Aleo insists that institutions will never be fully secure on-chain until they turn to private settlement rails.Aleo insists that institutions will never be fully secure on-chain until they turn to private settlement rails.

Why Stablecoin Privacy Matters for Institutional On-chain Security, According to Aleo

2025/11/17 02:05

As the institutional adoption of cryptocurrencies, particularly the stablecoin sector, expands, the need for privacy settlement is becoming increasingly important. A Privacy Gap Report from the layer-1 zero-knowledge proofs (ZKPs) privacy blockchain Aleo has highlighted the challenges that could stem from the persistent lack of privacy.

According to the report, the lack of privacy in institutional stablecoin transactions has created a major disconnect in today’s blockchain economy. Aleo explained that such a development exposes institutions to competitors, third parties, and bad actors.

The Stablecoin Privacy Gap

Aleo believes that privacy is the missing piece of stablecoin adoption. Stablecoin activity has climbed to new highs, recording nearly $1.25 trillion in transaction volume by last month.

On a year-over-year basis, custodian transactions have recorded a 256% growth, with Copper and Ceffu controlling 75.7% of the flows. Each firm is responsible for $107.85 billion and $106.47 billion, respectively. Labeled market-making entities, such as Wintermute, have averaged $50.8 billion in monthly volume over the last 24 months. Last month, labeled institutional flows hit $68.94 billion, with Wintermute alone accounting for 67.2% of labeled fund flows and 73,000 daily transactions.

Even government transfers are visible. Aleo tracked a U.S. enforcement-related transaction of $225.5 million in June 2025, as well as at least $320 million in transfers in that month.

As stablecoin usage goes mainstream, the adoption of privacy infrastructure is barely beginning. Only 0.0013% (approximately $624.4 million) of $1.25 trillion institutional flows used any form of privacy settlement last month. This indicates that institutions are executing high-value transfers on fully transparent chains. They are exposing their movement patterns and trading strategies in real time.

The Threat and Solution

Currently, institutional behaviour and counterparties are visible to external observers. These transparent rails allow competitors and third parties to map flows, liquidity patterns, and relationships.

Market makers can be surveilled for inventory levels, tracking client flows, and checking rebalancing schedules. This affects at least nine million unique USD Coin (USDC) addresses. Most stablecoin custodian flows occur on Ethereum, and Aleo says observation is easiest on this network. This exposes client strategies.

Additionally, transactions executed by over-the-counter desks reveal price discovery information that should be confidential. Bad actors exploit this data to front-run trades and manipulate markets.

The team behind the ZKPs privacy network believes that institutions need to embrace privacy infrastructure to remain safe on-chain. With compliant privacy-preserving rails already emerging, the industry could witness a 2-5% (representing $1 billion-$2.5 billion) shift into private settlement soon.

The post Why Stablecoin Privacy Matters for Institutional On-chain Security, According to Aleo appeared first on CryptoPotato.

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