1. Why is the Privacy Sector Poised for a Take-off in 2025?

1.1 The Tension Between Regulation and On-chain Structures Becomes Evident

The crypto ecosystem of 2024–2025 is exhibiting a clear structural fracture. On one hand, ETFs and institutional capital have become the dominant source of liquidity for BTC and ETH, with market pricing power rapidly concentrating in compliant funds. On the other hand, the “narrative space” that the native crypto community relies on for survival continues to shrink, with the core values of crypto culture being consistently eroded by institutional frameworks.

As the regulatory system deepens, the industry is gradually entering a phase of “over-compliance.” Key technologies like ZK, privacy, account abstraction, and social recovery are being required to proactively adapt to regulatory frameworks, making the friction between the native community and compliance logic increasingly apparent. In 2025, several core community members, including Vitalik Buterin, have repeatedly emphasized the importance of privacy. Their core argument can be summarized as: a cryptocurrency without privacy protection will degenerate into a mere financial instrument and will no longer be part of the Cypherpunk movement.

This tension at the value level has made “privacy” a highly sensitive topic in the crypto ecosystem once again.

1.2 A Marginal Shift in Regulatory Attitudes: From “Comprehensive Crackdown” to “Selective Neglect”

Compared to 2020–2023, the global regulatory attitude towards privacy tools has undergone a moderate structural change in 2024–2025:

United States: Privacy discussions are returning to the technical realm. With a shift in the U.S. administration, the regulatory narrative surrounding protocols like Tornado Cash has noticeably cooled. The topic of privacy has gradually moved from a “political risk” back to a “technical discussion.” Although there has been no substantial relaxation of regulations, the decrease in enforcement frequency and intensity has created more room for the privacy narrative.

European Union: Policy is becoming more moderate, with a focus on VASP compliance. In new discussions around MiCA 2.0, technical requirements for privacy addresses have been weakened. The emphasis is now more on the KYC/AML responsibilities of Virtual Asset Service Providers (VASPs), rather than outright banning the assets themselves. The focus of the policy framework is shifting from “prohibition” to “management,” leaving a compliant buffer zone for privacy assets.

Asia: The regulatory focus has returned to CEXs and AML processes. Discussions about on-chain privacy have significantly decreased in Asian markets, with more attention paid to the AML processes and fund-screening logic of centralized exchanges. The risk label associated with on-chain privacy technology itself is weakening.

1.3 The Narrative Space for the Privacy Sector Reopens

Under these marginal regulatory changes, the privacy sector is gradually transitioning from a “highly sensitive area under policy pressure” to a “field where technical discussions can resume.” This shift in attitude from comprehensive suppression to selective neglect has opened up a critical narrative space for privacy assets:

• They are no longer a primary target for regulatory crackdowns.
• They still possess anti-censorship value, which gives them a natural base of support within the native community.
• The moderation of the regulatory framework provides a minimum level of policy tolerance for the narrative to recover.

Historically, every rally in the privacy sector has been driven by a combination of “technological breakthrough + marginal regulatory improvement + market structure change.” The backdrop of 2025 happens to meet this combination once again.

2. Liquidity Structure and Capital Behavior: The Privacy Sector as a New “Narrative Vehicle”

2.1 Liquidity Concentration: Traditional Rotation Paths Are No Longer Viable

A core feature of the current market is that mainstream liquidity is highly concentrated, significantly compressing the rotation space for on-chain native capital. This includes several aspects:

• Large-scale interest rate cuts and monetary easing at the macro level have not yet occurred, limiting new capital inflow into the crypto market.
• ETFs and staking have locked up a large amount of BTC/ETH liquidity, reducing the tradable supply of mainstream assets.
• High-frequency speculative sectors like Memes, AI-memes, BRC-20, and ICOs have absorbed a large amount of on-chain speculative capital, squeezing out other sectors.

This structure has led to two outcomes:

• The mainstream rotation model is difficult to replicate from the previous cycle. The traditional path of L1 → L2 → DeFi → GameFi → Public Chain is unlikely to be repeated in this cycle, as the over-concentration of capital pools limits the strength of on-chain diffusion.
• The native crypto community lacks new “narrative anchor points.”
  • BTC has become fully institutionalized.
  • Stablecoins are strictly framed by regulations.
  • The L2 space is fiercely competitive, with little room for 100x returns.

This creates a need for a new direction to accommodate the liquidity and emotional demands of the native community.

