Opinion by: Fahmi Syed, president of the Midnight Foundation
Stablecoins have become the most sought-after innovation in blockchain since Bitcoin. Their appeal lies in their undeniable utility, offering the speed and flexibility of digital assets with the stability of fiat, becoming a natural link between traditional finance and decentralized systems.
Now, stablecoins are enjoying a rapid adoption rate, especially in emerging markets where they enable fast, low-cost cross-payments and provide a buffer against currency volatility.
Seeing an incredible opportunity, the behemoths of traditional finance and agile fintechs are making a serious push into this space. Last year, PayPal’s PYUSD hit a $1 billion market cap, placing it in direct competition with Circle’s USDC and Tether’s USDT. This year, BlackRock planned to purchase a 10% stake in Circle’s IPO — further proof that stablecoins are entering the mainstream financial system.
What’s more unexpected is the interest from non-financial powerhouses. Recently, Amazon and Walmart announced they were exploring issuing their dollar-backed tokens. While it makes sense for banks and fintechs to embrace stablecoins, interest from major retailers signals something bigger. It shows companies are eyeing stablecoins as not just transactional tools but strategic assets, enabling disintermediation, cost reduction and more efficient balance sheet management.
As exciting as it is to see companies exploring stablecoins, this development poses an important question: By entering the space, do these institutions truly understand the privacy risks they may be exposed to?
Privacy risks remain overlooked
Most, if not all, of the discourse around stablecoins has primarily focused on regulation, collateralization and payments innovation. While this is all well and good, these crucial conversations have drawn attention away from the critical issue of user privacy.
Stablecoins are on public blockchains, which introduces significant commercial and consumer confidentiality risks. This isn’t just about bad actors stealing consumer data and damaging brand reputations — it’s also about structural limitations to business scalability.
Transparent by design, every transaction made on a public blockchain is recorded and immutable. The whole history of any wallet, address or vault interacting with stablecoins is permanently visible to the world and can never be altered or deleted.
Related: Walmart, Amazon consider issuing own stablecoins: WSJ
Customers’ entire financial history, every product purchase, every subscription paid, every merchant visited, every doctor appointment attended, would be publicly traceable forever.
This raises significant concerns around surveillance, profiling and identity theft for individuals. For organizations with millions of customers and complex compliance and audit obligations, overlooking the fundamental transparency of public blockchains, on which stablecoins operate, could be reputationally catastrophic.
When a global retailer or service provider issues a stablecoin to streamline transactions, competitors can see how customers interact with their tokens. They can identify consumer spending patterns, determine pricing and promotional strategies and gain the ability to view revenue and commercial performance in real time.
Such unprecedented transparency poses serious risks, exposing businesses to competitive encroachment and enabling market participants — including analysts and traders — to exploit real-time performance data by front-running or shorting publicly-listed companies.
Without transactional confidentiality, mass adoption may remain out of reach. Stablecoins cannot scale across enterprise-grade systems or global consumer markets until the privacy issue is resolved. Liquidity provisioning will suffer without robust privacy and selective disclosure mechanisms, undermining trust, usability and long-term adoption.
And yet, the privacy conversation remains an afterthought in the broader conversations around stablecoins.
Without privacy assurances, regulation is meaningless
In the push to legislate and unlock DeFi’s potential, the challenge of balancing regulatory compliance with privacy by design has largely been ignored. A look at the long-gestating GENIUS Act proves this point.
This legislation aligns stablecoins with asset backing and Anti-Money Laundering safeguards. While important, it’s equally crucial that we consider the risks that immutable blockchains pose to data protection and privacy. Since this was not addressed in the GENIUS Act, it now falls on developers and engineers to evaluate and mitigate these risks.
Considering the above, the regulation of stablecoins presents an unexpected paradox. By legitimizing these digital assets, we are potentially reducing user confidentiality, creating risks for consumers and the brands issuing the tokens.
These are uncharted waters for institutions operating within strict data protection frameworks. Most stablecoin infrastructure offers few safeguards for limiting exposure of sensitive information, much less complying with emerging data privacy laws.
Blockchain is not yet business-ready
How do we align blockchain’s progressive characteristics — immutability and transparency — with the data protection protocols and laws that mainstream brands and legacy institutions must follow?
Cryptographic techniques that preserve transaction privacy while enabling auditability exist, such as zero-knowledge proofs, which enable institutions to minimize risk through features like shielded balances and selective disclosure. These capabilities are not yet standardized across most ecosystems supporting stablecoins.
As more brands and institutions embrace stablecoins, they must look beyond the compliance checkbox. Exposing user data on public blockchains can be catastrophic. Failure to get privacy right could result in stablecoins falling out of public favor.
With stablecoins on the path to becoming bona fide financial instruments, the move to onchain payments feels like a foregone conclusion.
Failure to get privacy right and protect consumer and enterprise data could affect the mass adoption of stablecoins. Avoiding such an outcome will require the next generation of blockchain technology to put rational privacy at the center of its design.
Opinion by: Fahmi Syed, president of the Midnight Foundation.
This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
