July 2026
JEL Classification: E42, G28, O33
Keywords: no-questions-asked principle, Layer-2, constrained privacy, regulatory compliance
This paper examines the potential of privacy-preserving stablecoins ("privacy stablecoins") as retail payment instruments. It argues that stablecoins currently operating on public Layer-1 blockchains face structural limitations in terms of scalability, regulatory compliance, and privacy protection. Privacy-enhancing Layer-2 architectures may help overcome these constraints by combining greater operational efficiency with mechanisms that reconcile user confidentiality and regulatory oversight. Although these solutions remain at an early stage of development, their broader adoption will depend critically on technological progress and on the approach taken by public authorities.
