A pseudonymous Ethereum researcher has proposed a stablecoin that would let people move dollars privately on the blockchain, although the two cryptocurrencies backing it can still be frozen by their issuers.
- JiangXb-son, a contributor to Ethereum Research, published the proposal on Oct. 9.
- The new design proposes a stablecoin backed by USDC and USDT, the dollar-pegged tokens issued by Circle and Tether, with smart contracts handling issuance and redemption without requiring approval from an intermediary.
The researcher said the proposed stablecoin could let traders execute strategies without exposing them to "copycats, front-runners, or adversarial observers." It could also support private prediction markets, allowing participants to take positions "without revealing their identities or intentions," according to the proposal.
Users could also selectively disclose their financial information to auditors, counterparties or regulators without revealing their entire transaction history.
The paper, published under the PLabs GitHub account, describes issuance as "trustless" and "permissionless," meaning smart contracts rather than a central operator would govern the creation and redemption of private tokens.
But Circle and Tether can still freeze the underlying money
Circle, the U.S. financial technology company behind USDC, reserves the right to block transactions involving certain addresses, including when required by court orders or law enforcement.
Tether, the El Salvador-based issuer of USDT and Circle's key rival, has similar powers and introduced a wallet-freezing policy targeting sanctioned addresses in December 2023.
So while users might still be able to make private transfers within a protocol, they'd lose the ability to redeem their tokens for the original USDC or USDT if the collateral becomes frozen.
- In a separate proposal published in June, JiangXb-son also circulated a draft for pERC20, an Ethereum token standard designed to conceal balances and transactions.
- That design explicitly included a compliance mechanism allowing administrators to blacklist individual private tokens.
- The proposal was eventually revised into ERC-8302, a proposed token standard that remains under review as of press time.
A $12.6 million freeze already hit another privacy protocol
But the risks of relying on stablecoins that issuers can freeze have already surfaced in another Ethereum privacy project.
In May, Circle froze approximately $12.6 million in USDC held by Zama, a cryptography company behind cUSDC, a confidential version of Circle's stablecoin. The freeze followed a court order involving funds linked to Overnight Finance, a separate decentralized finance protocol, but also left other Zama users unable to access their money.
Zama's confidential USDC contract allowed users to deposit ordinary USDC and receive cUSDC, a version that concealed transaction amounts and balances.
According to Zama co-founder and CEO Rand Hindi, the disputed deposit accounted for more than 99% of the funds held by the contract, but Circle's action temporarily affected other users whose money was held alongside it.
The court lifted the freeze by June 2, with Zama saying the restriction had been unwarranted.
There's no evidence, though, that the new Ethereum proposal would necessarily suffer the same problem.
In February, the non-profit organization supporting Ethereum's development said it didn't believe in "building a private stablecoin," instead favoring privacy infrastructure that could eventually support payments.
The new proposal is an independent research contribution, with no announced launch date or Ethereum Foundation endorsement.