Stablecoins and CBDCs as ZSAs

Dear Zcash community,

This is a re-edition of a previous post that went unnoticed and contained some mistakes. Here I try again to get your attention again as we come out with new ideas and proposals.

Times are maturing to actively push for Zcash adoption among institutions. Central banks all around the world are already developing their CBDC, often with privacy in mind. Also a lot of talk about stablecoin took place these days due to the Luna fiasco. Last friday Zooko was speaking in front of a crowd of bankers at the SNB-CIF conference, we should strike while the iron is hot.


Last year ECC reached out to potential ZSA issuers and others that might have interest in participating in ZSA issuance and support (here). These players were Tether, USDC, Maker, Thesis and OpenSea. Basically 3 kind of answer were received:

  1. Positive answer / genuine interest (Maker, Thesis)
  2. No answer / no contact made (Tether)
  3. Negative Answer / No interest (Circle, OpenSea)

In particular, it was the answer of Circle that made me think a lot.

“A zUSDC token must meet regulatory requirements that may be difficult or impossible to comply with, including perceived regulatory risk, the ability to freeze funds, and the ability to blacklist addresses. Most importantly, the Circle regulatory team is unwilling to consider ZSA support at the moment.”

The above criteria are met on other public blockchains like Ethereum, can we make it possible on Zcash too?

The Central Banks

I can’t say what a Central Bank would have answered if contacted by ECC, but most certainly they would also request the ability to freeze / blacklist. But let’s remember also that the Fed itself highlighted the need for privacy for a potential US CBDC. From the Fed CBDC paper (here):

“The Federal Reserve’s initial analysis suggests that a potential U.S. CBDC, if one were created, would best serve the needs of the United States by being privacy-protected, intermediated, widely transferable, and identity-verified. As noted above, however, the paper is not intended to advance a specific policy outcome and takes no position on the ultimate desirability of a U.S. CBDC.”

Also the European Central Bank is studying a CBDC (here) which should have some added values compared to existing solutions, especially regarding privacy:

“We could also foster the adoption of a digital euro by giving it legal tender status and designing it in a way that provides more privacy than current private digital payment instruments.”

A number of Central Banks is developing their CBDC (here). My assumption is that soon or later every stablecoinCDBC issuer will follow similar guidelines in the future.

Possible Solutions

I don’t know if this is possible with the ZSAs currently under design by QEDIT (here), how easy it is to add programmability to ZSAs (like @LeCryptoMath suggested here), or if this should be done on a L2. But the goal would be to have the ZSA issuer being able to implement a set of rules. For example:

  • The ZSA specific contract would allow transactions only from addresses that are whitelisted/KYC.
  • The ZSA issuer could freeze assets on a certain address.

Just like it is happening on Ethereum. I would appreciate the technical members of this forum to give me a quick feedback about the feasibility of the above. Maybe it is not possible at all due to the architecture of the network and how addresses work, but in my opinion it is worth evaluating.

2nd round of talks

If we ever come up with a solution / architecture it would be possible to start a second round of talks and start to design a solution.

Imagine calling Circle and saying: “hey, we found a possible solution to your problem. With newly designed ZSAs you will be able to freeze funds and blacklist addresses, and we would like to put down other specifications with you.” Maybe the would be more interested in evaluating ZSAs. Same with other major stablecoin players in the space as Tether (USDT), Circle (USDC), Maker DAO (DAI), Paxos (BUSD, USDP), etc…

It would be also possible to contact central banks and propose a round table. Maybe first with the Fed, and then with ECB (they are already in talks for interoperability of the respective CBDCs). Which better settlement layer than a public blockchain with the best privacy tech?

But we must have a solution to propose and be pro-active defining together with the industry and institution how CBDC/stables should be and how they could fit on Zcash:

  • How do they imagine a CBDC/stables running as ZSAs on Zcash?
  • Which privacy features do they imagine and how should they be deployed?
  • Should the emission be transparent or shielded?
  • Etc…

By involving relevant actors in due time we could design programmable ZSAs in the best possible way, and have major players onboard from the beginning.

Key people

Having institutional people onboard would be of great help in putting up the talks with Fed. Chair of SEC Gary Gensler is a strong advocate of Zcash technology (here). I guess it should not be too difficult to involve him and push our case.

Regarding major stablecoin issuers, a dear friend of mine has direct contact to Paolo Ardoino (CTO of Tether), and we can provide his mobile to @thecryptomath . We don’t have contact for other mentioned stablecoin issuers but getting their attention for a business proposal shouldn’t be hard. CZ from Binance is always keen on developing the blockchain space. Maker already showed interest but I guess they probably think about a fully shielded DAI.

Risk of not acting

Competitors: awareness about the need for privacy in monetary transactions is slowly increasing and new products are going to be on the shelf. is releasing a permissionless private payment protocol on Ethereum, which could allow users to send tokens in a private manner directly on L1. In case major DeFi protocol would implement Aztec users would also be able to use AMM, PERPS, etc . privately. just released a White Paper for a privacy preserving ZeroStableCoin(here).

And here I come with the second major risk for not taking action

Loss of first comer advantage: Zcash has arguably the best tech for private transaction, with the advantage of voluntary disclosure of information with the encrypted Memo feature. But it already happened in the past that projects with the greatest intuitions ahead of time have been forgotten.

For example, my friends and I closely followed Spell of Genesis (SoG), a card game based on Counterparty (a Bitcoin sidechain). BitCrystal, the game platform, conducted an ICO in 2014 to develop the card game, inventing collectibles on the blockchain, AKA NFT technology. TL;DR in 2017 Dapper Labs came with Cryptokitties and stole the scene; ERC 721 Specs were first proposed in Jan 2018. Where is SoG now? They moved to Ethereum but most of the crowd never heard about them.

