Circle, the company behind the widely used USDC stablecoin, has teamed up with Inco Network to develop a more privacy-focused version of the ERC-20 token standard.
The new “Confidential ERC-20 Framework,” detailed in a whitepaper released on October 28, aims to enhance user privacy while maintaining regulatory compliance.
Confidential ERC-20 Framework Uses Wrapped Version of Tokens
Unlike typical ERC-20 tokens, which openly display account balances and transaction details on-chain, the Confidential ERC-20 Framework uses a wrapped version of these tokens to hide this information.
However, it preserves wallet address visibility, distinguishing it from fully anonymous transactions.
Circle calls this approach “on-chain confidentiality,” as it shields transaction values and balances without entirely masking wallet addresses.
The partial privacy, Circle argues, can balance user privacy with effective risk management.
“Confidentiality offers sufficient privacy for many financial use cases, such as payroll, vendor payments, and peer-to-peer transfers,” Circle noted, suggesting this approach reduces risks associated with full anonymity, which can sometimes aid illicit activities.
To maintain oversight capabilities, the Confidential ERC-20 standard allows “delegated viewing,” enabling certain entities like regulators and auditors to access account details with permission.
Additionally, it supports programmatic rules that allow issuers to enforce KYC and other compliance measures, ensuring a layer of control over asset transactions.
The framework preserves the composability of ERC-20 tokens, meaning assets created under this standard can still interact seamlessly within Ethereum Virtual Machine (EVM)-compatible ecosystems.
The privacy enhancement relies on Fully Homomorphic Encryption (FHE), a technology that secures data without needing decryption, which is central to Inco Network’s confidentiality features.
While the Confidential ERC-20 Framework has received praise for its innovation in the Web3 space, some privacy advocates remain skeptical.
One such critic, Chaserxy, argued that the standard’s privacy features are limited, suggesting that authorities might still have access to sensitive transaction data through a backdoor.
Circle Signs MoU with Hong Kong Telecom
In another development, Circle has teamed up with Hong Kong Telcom (HKT) to explore blockchain-based customer loyalty solutions.
The solution would leverage Circle’s expertise in Web3 Services and HKT’s extensive merchant-customer engagement capabilities.
Meanwhile, Circle has recently launched Compliance Engine, a platform designed to simplify regulatory compliance for businesses using its programmable wallet platform.
The initial beta release focuses on the “Transaction Screening” feature, allowing real-time checks to identify potentially suspicious activity.
Businesses can customize rules based on risk type or severity and receive real-time reporting through a dashboard or webhooks.
Besides international businesses, stablecoins can also be used for global financial inclusion and humanitarian aid.
According to the Circle’s Impact Report 2024, traditional financial systems often leave billions of people unbanked and hinder efficient humanitarian aid distribution due to slowness, high costs, and lack of accessibility.
“Global finance is now beginning to build solutions for a world where billions of people can access portable bank branches in the palms of their hands,” the report says.
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