Author: BitMart Research Institute
I. Current Status of the Privacy Sector: A Structural Recovery in 2025
In the past few years, privacy has been one of the most controversial and misunderstood sectors in the crypto market. On the one hand, the open and transparent nature of blockchain is considered its core value. On the other hand, the demand for privacy has always been real and has been amplified in the financial, commercial, and security spheres.
Entering 2025, with deeper institutional participation, the gradual formation of regulatory frameworks, and the maturity of cryptographic technologies such as zero-knowledge cryptography, the privacy sector is shifting from early adversarial anonymity to a more systematic, composable, and compliant infrastructure form. The privacy sector is becoming a key variable that crypto finance cannot avoid.
From a market perspective, the privacy sector showed a clear phased recovery in the second half of 2025.
Traditional privacy assets, represented by Zcash and Monero, have generally outperformed the market. Zcash, in particular, saw its market capitalization rise by nearly 1100% this year, briefly surpassing Monero's, reflecting a repricing of optional privacy and compliance flexibility in the market. Unlike previous privacy coins, which primarily served as niche hedging assets, this recovery reflects a reassessment of the long-term value of privacy infrastructure. From a technological and ecosystem perspective, the privacy sector is undergoing a paradigm shift. Early privacy projects focused on hiding transaction paths, addressing the anonymity of transfers; typical examples include Monero, early Zcash, and Tornado Cash. This stage can be considered Privacy 1.0, whose core goal is to reduce on-chain traceability, but it has limited functionality and compliance flexibility, making it difficult to support complex financial activities. Entering 2024-2025, privacy began to evolve towards Privacy 2.0. New generation projects no longer merely hide data, but attempt to complete computation and collaboration in encrypted form, making privacy a universal capability. For example, Aztec launched Ethereum's native ZK Rollup to support privacy-preserving smart contracts. Nillion proposed a blind computation network, emphasizing the use of data without decryption. Namada explored cross-chain privacy asset transfers within the Cosmos ecosystem. These projects all 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
Privacy has once again become a core issue, not due to an ideological shift, but as a result of real-world constraints. From a longer-term perspective, privacy also possesses significant network effects.
Once users, assets, and applications aggregate on a privacy infrastructure, migration costs increase significantly, giving privacy protocols a potential "underlying moat" characteristic. Institutional on-chain adoption is inseparable from privacy infrastructure: In any mature financial system, asset allocation, trading strategies, compensation structures, and business relationships cannot be completely public. A fully transparent ledger has advantages in the experimental stage, but it can become an obstacle after large-scale institutional participation. Privacy is not a weakening of regulation, but rather a technological prerequisite for achieving "selective transparency," allowing compliant disclosure and trade secret protection to coexist. On-chain transparency is bringing real security risks: As on-chain data analysis tools mature and the cost of linking addresses to real-world identities continues to decline, extortion, fraud, and threats to personal safety arising from wealth exposure have increased significantly in the past two years. This has transformed "financial privacy" from an abstract right into a real security requirement. The integration of AI and Web3 places higher demands on privacy: In scenarios where intelligent 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. These requirements cannot be met through simple address anonymization; they must rely on advanced privacy computing technologies such as zero-knowledge proofs, MPC, and FHE. III. The Compliance Path in the Privacy Sector: From Countering Regulation to Programmable Compliance The core constraints facing the privacy sector have shifted from uncertain policy risks to highly certain institutional restrictions. Represented by the EU's Anti-Money Laundering Regulation (AMLR), major jurisdictions worldwide are explicitly prohibiting financial institutions and crypto asset service providers from handling "anonymity-enhanced assets," encompassing technologies that weaken transaction traceability, such as coin mixing, ring signatures, and stealth addresses. The regulatory logic is not to deny blockchain technology itself, but rather to systematically strip it of its "anonymous payment" attribute and extend KYC, transaction traceability, and travel regulations to the vast majority of crypto transaction scenarios. Under the constraints of hefty fines, licensing risks, and preventative enforcement mechanisms, centralized channels have almost zero tolerance for fully anonymous assets, fundamentally changing the survival conditions of privacy coins in the mainstream financial system. Against this backdrop, the privacy sector is being restructured from "strongly anonymous assets" to "compliant privacy infrastructure." Following the Tornado Cash incident, the industry gradually reached a consensus: completely unauditable anonymity is unsustainable under the global anti-money laundering framework. From 2025 onwards, mainstream privacy projects began to shift towards three paths: optional privacy, reserving compliant interfaces for institutions and exchanges; auditable privacy, achieving selective disclosure through zero-knowledge proofs or key viewing; and rule-level compliance, directly embedding regulatory logic into the protocol layer, proving compliance through cryptography rather than retrospectively tracing data. Regulatory attitudes have also become more refined, shifting from whether privacy is allowed to what kind of privacy is allowed, with a clear distinction between strongly anonymized tools and compliant privacy technologies. This shift gives privacy infrastructure greater long-term certainty compared to traditional privacy coins, and privacy and regulation are evolving from an adversarial relationship into technological components of the next generation of verifiable financial systems.
