Private by Default: The Next Competitive Edge in Stablecoins

Hello Real World! I’m Chris (@storaker), and this is Real World—The Defiant’s weekly update on stablecoins, tokenization, and RWAs.

This week, the announcement of USAD, a stablecoin minted on the “privacy by default'“ Aleo network, provided a reminder that privacy and compliance remain unsolved challenges for the enterprise adoption of on-chain rails.

Let’s get real.

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Top Moves This Week

Aleo and Paxos announced USAD — a U.S. dollar–backed stablecoin on the Aleo blockchain, combining privacy-by-default and built-in compliance proofs.

Stripe Launches Open Issuance — Stripe announced “Open Issuance” through its Bridge platform, allowing any business to create and manage stablecoins. The system integrates liquidity pooling, reserve management, and shared compliance, lowering the barrier to entry for new issuers and creating network effects.

Private by default: Aleo’s USAD stablecoin

This week, the Aleo Network Foundation and Paxos announced USAD, a U.S. dollar–backed stablecoin built on the Aleo L1.

Yes — this yet another entrant in the crowded new-stablecoin PR announcement bubble, but its designs point towards a critical missing piece of the puzzle towards the enterprise adoption of tokenized rails: privacy.

On networks like Aleo, transactions are private by default, meaning information including sender, receiver, and amount are encrypted. Additionally, they can be programmed to carry proof of compliance.

Transparency: Feature or a bug?

Transparency has often been touted by crypto enthusiasts as one core features over legacy railings. However, the open ledgers that enable trustless real-time transactions, are also exploited in less desirable ways:

• MEV bots extract value by reordering trades in the mempool.
• Whale trackers can replicate institutional order flow.
• Analytics providers undo the pseudonymity of wallets and commercialize address-level data (that would be regulated as PII in most jurisdictions).

For institutions and enterprises making their way into crypto, this transparency breaks two pillars of financial infrastructure: execution confidentiality and data-protection compliance. For instance, a payments firm subject to GDPR, PSD3, or CCPA cannot process payroll or customer flows on fully public rails.

Not unique to crypto

Every time technology has made financial data too visible, discretion has been re-engineered:

• 1867 – Ticker tape: “Real-time tape created information asymmetries; over time, exchanges introduced consolidated tapes and quote-publication controls to curb front-running
• 1977 – Telex: Telex messages were replaced by SWIFT’s authenticated, standardized network in 1977; widespread message encryption followed in the late 1980s–1990s
• 1992 – Black Wednesday: real-time FX terminals exposed the Bank of England’s defense of sterling, accelerating speculative attacks; central banks responded by anonymizing and delaying disclosures of interventions.

Privacy ≠ Opacity

Contrary to popular belief, regulators don’t object to privacy; they object to opacity and asymmetric information. For instance GENIUS and MiCA mandate redeemability and AML; neither requires publishing every transfer’s plaintext on a public ledger.

Zero-knowledge proofs

This is where zero-knowledge proofs provide a path forward, as they provide way to show the validity of a claim, without disclosing the underlying information that supports them. What they enable is controlled transparency; data remains encrypted, yet regulators or verifiers can confirm compliance.

In practice, this opens the possibility for auditors to satisfy AML, KYC, and jurisdictional checks, while keeping others information private, and while all of this remains hidden to other market participants. For example:

• KYC membership: proving a wallet’s inclusion in a regulator-approved registry.
• Sanctions non-membership: proving a public-key hash is not on OFAC’s list.
• Range proofs: demonstrating cumulative transaction value ≤ $10,000 per month for AML monitoring.
• Reserve attestations: aggregating off-chain auditor signatures to confirm assets ≥ tokens outstanding.

This is a structural advance over today’s “view-everything or view-nothing” model used in centralized compliance systems. They move supervision from post-hoc audits to real-time verification.

How Crypto Is Tackling It

OGs: Monero (2014) made all transactions private, while Zcash (2016) pioneered a viewing-key model that enabled for selective disclosure.

Aztec Network (relaunching 2025) takes this further by combining selective privacy with the programability of smart contracts. This enables use cases like private DeFi execution and mitigating MEV. Aleo, codes privacy and zk-proof checks into its consensus layer (e.g. The network can enforce “sender ∈ whitelist” or “transaction ≤ limit” before execution), a reason heavily regulated firms are Worldpay, Revolut, and Google Cloud have launched pilots.

Espresso Systems is developing a modular privacy and data-availability layer designed to slot under existing rollups or app-chains, meaning developers can choose which transaction fields (sender, amount, memo, contract call) are encrypted versus public. RISC Zero is building a general-purpose zero-knowledge virtual machine that can prove the execution of any code compiled for the RISC-V instruction set, a “proofs-as-a-service” that allows developers to run compliance code — e.g., sanction checks, KYC validation, or risk scoring — off-chain and then post a proof on-chain that “this logic ran correctly on these inputs.”

