In a relatively short period of time, stablecoins have gone from a mere ‘handy tool’ for crypto trading to what is now a politically important new buyer of US Treasuries, all while their real-world impact is increasingly felt in payments and anti-inflation use across the Global South.
If we look back just six or so years ago, Stablecoins like USDT and USDC were just starting to gain traction in crypto markets, mainly for liquidity and trading. But fast-forward to today, and they’ve now entered mainstream finance, winning approval from payment heavyweights like Visa, Mastercard, Stripe and PayPal.
The latter of those, PayPal, even issued its own PYUSD stablecoin in 2023, and earlier this year, announced Pay with Crypto, a new payment solution allowing merchants to accept crypto payments with instant conversion to stablecoins or fiat.
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The new system cuts international transaction fees by up to 90% compared with credit card processing, and supports 100+ cryptocurrencies and major wallets, including Coinbase, MetaMask, Binance, OKX, Kraken, Phantom, and Exodus. And it promises all of this as well as maintaining privacy by masking blockchain transparency.
The drawbacks of relying on third party confidentiality
With this update in mind, Stablecoins have certainly stepped up a gear. However, without confidentiality at protocol level, stablecoins can only go so far.
Put simply, Pay with Crypto achieves its privacy not by introducing confidentiality onchain, but by acting as the privacy layer itself. By reintroducing traditional, centralised trust, any transactions between buyers and sellers are recorded within PayPal’s closed system, seeing only aggregated transfers settled publicly onchain. It’s a very effective model for small businesses that already rely on PayPal’s custody and compliance framework, but to say it is “helping every business of every size achieve their goals” is perhaps a little too far.
While I’d agree that any business of any size must be able to keep their supplier payments and pricing strategies secret to function effectively and not risk losing that fundamental competitive advantage, I would also argue that most businesses need privacy integrated directly into the blockchain or token protocol without relying on a third party.
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By GlobalDataLarger enterprises in particular tend to operate under much stricter regulatory, audit, and governance requirements. As such, relying on a third party like PayPal introduces risks and limitations that aren’t acceptable at scale. This transparency without proper controls is a clear barrier and perhaps explains why most enterprises and financial institutions remain hesitant to use stablecoins directly, with some (such as Hong Kong regulators and Chinese authorities) actively stepping back from adoption after being initially interested.
Who can see my transaction data?
PayPal’s work is certainly a step in the right direction. Without some level of confidentiality, today’s public blockchains expose even greater risks, with transaction amounts, balances, timing, and counterparties all visible to anyone onchain. You only need to glance at publicly available dashboards like Dune’s global ranking of MetaMask Card spenders to see who spent what, when, and with whom.
That level of transparency makes many real-world uses unworkable. Take payroll, for example, salaries must remain private, making public stablecoins unsuitable. And the same applies to supplier payments and treasury flows, where confidentiality is essential to avoid revealing business strategy. Then if we add AI to the mix, which can un-pseudonymize most transactions given enough context and data, it’s a problem that should concern every business.
A step up with FHE
Having established that all businesses need confidentiality – and that most require it to integrate with, rather than replace, their existing enterprise systems – it’s also important to remember what those systems already encompass. They include regulatory compliance measures such as KYC, AML, audit trails, and data retention; internal governance and reporting requirements; and well-defined risk and trust hierarchies that determine, for instance, who can access specific information and who authorises payments.
While most third-party privacy solutions fall short, Fully Homomorphic Encryption (FHE) makes this possible. This cryptographic technique enables data to be processed without ever being decrypted, keeping it encrypted in transit and during computation. FHE-powered stablecoins allow transactions to remain fully encrypted end-to-end, with programmable selective disclosure granting access only to authorised parties – such as the sender, receiver, or even an accountant, auditors or supervisors – while the network simultaneously enforces compliance rules over the ciphertext.
The bottom line is that disclosure becomes programmable while remaining private and the need for a central intermediary to hold or obscure transaction data is removed, aligning far better with AML/KYC than public chains.
The future of FHE-powered stablecoins
Those that are aware of FHE know that it has long promised privacy, but with certain trade-offs. For example, each transaction requires you to decrypt your amount, which is a step not needed with transparent stablecoins and one that people are not used to. Scalability is also a work-in-progress. Right now, achieving the 1,000 TPS possible on Solana is not possible, but ongoing improvements in cryptographic hardware and software suggest this will be feasible in the coming years.
What is possible, however, is certainly encouraging. Recent public testnets show we can already reach 20 transactions per second (TPS), with latency the same as a normal stablecoin. This is actually faster than Ethereum today and the expectation is it will reach the hundreds soon.
With performance data continuing to show steep improvements, and the confidentiality requirements enterprises face going nowhere, truly confidential stablecoins could very well move from the early stages of practical deployment into true enterprise adoption in the not-too-distant future.
Jason Delabays is Ecosystem Lead at Zama