2.2 The Privacy Sector’s Four Key Advantages in This Context

Against the backdrop of high liquidity concentration and a lack of narrative space, the privacy sector perfectly meets the real needs of native capital. It possesses four core conditions that allow it to “naturally fill the void”:

1. Low Market Cap, High Price Elasticity: Mainstream privacy projects have been undervalued for a long time, giving them a low valuation base that is more susceptible to structural promotion and trend-driven rallies.
2. Solid Underlying Technology with Narrative Extensibility: Concepts like ZK technology, private payments, unified addresses, and composable privacy are all mature directions with a solid engineering and narrative foundation for repeated expansion.
3. Embodies the Cypherpunk Spirit: Privacy is an important component of crypto’s native values, making it easy to gain community consensus and build a long-term narrative.
4. Matches the “Marginal Moderation” of Regulatory Trends: The shift from being a “primary target of strong regulation” to “not a priority for enforcement” reduces the market’s risk discount for the sector.

Therefore, in 2025, the privacy sector has the structural conditions to become a focus of capital attention. This is not just a catch-up rally, but the filling of a structural vacuum.

2.3 The Q3–Q4 2025 Privacy Rally Shows “Active Structural Promotion”

Observing recent market behavior, the rally in privacy assets does not appear to be a natural diffusion but shows clear signs of active promotion:

• Some OG funds and Asian trading teams have positioned themselves early, increasing position concentration.
• The frequency of social interactions among funds, derivatives traders, and ZEC/ZK development teams has increased, expanding market attention.
• ETH whales have accumulated ZEC/DASH at low prices on multiple occasions, indicating strategic position-building.

These signs suggest that this privacy rally is more the result of “structural promotion + carefully timed ignition” rather than being driven by natural market sentiment. The revival of the narrative and the behavior of capital are consistent in terms of timing and structure.

3. The Convergence of AI, Payments, and Crypto at Scale Creates More Space for Privacy

As AI, on-chain payments, and data sovereignty become mainstream application directions in 2025, the demand for privacy-related solutions is showing a structural upward trend. While privacy coins are not the only solution, they are the most directly tradable and easily priced vehicle for this narrative. Therefore, these emerging narratives provide external momentum for traditional privacy assets, giving them significant “narrative linkage equity” in this cycle.

In 2025, the deep integration of AI and crypto is forming several key trends:

• On-chain Banks: Emphasizing control over account systems, transaction paths, and user privacy.
• Data Sovereignty: Users need to independently manage the visibility, transferability, and provability of their own data.
• PayFi and the Restructuring of Crypto Payments: In cross-border payments, on-chain settlement, and stablecoin adoption, the dual need for “auditable + private” transactions is increasing.
• AI Agents and Automated Trade Execution: When AI agents initiate on-chain actions on behalf of users, the risk of privacy leakage becomes a core issue.
• Rising Demand for User-Level Privacy Computing: There is a need to ensure that user transactions, identities, and asset distributions cannot be easily linked on-chain.

These trends collectively point to a core fact: when AI, payments, and on-chain identity enter the mass adoption phase, privacy protection is no longer an option but a fundamental necessity. Therefore, in this privacy rally, the market is more inclined to trade mainstream privacy assets that are “deployable, composable, and have clear engineering progress,” rather than pre-pricing future technologies.

4. Engineering Progress of Mainstream Privacy Coins: The True Driver of This Rally

The core of this privacy rally is not conceptual technologies like FHE (Fully Homomorphic Encryption), but the market’s re-pricing of the long-term accumulated breakthroughs of mainstream privacy coins in engineering capabilities, wallet experience, protocol structure, and ecosystem governance. Projects like ZEC, DASH, ZEN, and STRK represent the most iconic assets in the privacy sector, and their technical evolution, ecosystem positioning, and trading structure collectively form the underlying driving force of this rally.

4.1 Zcash (ZEC): The Dual Flywheel of a Technical Foundation and Ecosystem Economy

NU5 Upgrade: A Key Breakthrough from “Academic Privacy” to “Engineering-Grade Privacy”

Core upgrades like Halo 2, the Orchard shielded pool, and Unified Addresses (UDT) continue to advance. The NU5 upgrade (Orchard + Halo2 + Unified Addresses) pushed Zcash from “academic-grade privacy technology” to a “more usable and composable” engineering stage. The Halo 2 proving system removed the need for a trusted setup, Orchard enhanced the shielded transaction experience, and Unified Addresses simplified the wallet receiving process. Together, they significantly lower the barrier to entry and create a clearer path for future compliance integration and L2/Rollup access.

