Structural Shift in the Privacy Track: From Anonymous Tools to Digital Financial Infrastructure

# I. Current Status of the Privacy Track: Structural Rebound in 2025

In recent years, privacy has been one of the most controversial and easily misunderstood tracks in the cryptocurrency market. On one hand, the public and transparent nature of blockchain is seen as its core value. On the other hand, the demand for privacy has always been real and has been amplified in financial, commercial, and security aspects. Entering 2025, with deeper institutional participation, the gradual formation of regulatory frameworks, and the maturation of cryptographic technologies such as zero-knowledge proofs, the privacy track is shifting from early adversarial anonymity to a more systematic, composable, and compliant infrastructure form. The privacy track is becoming a key variable that cannot be ignored in crypto finance.

From a market perspective, the privacy track showed a clear phase of rebound in the second half of 2025. Traditional privacy assets represented by Zcash and Monero outperformed the market overall, with Zcash reaching a peak increase of nearly 1100% within the year, briefly surpassing Monero in market capitalization, reflecting a repricing of optional privacy and compliance flexibility. Unlike previous privacy coins that mainly served as niche hedging assets, this round of rebound reflects a reassessment of the long-term value of privacy infrastructure.

From a technical and ecological structure perspective, the privacy track is undergoing a paradigm upgrade. Early privacy projects primarily focused on hiding transaction paths, addressing the issue of transfer anonymity, with typical representatives including Monero, early Zcash, and Tornado Cash. This stage can be viewed as Privacy 1.0, with the core goal of reducing on-chain traceability, but with limited functionality and compliance flexibility, making it difficult to support complex financial activities. Entering 2024-2025, privacy is evolving towards Privacy 2.0. The new generation of projects no longer merely hides data but attempts to complete computations and collaborations in encrypted states, making privacy a universal capability. For example, Aztec launched Ethereum-native ZK Rollup to support privacy smart contracts. Nillion proposed a blind computation network, emphasizing data usage without decryption. Namada explores cross-chain privacy asset transfers within the Cosmos ecosystem. These projects collectively point to a trend: privacy is shifting from an asset attribute to an infrastructure attribute.

# II. Why the Privacy Track is Key: Preconditions for Institutionalization and Complex Applications

The resurgence of privacy as a core issue is not due to an ideological shift but rather a result of real-world constraints. From a longer-term perspective, privacy also possesses significant network effects. Once users, assets, and applications gather on a certain privacy infrastructure, the cost of migration will significantly increase, giving privacy protocols a potential "underlying moat" attribute.

Institutional on-chain activities cannot be separated from privacy infrastructure: in any mature financial system, asset allocation, trading strategies, compensation structures, and business relationships cannot be completely transparent. A fully transparent ledger may have advantages in experimental phases, but after large-scale institutional participation, it can become a hindrance. Privacy does not undermine regulation but rather serves as a technical prerequisite for achieving "selective transparency," allowing compliance disclosures to coexist with the protection of business secrets.

On-chain transparency is bringing real security risks: as on-chain data analysis tools mature, the cost of associating addresses with real identities continues to decline, leading to a noticeable increase in issues such as extortion, fraud, and personal threats caused by wealth exposure in the past two years. This has transformed "financial privacy" from an abstract right into a real security need.

The combination of AI and Web3 raises higher demands for privacy: in scenarios where agents participate in transactions, execute strategies, and collaborate across chains, the system needs to verify compliance while protecting model parameters, strategy logic, and user preferences. Such demands cannot be met through simple address anonymity and must rely on advanced privacy computing technologies such as zero-knowledge proofs, MPC, and FHE.

# III. Compliance Pathways for the Privacy Track: From Adversarial Regulation to Programmable Compliance

The core constraint facing the privacy track has shifted from uncertain policy risks to highly certain institutional limitations. Represented by the EU's Anti-Money Laundering Regulation (AMLR), major jurisdictions worldwide are clearly prohibiting financial institutions and cryptocurrency service providers from handling "anonymity-enhanced assets," covering technologies that weaken transaction traceability, such as mixing, ring signatures, and stealth addresses. The regulatory logic does not deny blockchain technology itself but systematically strips away its "anonymous payment" attributes, embedding KYC, transaction tracing, and travel rules into the vast majority of cryptocurrency trading scenarios. Under the constraints of hefty fines, licensing risks, and preventive enforcement mechanisms, centralized channels have nearly zero tolerance for completely anonymous assets, fundamentally changing the survival conditions of privacy coins in the mainstream financial system.

