Why is the privacy of stablecoins important to organizations?

As organizations increasingly expand their use of crypto—especially stablecoins—the demand for privacy-preserving payment mechanisms is becoming more urgent than ever. A report titled “Privacy Gap Report” from Aleo, a layer-1 blockchain using zero-knowledge proofs (ZKPs), warns that the lack of privacy could pose significant risks to the ecosystem.

Lack of privacy is creating a “blind spot” for stablecoins

Aleo stated that the lack of privacy in the organization's stablecoin transactions is creating a “big gap” in the blockchain economy. This exposes the organization to competitors, third parties, and even bad actors.

Stablecoin activity has surged, with trading volume nearly reaching 1.25 trillion USD last month.

• Transactions from custodial units increased by 256% compared to the same period last year.

Copper and Ceffu account for 75.7% of the total flow, processing 107.85 billion USD and 106.47 billion USD respectively.

• Market-making units labeled as Wintermute recorded an average of 50.8 billion USD per month over the past 24 months.
• In the previous month, the labeled institutional cash flow reached 68.94 billion USD, with Wintermute accounting for 67.2% and processing approximately 73,000 transactions per day.

Even transactions involving public authorities are completely transparent. Aleo recorded a law enforcement transaction of the U.S. worth $225.5 million in June 2025 and at least $320 million in transactions from government agencies that month.

However, out of a total of 1.25 trillion USD in institutional flows, only 0.0013% (approximately 624.4 million USD) used any form of privacy-preserving payment. This means that the majority of high-value transactions are still occurring on open networks, exposing strategies and real-time asset movement patterns.

Risks and Solutions

Currently, the trading behavior and partners of organizations can be publicly observed. This allows competitors and third parties:

• Monitor cash flow, liquidity, and trading relationships,
• Monitor the inventory of the market maker and the flow of funds from customers,
• Portfolio rebalancing schedule analysis.

Aleo stated that this affects at least 9 million USDC addresses. The majority of stablecoin deposit flows occur on Ethereum—a network that is the most easily observable.

In addition, trading on OTC desks also exposes price discovery information that should be kept confidential. This data can be exploited for front-running and market manipulation.

Aleo warns: “Without private infrastructure, on-chain participation does not reduce but rather increases the level of exposure.”

The development team of this ZKP network believes that organizations need to implement private infrastructure if they want to operate safely on the blockchain. As privacy solutions that still comply with regulations begin to emerge, Aleo predicts that 2–5% of the cash flow will shift to private payments in the near future—equivalent to 1–2.5 billion USD.

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