Opinion by: Fahmi Syed, president of the Midnight Foundation

Stablecoins: The Next Frontier in Finance—But At What Cost?

Stablecoins have emerged as the most sought-after innovation in blockchain since Bitcoin.
Offering the speed and flexibility of digital assets alongside the stability of fiat currency,
stablecoins serve as a natural bridge between traditional finance and decentralized systems.

Their adoption is accelerating, especially in emerging markets where they enable fast,
low-cost cross-border transactions and provide a buffer against currency volatility.

Recognizing the potential, traditional financial giants and agile fintech companies
are now aggressively entering the stablecoin space. Last year, PayPal’s PYUSD reached a
$1 billion market cap, directly challenging Circle’s USDC and Tether’s USDT. This year,
BlackRock planned a 10% investment in Circle’s upcoming IPO, signaling stablecoins are
moving into the mainstream financial system.

What’s more, major retailers like Amazon and Walmart have announced explorations into
issuing dollar-backed tokens. While banks and fintechs’ participation makes sense,
retailer interest signals a broader strategic view—seeing stablecoins not just as
transactional tools but as assets enabling disintermediation, cost reduction, and more
efficient balance sheet management.

But What About User Privacy?

Amidst discussions on regulation, collateralization, and payments innovation,
one critical issue remains underexplored: user privacy. Unlike conventional financial
systems, stablecoins operate primarily on public blockchains, where every transaction
is recorded permanently and immutably.

This structure introduces significant risks. Every customer interaction—from purchases
to subscription payments—is permanently visible to anyone and cannot be altered or deleted.
Companies with millions of customers face potential competitive encroachment and data
exploitation. Competitors could analyze spending patterns, and real-time performance data
enables market participants to exploit companies through front-running or shorting.

Furthermore, stablecoins threaten to violate prominent data protection frameworks.
Legislators like the GENIUS Act address regulatory compliance and asset backing, but they
don’t address blockchain’s inherent privacy challenges. Without amendment, regulation alone
cannot resolve the fundamental tension between transparency and confidentiality.

Blockchain’s Transparency Conflict

Blockchain’s immutability—its defining characteristic—directly contradicts modern data
protection requirements. Every stablecoin transaction creates an unalterable public record,
creating a fundamental conflict with institutional and regulatory expectations for privacy.

While technological solutions like zero-knowledge proofs exist to enable selective disclosure,
they remain non-standard in most stablecoin ecosystems. As institutions integrate stablecoins,
a compliance checkbox approach won’t suffice—exposing user data on public chains carries
catastrophic consequences that could derail mass adoption.

The Path Forward for Enterprise Use

Until blockchain technology can reconcile its inherent transparency with user privacy
requirements, stablecoins risk falling out of favor in institutional markets. The next
generation of blockchain infrastructure must prioritize confidentiality—balancing auditability
with data protection mechanisms—to achieve genuine enterprise-grade adoption.

The stablecoin revolution represents significant technological progress, but its full
realization requires addressing the fundamental tension between transparency and privacy.
Only when these foundational issues are resolved will stablecoins transition from niche
innovation to mainstream financial infrastructure.

Opinion by: Fahmi Syed, president of the Midnight Foundation.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.