In this context, the privacy track is being restructured from "strong anonymous assets" to "compliant privacy infrastructure." Following the Tornado Cash incident, the industry has gradually formed a consensus: completely un-auditable anonymous designs are unsustainable under the global anti-money laundering framework. Starting in 2025, mainstream privacy projects began to shift towards three pathways: optional privacy, reserving compliance interfaces for institutions and exchanges; auditable privacy, achieving selective disclosure through zero-knowledge proofs or view keys; and rule-level compliance, embedding regulatory logic directly into the protocol layer to cryptographically prove compliance rather than retroactively tracing data. Regulatory attitudes have also become more nuanced, shifting from whether to allow privacy to what kind of privacy is permissible, clearly distinguishing between strong anonymous tools and compliant privacy technologies. This shift gives privacy infrastructure a higher long-term certainty compared to traditional privacy coins, as privacy and regulation evolve from an adversarial relationship to a technical component of the next generation of verifiable financial systems.

# IV. High-Potential Privacy Track Project Profiles

1. Zcash: A Compliance Model for the Privacy Track

Zcash remains one of the most representative projects in the privacy track, but its positioning has fundamentally changed. Compared to Monero's "default strong anonymity," Zcash has adopted an optional privacy architecture since its inception, allowing users to switch between transparent addresses (t-address) and privacy addresses (z-address). This design, although questioned by some privacy advocates in the early days, has become its greatest advantage in the current regulatory environment. In recent years, the Zcash Foundation has continuously promoted upgrades to the underlying cryptography, such as the Halo 2 proof system, significantly reducing the computational costs of zero-knowledge proofs and paving the way for mobile and institutional applications. Meanwhile, the wallets, payment tools, and compliance modules surrounding Zcash are also continuously improving, gradually transforming it from an "anonymous coin" to a "privacy settlement layer."

From an industry perspective, Zcash's significance lies in its provision of a real-world case proving that privacy and compliance are not entirely opposed. In the context of further deepening institutional participation in the future, Zcash is more likely to serve as a regulatory reference for the privacy track rather than existing as a speculative asset.

2. Aztec Network: The Key Execution Layer for Ethereum Privacy DeFi

Aztec is one of the projects in the privacy track that is closest to the "core infrastructure" positioning. It chooses Ethereum as its security layer and implements privacy smart contracts through ZK Rollup, enabling the possibility of composable privacy capabilities with DeFi. Unlike traditional privacy protocols, Aztec does not pursue extreme anonymity but emphasizes programmable privacy: developers can define which states are private and which are public at the smart contract level. This design theoretically allows Aztec to support complex financial structures such as privacy lending, privacy trading, and privacy DAO treasuries, rather than being limited to transaction obfuscation.

From a long-term perspective, Aztec's potential value lies not in a single application but in whether it can become the default "privacy execution environment" within the Ethereum ecosystem. Once privacy becomes a necessary condition for institutional DeFi, native ZK privacy Rollups like Aztec will possess a strong path dependency advantage.

3. Railgun: Realization of Protocol-Level Privacy Relay Layer

Railgun's uniqueness lies in the fact that it is not an independent public chain but provides privacy capabilities to existing assets in the form of a protocol. Users do not need to migrate assets to a new chain but can achieve privacy interactions for ERC-20, NFTs, and other assets through Railgun's shielding pool. This "relay layer privacy" model gives Railgun a lower user migration cost and makes it easier to integrate with existing wallets and DeFi protocols. Its rapid growth in transaction volume in 2025 reflects the strong demand from real users for "gaining privacy without changing ecosystems." Notably, Railgun is attempting to introduce interaction methods that align more closely with regulatory expectations, such as restricting sanctioned addresses from entering the privacy pool, indicating that it is not moving towards completely adversarial anonymity but exploring sustainable models under real-world constraints.

4. Nillion / Zama: Privacy Computing as Next-Generation Infrastructure

If Zcash and Aztec still belong to the realm of blockchain privacy, then Nillion and Zama represent a broader category of privacy computing infrastructure. Nillion's proposed "blind computation" network emphasizes completing storage and computation without decrypting data, aiming not to replace blockchain but to serve as a privacy collaboration layer between data and applications. Zama focuses on fully homomorphic encryption (FHE), attempting to allow smart contracts to execute logic directly in encrypted states. The potential market for such projects is not limited to DeFi but covers larger-scale application scenarios such as AI inference, enterprise data sharing, and RWA information disclosure. From a medium to long-term perspective, they are closer to the "HTTPS layer" of Web3, and once mature, their impact may far exceed that of traditional privacy coins.

