Circle is testing a privacy-preserving version of its flagship USDC stablecoin through a partnership with Aleo, the Layer 1 network that uses zkSNARKS to encrypt its traffic. 

Rather than fully anonymous transactions, however, the new stablecoin, USDCx, will feature bank-level privacy, meaning it keeps a compliance record, according to a blog on Tuesday. This “configurable compliance” makes the asset applicable for corporate use cases, from global payroll and e-commerce to critical aid distribution and P2P remittances, Circle posted on X. 

“The launch of USDCx on Aleo pairs high-quality reserve assets with on-chain visibility and privacy to strengthen the foundation that businesses rely on as they scale stablecoin use globally,” Circle Chief Commercial Officer Kash Razzaghi said in a statement.

Circle is not the only crypto firm looking to advance pragmatic privacy tech. Protocols like Railgun and Privacy Pools are building neo-mixers that can filter out bad actors, providing a place for everyone else to muddle their transaction history, while legacy privacy coins like Horizen are now leaning into “reg-compliant” operations. 

USDCx is being piloted on an Aleo testnet. The asset is fully backed by traditional USDC held in the xReserve, a version of Circle’s interoperable deposit and minting infrastructure using the issuer’s Cross-Chain Transfer Protocol and Gateway inter-blockchain systems. 

This setup is “trust minimized with no third-party bridges required,” Circle said. USDCx bridged to other blockchain networks will not “benefit from Aleo's zero-knowledge cryptography or privacy-preserving features” and are not “private by default,” Aleo noted on its webpage. 

An FAQ section for USDCx is “coming soon,” according to that Aleo webpage for the token, and Circle documentation does not appear to mention Aleo at the time of publication.

Cryptography roots

Aleo launched its mainnet in September 2024 after several years of development.

The project has its roots in a research paper written by several Zcash co-founders and other university cryptography experts that, in short, explored ways to bring native smart contracts to chains like Zcash.

The project raised a $200 million Series B round in 2022, co-led by SoftBank's Vision Fund 2 and Kora Management at a valuation of $1.45 billion. Other notable backers include Tiger Global, Andreessen Horowitz (a16z), and Samsung Next.