If you want to read the full story, here is the research that I wrote for The Cryptonomist at the beginning of last year.

Value Creation for Zodlers only

The above suggestion is intended only to create value for Zcash hodlers and supporters. ECC or ZF could choose to develop a specific technology or add an exception for licensing. That wouldn’t clearly be in the interest of the Zcash community.


I vote L2. There are many many advantages to Zcash enabling sidechain-ish things.

I recently discovered Protocol Labs has done some research for Filecoin and is currently working on production ready code for something called Hierarchical Consensus. ECC has a relationship with Filecoin :thinking:. The high level idea is to allow a third party can create sidechain-ish things that can have altered consensus rules (e.g. that allow locking of funds etc). I believe we should start researching things like this now as it may (or may not) help to bundle/overlap this kind of consensus work with the transition to POS.

There is a YouTube video in the link below that gives a good overview.


Agreed. Also opens it up more to the open source community to contribute. Needs to be generalized enough and with a good enough API such that Circle, Tether, or whoever can just swap in and out support for it. I’m imagining there is some stripe-like toolkit that’s for “ZSAs” that companies can utilize to launch anything on (NFTs, tokens, currency, insurance claims, legal documents (Docusign on Zcash would be a good grant to ask for), etc etc.

This is a good thread, btw. Don’t know how the previous one went unnoticed. Are you sure you don’t work for the Zcash foundation or ECC? lol


Thank you @GGuy @pkr and @dontbeevil for supporting this thread.

I actually noticed that I failed to tag correctly people at Qedit, hope @LeCryptoMath will participate in this discussion since he might have a lot to say.


I love the time and effort put into the very funny ZERC paper. Applying Black-Scholes as a derivatives pricing model is an especially nice touch. Strong work and congrats to the team at S.T.U.P.I.D. :smiley:

Glad to see the topic of a ZSA stablecoin brought up again, but even if possible and potentially useful the notion of supporting a token that features blacklisting/freezing and KYC built on Zcash gives me pause. Curious what other people think of the potential ramifications of that, as interesting and potentially useful as it might be. I imagine many in this community would also be very uncomfortable.

Also agree that a hypothetical L2 would probably be a better vehicle for working on something like that.

Good question, it’s quite a dilemma. Shall we opt for a fully shielded - private network or allow certain players to run their assets on Zcash with censorship-ability? Most probably you are right, some people might not be so comfortable with the latter.

But what if some CBDC and/or major stablecoins would be running on Zcash, how much adoption would that generate? Users transacting with CBDCs or stables such as USDC, USDT or BUSD would be perfectly aware of the fact that they can be censored or have their funds frozen. This is already happening on many public blockchains, and if we don’t accept this compromise probably someone else will come and eat our lunch.

IMHO the question is: do we want to be the privacy maxi in the space or do we want to go to market?

The real value would be that users transacting these ZSAs would also understand that the base layer is private and censorship free. ZEC would be eventually perceived as the hard asset: private, decentralized and censorship resistant, with limited supply. While these special ZSAs would be used for everyday spending, people would be saving in ZEC. It would be creating extreme value for Zcash.

I am not a native english speaker but for how funny it wanted to sound it doesn’t feel appropriate, especially from someone who is a candidate for ZCG. More constructive comments would be highly appreciated.

EDIT: Sorry but i am not a native english speaker lol and I missed you were talking about ZeroStablecoin whitepaper! :joy:


Lol no worries @bloxster - I was responding to the paper that was very clearly intending to be funny (which I thought it was) and not at all trying to be flippant about the issue at hand around stablecoin ZSAs. I’ll edit my comment to make it clear that i was talking about the ZERC paper because you’re right, my comment was ambiguous and not hard to misread.

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The way I see it is there probably a net benefit to the future of privacy by bringing in more players into the Zcash ecosystem. I’m imagining 3 (or more) USD stable coins all competing on the Zcash chain (on L2). All launch less private then ZEC. How do they differentiate? There is an obvious incentive for one of these entities to spend time and money to become more private to differentiate from the competition. And once one does it, the other will have to at least do some seriously deep thinking if they can compete without also become more private.


L2 would make sense, especially considering the fact that zcash cannot scale using only L1 due to the blockchain trilemma. L2s can run on a centralized operator that publishes bundled/compressed transaction states into L1 at certain intervals to inherit L1 security. In the event that the centralized operator goes offline, users would be able to rescue all their funds besides CBDCs into L1 to be usable. This should not be confused with a side chain that doesn’t inherit the security of L1 and lose your funds if the side chain operator disappears. Unfortunately, zcash doesn’t currently have a feasible architecture to introduce a true L2 that inherits the full security of L1 without smart contract functionality. Zkrollups require smart contract functionality for them to be implemented on a blockchain.

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Any word if there are likely to be any discussions into these topics at ZCON? Specifically…

  1. Stablecoins and/or CBDCs on Zcash
  2. What are the next steps to enabling L2 on Zcash?

With forthcoming recursive zksnarks proof construction aren’t we going to reach a point of legitimate capacity for mass scale settlement at the base layer? In the crypto world, to my mind, that means somewhere in the realm of 300-500k transactions per day and less than 5 seconds for 1/x on-chain confirmation

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Try to get one of the devs to confirm this. Haven’t heard a single thing from zcash devs about reaching L1 scalability without L2

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