into wallets and DApps. The key long-term question is whether it can successfully embed into core applications of chains like Solana, becoming an effective privacy payment standard.

7. MagicBlock: TEE-Centered High-Performance Privacy Layer on Solana

MagicBlock exemplifies a transition from on-chain gaming tools to high-performance privacy infrastructure. Its core product is an Ephemeral Rollup based on Trusted Execution Environment (TEE), designed to provide low-latency, high-throughput privacy computation for the Solana ecosystem. Unlike schemes relying on complex zero-knowledge proofs, MagicBlock executes standard Solana transactions directly within hardware secure enclaves like Intel TDX, with verifiable “black box” guarantees of confidentiality, achieving near-native performance. This engineering-focused design allows developers to add privacy features to DeFi or gaming applications with minimal changes, greatly lowering development barriers. MagicBlock fills a structural gap in Solana’s privacy layer and has attracted investment from core ecosystem figures. Its reliance on hardware trust introduces some limitations in cryptographic purity and will face competition once zero-knowledge tech matures. Overall, MagicBlock embodies a pragmatic approach emphasizing usability and deployment efficiency in privacy infrastructure, serving as an important example of how the market balances “ease of use” and “technological idealism.”

5. Outlook for Privacy Track in 2026: From Optional Features to System Defaults

Looking ahead to 2026, the privacy sector is unlikely to explode with high volatility or strong narratives but will instead gradually and more surely penetrate the ecosystem.

On the technical front, zero-knowledge proofs, MPC, and FHE will see continued engineering improvements, reducing performance bottlenecks and development barriers. Privacy capabilities will no longer exist as standalone protocols but will be embedded as modules within account abstractions, wallets, Layer2, and cross-chain systems, becoming default options rather than add-ons. On the regulatory front, major economies’ crypto regulations are stabilizing. As market structure legislation and stablecoin regulations are implemented, institutional participation in on-chain finance is expected to increase significantly, directly amplifying demand for compliant privacy infrastructure. Privacy will shift from a “risk point” to a “necessary condition” for institutional on-chain activity. On the application layer, privacy will gradually become “invisible.” Users may not perceive themselves as using privacy protocols, but their assets, strategies, and identities will be protected by default. DeFi, AI agents, RWA settlements, and enterprise on-chain collaboration will all assume privacy as a prerequisite rather than a patch post-facto.

From a long-term perspective, the real challenge for the privacy sector is not whether to be anonymous but whether it can continuously prove system trustworthiness and compliance without exposing data. This capability is the final foundational infrastructure piece needed for crypto finance to move from experimental to mature stages.