Together these efforts form an emerging privacy-compliance stack, where execution, verification, and auditability are modular but interoperable.

What to Watch

Regulatory signals: the FATF and European Banking Authority are reviewing “ZK-attested transactions” under the Travel Rule. Early recognition would de-risk institutional adoption.

Standardization: initiatives like ZKProof.org and W3C VC for ZKPs aim to unify proof formats across Aleo, Aztec, and Polygon ID by 2026.

Interoperability: projects such as Succinct Labs and Hyperlane are developing proof-bridges that could allow privacy-preserving assets to interact with public DeFi liquidity pools without leaking trade data.

Other Stories Worth Your Time

Stablecoins

SoFi Prepares Stablecoin & Crypto Expansion — SoFi, the U.S. neobank and consumer finance platform, is preparing to issue its own stablecoin while also exploring tokenized loans.

Phantom Unveils Phantom CASH on OpenIssuance — Solana’s top wallet Phantom launched Phantom CASH, a dollar-pegged stablecoin embedded into its app ecosystem and built on Open Issuance’s rails.

Abu Dhabi’s IHC Backs L2 for Dirham Stablecoin — Abu Dhabi’s sovereign-backed giant IHC is funding a Layer 2 blockchain to issue a dirham-pegged stablecoin. This move signals both regulatory approval and strategic ambitions for the UAE to become a global hub for RWA settlement and oil trade tokenization.

Paxos + Aleo Launch Privacy-Focused Dollar Stablecoin — Paxos, already an established regulated issuer, has teamed up with Aleo to launch a stablecoin with encrypted transaction data. It’s designed to appeal to institutions who demand compliance but also need privacy

SocGen Forge Deploys Euro & Dollar Stablecoins — Société Générale’s Forge unit rolled out euro- and dollar-backed stablecoins, with liquidity enabled through Morpho and Uniswap. This is the first time a G-SIB directly deployed stables into open DeFi markets, bridging traditional finance balance sheets with onchain liquidity pools.

GENIUS Act Targets Stablecoin Yield — The GENIUS Act aims to ban stablecoin issuers and protocols from offering yield, cutting off one of the most attractive features of decentralized stables. However, projects are already testing legal and technical workarounds.

Stablecoins Now >1% of U.S. Money Supply — CoinDesk highlighted that stablecoins now represent over 1% of the U.S. M2 money supply, up from virtually zero in 2017.

Bank of England Softens Stablecoin Cap Plan — The Bank of England (BoE) is planning to remove its proposed £10 million stablecoin holding limit for crypto firms by granting exemptions.

Payments

BNY explores tokenized deposits network — BNY Mellon is exploring tokenized deposits to move part of its $2.5 trillion daily payment flow onto blockchain rails

Brex Adds Stablecoin Payments — Brex, a leader in corporate card and treasury services, will now allow customers to send and receive payments in stablecoins. This positions stablecoins as a primary tool for corporate treasury management and global payouts.

PayPal’s PYUSD Surges on Spark Partnership — PayPal’s PYUSD stablecoin hit a new all-time high in supply after Spark, a major infrastructure provider, integrated it for payouts and commerce. The move boosts PYUSD adoption beyond PayPal’s own ecosystem.

Tokenization

ICE Invests $2 Billion in Polymarket — ICE will become a global distributor of Polymarket’s data, providing institutional investors with access to insights on market sentiment. The two companies also plan to work together on tokenization projects in the future.

Robinhood CEO: “Tokenization Will Eat Finance” — Vlad Tenev stated that tokenization will eventually replace traditional finance rails, likening it to how the internet overtook analog industries. CEO Vlad Tenev describes real estate tokenization as a "freight train".

Delloitte Survey: 99% of CFOs expect to use crypto assets long term — 1 in 4 say their finance functions will be using digital currency within two years.

SEC Push to Let Stocks Trade on Blockchain — The SEC introduced a proposal that would allow U.S. equities to be issued and traded onchain, a radical departure from the current T+2 clearing regime.

Standard Chartered + Polygon + AlloyX + RWA Pilot — Polygon partnered with AlloyX and Standard Chartered to tokenize money market funds, enabling onchain distribution of regulated funds.

Chainlink + UBS Partner on Fund Tokenization — UBS, the world’s largest private bank, teamed with Chainlink to tokenize global fund products, using Swift integration to extend reach.

Mantle Launches Tokenization Platform — Mantle launched a “tokenization-as-a-service” platform, integrating WLFI’s USD1 stablecoin and offering legal, compliance, and KYC tooling to bring traditional issuers onchain. It represents the growing SaaS layer of tokenization.

Anchorage Digital Adds Jupiter — Anchorage expanded its institutional wallet by integrating Jupiter, a Solana-based DEX aggregator, giving clients better access to DeFi liquidity pools directly from custody. It marks a major TradFi-onchain bridge.

Tips, corrections, rants? Let me know (@storaker), or contact the editors at editorial@thedefiant.io.

See you next week and keep it real.