5. Arcium: The "Joint Brain" for AI and Finance in Privacy Computing

While some privacy projects still primarily serve blockchain-native scenarios, Arcium's goal points to a broader, data-intensive industry. It is a decentralized parallel privacy computing network attempting to become the "joint brain" for high-sensitivity fields such as AI and finance. Its core innovation lies in not betting on a single technological route but integrating multi-party secure computation (MPC), fully homomorphic encryption (FHE), and zero-knowledge proofs (ZKP) into a unified framework, dynamically scheduling the optimal combination between privacy strength and performance based on different tasks, thus enabling collaborative computation while keeping data encrypted throughout. This architecture has garnered official attention from NVIDIA and has been selected for the Inception program, focusing on privacy AI-related scenarios. At the application level, Arcium is building a decentralized trading dark pool, allowing institutional-level large orders to be matched under complete privacy conditions, avoiding front-running and market manipulation. Therefore, Arcium represents the cutting-edge direction of deep integration between the privacy track and real industries such as AI and high-end finance.

6. Umbra: The Cloak of Invisibility in the DeFi Ecosystem and a Compliance Pioneer

Umbra's positioning is clear and pragmatic: to become an easily integrated privacy payment layer in the mainstream DeFi ecosystem. Initially gaining attention for its "invisible address" mechanism on Ethereum, it has now expanded its focus to high-performance public chains like Solana. By generating one-time, untraceable invisible addresses for recipients, Umbra makes each transfer difficult to trace back to the main wallet, effectively providing a layer of "invisibility" for on-chain payments. Unlike solutions that emphasize absolute anonymity, Umbra actively incorporates the idea of "auditable privacy" into its protocol design, reserving technical space for compliance audits, significantly enhancing its potential for institutional adoption. In October 2025, Umbra raised over $150 million through an ICO, validating market recognition of its pathway. Its ecological expansion follows a "Lego-style" strategy, simplifying SDKs to enable low-cost integration of privacy payment capabilities for wallets and DApps. Its long-term key lies in whether it can successfully embed itself into the core application stack of mainstream public chains like Solana, becoming the de facto standard for privacy payments.

7. MagicBlock: A High-Performance Privacy Execution Layer for Solana Based on TEE

MagicBlock is a representative case of transforming from on-chain gaming tools to high-performance public chain privacy infrastructure. Its core product is the Ephemeral Rollup based on Trusted Execution Environment (TEE), aimed at providing a low-latency, high-throughput privacy computing layer for the Solana ecosystem. Unlike solutions that rely on complex zero-knowledge proofs, MagicBlock chooses to execute standard Solana transactions directly within hardware security zones like Intel TDX, ensuring the confidentiality of computation and data through verifiable "black boxes," thus achieving performance close to that of the native chain. This engineering-oriented design allows developers to introduce privacy features into DeFi or gaming applications with minimal changes, significantly lowering the development threshold. MagicBlock precisely fills the structural gap in Solana's privacy layer and has thus received investment support from core figures in the ecosystem. Of course, its solution relies on hardware trust, which poses limits on cryptographic purity and will face long-term competition after the maturity of zero-knowledge technologies. Overall, MagicBlock embodies a realistic route that emphasizes usability and implementation efficiency in privacy infrastructure, serving as an important sample for observing how the market balances "ease of use" and "technical idealism."

# V. Outlook for the Privacy Track in 2026: From Optional Features to System Defaults

Looking ahead to 2026, the privacy track is unlikely to explode in a high-volatility, strong-narrative manner but will instead penetrate through a slower yet more certain path.

On the technical level, the engineering maturity of zero-knowledge proofs, MPC, and FHE will continue to improve, with performance bottlenecks and development thresholds steadily decreasing. Privacy capabilities will no longer exist as "independent protocols" but will be embedded in the form of modules within account abstractions, wallets, Layer 2, and cross-chain systems, becoming default options rather than additional features. On the compliance level, the regulatory frameworks for cryptocurrency in major economies are tending to stabilize. As market structure legislation and stablecoin regulations gradually take effect, institutional participation in on-chain finance is expected to significantly increase, which will directly amplify the demand for compliant privacy infrastructure. Privacy will shift from being a "risk point" to a "necessary condition for institutional on-chain activities." At the application level, privacy will gradually become "invisible." Users may not perceive that they are using privacy protocols, but their assets, strategies, and identity information will be protected by default. DeFi, AI Agents, RWA settlements, and enterprise on-chain collaborations will all assume privacy as a precondition rather than a post-fix.

From a long-term perspective, the real challenge for the privacy track lies not in "whether to be anonymous" but in whether it can continuously prove the system's trustworthiness and compliance without exposing data. This capability is the last piece of infrastructure that crypto finance must complete as it transitions from the experimental stage to maturity.

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