Governments worldwide are clamping down on stablecoins. That might push some users to turn to so-called “dark” or private stablecoins. They offer uncensorable transfers, but they come with high risks and uncertain practical application.
Wallets may even be frozen or need additional paperwork. That’s prompting some traders to seek alternatives. They seek tokens that can’t be traced or halted by governments.
Stablecoins, however, act as a bridge between the internet and the real world, so they need…
But history shows these designs can fail. In 2022, the UST peg collapsed in hours. A market shock or an oracle failure might leave holders with tokens worth a few cents. Trust is difficult to regain once it has been lost.
Privacy tech is not new to cryptocurrency. Cryptocurrencies like Zcash and Monero allow users to conceal transaction values and sender addresses. They have existed for years but are frequently subject to additional verification on exchanges.
Newer initiatives like Zephyr Protocol, a fork of Monero, will obscure stablecoin transactions on the blockchain. PARScoin conceals identities and associations with previous transfers. Their success will hinge on discovering secure methods to exchange tokens for normal currency.
According to Citigroup reports, the market capitalization of US dollar-denominated stablecoins reached over $230 billion in April. That’s an over 50% increase from last year.
Tether and USDC account for approximately 90% of that amount. Total stablecoin volumes reached nearly $28 trillion in 2024. That is almost 8% more than Visa and Mastercard combined.
Dark stablecoins might carve out a niche for cross-border transactions where censorship is the primary concern. But broad adoption will be beyond reach without transparent means of legal compliance.
Ultimately, the stablecoin world stands at a crossroads. There will be users who pursue privacy no matter what. And there will be those who opt for coins that play by the rules.
If algorithmic concepts can remain firm, or if privacy tokens will secure a foothold in the mainstream, that remains to be determined. But the tug-of-war between control and uncontrollable money has just begun.
Featured image from Unsplash, chart from TradingView
