Confidential stablecoins: privacy for DeFi's leading use case
Stablecoins are DeFi's clearest product-market fit: over 250 billion dollars in circulating value, with transfer volumes that exceeded 27 trillion dollars in 2024. They are tokenized fiat, used for payments, remittance, trading, collateral and savings. And nearly every one of those transfers is public: amount, sender, receiver, and the full history of both addresses, visible to anyone forever.
The current state of stablecoin privacy
The best-known attempt to fix this was Tornado Cash: deposit tokens into a mixing pool, withdraw them to a fresh address, with zero-knowledge proofs breaking the link. It also became a cautionary tale. The US Treasury sanctioned the protocol in 2022, citing at least 7 billion dollars in processed value with a meaningful share tied to illicit actors, including North Korea's Lazarus Group. Research has since shown that its anonymity degrades in practice through wallet fingerprints, usage patterns and address clustering. And it only ever supported basic transfers, not the composable DeFi operations stablecoins actually participate in.
The lesson is not that on-chain privacy is impossible. It is that privacy without a compliance path gets destroyed by regulators, and privacy without programmability is a dead end.
Regulatory clarity has arrived, and it demands both
In July 2025, US legislation moved decisively. The GENIUS Act, signed on July 18, establishes a federal framework for payment stablecoins: full reserve backing, monthly audits, AML compliance. The CLARITY Act defines permitted payment stablecoins as distinct from securities and commodities, with Bank Secrecy Act obligations attached. A third bill bars the Federal Reserve from issuing a CBDC without Congressional approval, effectively backing private dollar stablecoins as the digital dollar.
Together these bills tell issuers two things at once: stablecoins are legitimate, and issuers must run KYC, monitor transactions and report suspicious activity. A stablecoin that cannot support oversight is now a regulatory liability. A stablecoin that exposes every customer's balance and counterparty to the world is a commercial one. The market needs both properties in one instrument, and a clear divide is emerging between privacy solutions that can satisfy regulators and those that cannot.
Programmable, compliant privacy with garbled circuits
Garbled-circuit MPC gives stablecoins the combination the legislation effectively requires. Balances and transfer amounts are encrypted end to end and the network computes directly on the ciphertext, so transfers, swaps and any other contract logic run confidentially: this is general-purpose computation over shared private state, not a mixer bolted onto a transparent token. There is no trusted third party and no single point of failure, and it is efficient enough to run on ordinary hardware at production scale.
Compliance is opt-in by design, not absent by design. Selective disclosure through the on-chain access list (ACL) lets an issuer grant auditors and regulators scoped visibility into exactly the records they are entitled to, while MEV bots, phishing operations, competitors and data brokers see nothing at all.
Transparent by default failed the users. Opaque by default failed the regulators. Confidential by default, with disclosure where it is legitimate, is the version that survives both.
Read how Bubble makes stablecoins confidential, or talk to our team.