IV. Profiles of High-Potential Privacy Sector Projects
1. Zcash: A Compliance Example in the Privacy Sector
Zcash remains one of the most representative projects in the privacy sector, 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). Although this design was questioned by some privacy advocates in the early stages, it has become its biggest advantage in the current regulatory environment. In recent years, the Zcash Foundation has continuously promoted the upgrading of underlying cryptography, such as the Halo 2 proof system, which significantly reduces the computational cost of zero-knowledge proofs, paving the way for mobile and institutional applications.
Meanwhile, the wallet, payment tools, and compliance modules surrounding Zcash are continuously being improved, gradually transforming it from an "anonymity coin" to a "privacy settlement layer." From an industry perspective, Zcash's significance lies in providing a real-world example demonstrating that privacy and compliance are not entirely contradictory. With increased institutional participation in the future, Zcash is more likely to serve as a regulatory reference for the privacy sector rather than a speculative asset. 2. Aztec Network: A Key Execution Layer for Ethereum Privacy DeFi Aztec is one of the projects in the current privacy sector closest to being positioned as "core infrastructure." It chooses Ethereum as its security layer and implements privacy smart contracts through ZK Rollups, enabling privacy capabilities to be composable with DeFi's native features. 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 transactions, and privacy DAO vaults, not just 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 prerequisite for institutional DeFi, native ZK privacy rollups like Aztec will possess a strong path-dependent advantage. 3. Railgun: The Real-World Implementation of a Protocol-Level Privacy Relay Layer Railgun's unique feature is that it is not an independent public chain, but rather provides privacy capabilities for existing assets in the form of a protocol. Users do not need to migrate assets to a new chain; instead, they can achieve privacy interactions with assets such as ERC-20 and NFTs through Railgun's shielded pool. This "relay layer privacy" model gives Railgun lower user migration costs 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 privacy without changing the ecosystem. It's worth noting that Railgun is attempting to introduce interaction methods that better align with regulatory expectations, such as restricting sanctioned addresses from entering privacy pools. This means it's not moving towards complete adversarial anonymity, but rather exploring a sustainable model under real-world constraints. 4. Nillion / Zama: Privacy Computation as the Next-Generation Infrastructure If Zcash and Aztec still fall under the category of blockchain privacy, then Nillion and Zama represent a broader concept of privacy computing infrastructure. Nillion's "blind computation" network emphasizes storing and computing data without decryption. Its goal is not to replace the blockchain, but rather 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 form. The potential market for these projects is not limited to DeFi, but covers larger-scale application scenarios such as AI inference, enterprise data sharing, and RWA information disclosure. In the medium to long term, they are closer to the "HTTPS layer" of Web3, and once mature, their impact may far exceed that of traditional privacy coins. 5. Arcium: A "Joint Brain" for Privacy Computing in AI and Finance While some privacy projects still primarily serve blockchain-native scenarios, Arcium targets a broader range of data-intensive industries. It is a decentralized, parallel privacy computing network attempting to become a "joint brain" for highly sensitive fields such as AI and finance. Its core innovation lies in not betting on a single technology route, but rather integrating multi-party secure computation (MPC), fully homomorphic encryption (FHE), and zero-knowledge proofs (ZKP) into a unified framework. It can dynamically schedule the optimal combination between privacy strength and performance according to different tasks, thereby achieving collaborative computation of data under end-to-end encryption. This architecture earned Arcium official attention from NVIDIA and selection into the Inception program, focusing on privacy-related AI scenarios. At the application level, Arcium is building decentralized dark pools, enabling large institutional orders to be matched under completely private conditions, avoiding preemptive strikes and market manipulation. Therefore, Arcium represents the forefront of the deep integration of the privacy track with real-world industries such as AI and high-end finance. 