Why Stablecoin privacy is important for on-chain institutional security, according to Aleo

Aleo emphasizes that institutions will never be completely safe until they turn to private settlements.

As institutional adoption of cryptocurrencies, especially the stablecoin sector, increases, the need for privacy regulation becomes increasingly important. A Privacy Gap Report from the layer-1 zero-knowledge proofs (ZKPs) privacy blockchain Aleo has highlighted the challenges that can arise from the continued lack of privacy.

According to the reportthe lack of privacy in institutional stablecoin transactions has created a major divide 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 to stablecoin adoption. Stablecoin activity has soared to new highs, recording a transaction volume of nearly $1.25 trillion last month.

On an annual basis, custody transactions grew by 256%, with Copper and Ceffu controlling 75.7% of the flows. Each company is responsible for $107.85 billion and $106.47 billion respectively. Labeled market-making entities, such as Wintermute, averaged $50.8 billion in monthly volume over the past 24 months. Last month, labeled institutional flows reached $68.94 billion, with Wintermute alone responsible for 67.2% of labeled fund flows and 73,000 daily transactions.

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

As stablecoin use becomes mainstream, adoption of privacy infrastructure has barely begun. Only 0.0013% (about $624.4 million) of the $1.25 trillion in institutional flows used any form of privacy arrangement last month. This indicates that institutions are carrying out high-quality transfers through fully transparent chains. They expose their movement patterns and trading strategies in real time.

The threat and solution

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

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Market makers can be monitored for inventory levels, track customer flows and control rebalancing schedules. This will impact at least nine million unique USD Coin (USDC) addresses. Most stablecoin custody flows take place on Ethereum, and Aleo says observation is easiest on this network. This exposes customer strategies.

In addition, transactions executed by over-the-counter desks reveal pricing information that should be confidential. Bad actors misuse this data to prepare trades and manipulate markets.

“Without privacy infrastructure, institutional adoption increases exposure rather than reducing it,” Aleo said.

The team behind the ZKP Privacy Network believes that institutions should embrace privacy infrastructure to stay secure on-chain. With privacy-preserving compliance regulations already emerging, the industry could soon witness a 2-5% shift (which amounts to $1 billion to $2.5 billion) to private settlements.