6. Umbra: The Invisible Cloak and Compliance Pioneer of the DeFi Ecosystem Umbra's positioning is clear and pragmatic: to become an easily integrated privacy payment layer in the mainstream DeFi ecosystem. It initially gained attention for its "invisible address" mechanism on Ethereum and has now expanded to high-performance public chains such as Solana. By generating one-time, unassociated invisible addresses for recipients, Umbra makes each transaction difficult to trace back to the main wallet, essentially providing an "invisible cloak" for on-chain payments. Unlike solutions that emphasize absolute anonymity, Umbra proactively incorporates the concept of "auditable privacy" in its protocol design, reserving technical space for compliant auditing. This approach significantly enhances its institutional adoption potential. In October 2025, Umbra raised over $150 million through an ICO, validating market acceptance of its strategy. Its ecosystem expansion follows a "Lego-like" strategy, simplifying the SDK to allow wallets and DApps to integrate privacy payment capabilities at low cost. Its long-term key lies in its ability to successfully embed into the core application stacks of mainstream public chains like Solana, becoming a de facto standard for privacy payments.
7. MagicBlock: A High-Performance Privacy Execution Layer for Solana Based on TEE
MagicBlock is a representative example of a transformation from an on-chain gaming tool to a high-performance public chain privacy infrastructure. Its core product is Ephemeral Rollup, based on a Trusted Execution Environment (TEE), designed to provide a low-latency, high-throughput privacy computing layer for the Solana ecosystem. Unlike solutions relying on complex zero-knowledge proofs, MagicBlock chooses to directly execute standard Solana transactions within hardware security zones such as Intel TDX, ensuring computational and data confidentiality through a verifiable "black box," thus achieving performance close to that of a native chain.
This engineering-oriented design allows developers to introduce privacy features into DeFi or gaming applications with minimal modifications, significantly lowering the development threshold. MagicBlock precisely addresses Solana's structural shortcomings in privacy, thus gaining investment support from key figures in the ecosystem. However, its solution relies on hardware trust, has limitations in cryptographic purity, and will face long-term competition from mature zero-knowledge technologies. Overall, MagicBlock embodies a realistic approach to privacy infrastructure that emphasizes usability and implementation efficiency, serving as an important example of how the market balances "ease of use" and "technological idealism." V. 2026 Privacy Sector Outlook: From Optional Features to System Defaults Looking ahead to 2026, the privacy sector is unlikely to experience a high-volatility, narrative-driven explosion, but rather will penetrate the market through a slower, more predictable path. On the technical level, the engineering sophistication of zero-knowledge proofs, MPC, and FHE will continue to improve, while performance bottlenecks and development barriers will decrease. Privacy capabilities will no longer exist as "independent protocols" but will be embedded as modules in account abstractions, wallets, Layer 2, and cross-chain systems, becoming default options rather than additional features. On the compliance level, the crypto regulatory frameworks of major economies are stabilizing. With the gradual implementation of market structure legislation and stablecoin regulations, institutional participation in on-chain finance is expected to increase significantly, which will directly amplify the demand for compliant privacy infrastructure. Privacy will shift from a "risk point" to a "necessary condition for institutions to go on-chain." On the application level, privacy will gradually become "invisible." Users may not be aware 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 collaboration will all be based on privacy as a prerequisite, rather than as an afterthought. From a long-term perspective, the real challenge in the privacy sector lies not in "anonymity," but in the ability to continuously demonstrate the system's credibility and compliance without exposing data. This capability is the final piece of infrastructure that crypto-finance must acquire to move from the experimental stage to maturity.
Catherine
Weatherly
Anais
Kikyo