• Orchard does not rely on a trusted setup. Driven by the Electric Coin Company’s engineering team (including Sean Bowe), it has become one of the most advanced, secure, and verifiable zero-knowledge payment systems available today.
• Unified Addresses integrate Orchard, Sapling, and Transparent addresses into a single receiving format, which is expected to significantly increase the proportion of funds entering shielded pools. Currently, external observers cannot distinguish whether funds are entering a transparent or shielded pool.
• The Orchard pool, a major enhancement to existing shielded pools, forms an independent anonymity environment alongside the Sapling and Sprout pools.
• Transactions within Orchard reduce metadata exposure and enhance anonymity through Orchard’s “action” mechanism, a feature not present in the traditional UTXO model.

NU6 Upgrade: A Leap from a Technical Focus to Ecosystem Governance and a Sustainable Economic Model

One of the key initiatives of NU6 is the introduction of a new Zcash development fund model. The new “indirect funding model” replaces the old model, which allocated 20% of block subsidies to the Zcash Community Grants, the Electric Coin Company, and the Zcash Foundation.

The new Lockbox mechanism, proposed in ZIP 1015 based on community feedback, will accumulate 12% of block subsidies into a lockbox account. These funds will be used for ecosystem development only after the community reaches a consensus on the disbursement mechanism, ensuring long-term stable support for key development projects.

Meanwhile, Zcash Community Grants will continue to receive 8% of the annual funding for project grants.

Long-Term Narrative Direction: Scaling and Application Scenarios are the Next Challenges

The integration of ZK-Rollups/L2s is seen as a key potential direction for Zcash. However, it faces dual challenges of engineering complexity and economic model structure. If realized, it could potentially turn Zcash’s shielded pool into a scalable, DeFi-compatible privacy execution layer. The community has begun preliminary explorations and proposals, but implementation will take time. A notable proposal is the “Ztarknet” solution by ecosystem developer Dimahledba, which aims to combine Starknet and Zcash to build a private and scalable dual-layer network, allowing network fees to be paid in ZEC. This proposal has received early support from several community members, including founder Zooko Wilcox.

Overall, the NU6 series covers ecosystem governance, funding models, development fund management, and long-term sustainability mechanisms (including a coinholder-controlled fund and grant model proposed in NU6.1), while also including performance optimizations and technical debt cleanup. NU5 built the technical foundation, while NU6 complements and strengthens it at the ecosystem governance and economic structure levels. With a solid technical foundation (NU5), the future ecosystem and funding model (NU6) will determine how development resources are allocated, how governance balances community and institutional interests, and whether the development pace can remain stable, thereby directly affecting ZEC’s long-term market confidence. The positioning of ZEC and the Zcash network has shifted from the “hype narrative of a BTC privacy fork” to “a privacy infrastructure with continuous R&D and governance capabilities.”

4.2 Other Mainstream Privacy Coins and Their Relevance

Project	Ticker	Key Progress and Relevance	Evaluation	Trading Value
Dash	DASH	– Ongoing improvements to infrastructure like Evolution and ChainLock. – Repositioning of privacy from “opt-in” to “default-enhanced privacy.” – Frequent interactions with ZEC and STRK communities, attracting trading attention. – Multi-chain interoperability protocol entering testing phase.	DASH’s technical innovation is less aggressive than ZEC’s, but its “digital cash” narrative is particularly popular in the current liquidity-constrained environment.	– Clear trend – Low market cap – Stable community and miner structure
Horizen	ZEN	– Continued improvements to modules like zkAudit and zkDAO. – More complete SDK toolchain. – Redesigned node economic model. – Further implementation of Rollup-as-a-Service.	ZEN’s core advantage lies in being a “development chain for privacy.” Compared to the payment narratives of ZEC/DASH, its positioning is more aligned with Web3 infrastructure. In this rally, ZEN, as an established project with technology, products, and an ecosystem, serves more as a “complement to the privacy industry.”	– Acts as a supplementary asset to the broader privacy sector theme.
Starknet	STRK	– Continuous interaction with ZEC/DASH communities, sparking trading interest. – Driven by the OP_CAT (Bitcoin extension proposal) narrative. – Progress in zk-STARK ecosystem and compatibility. – Weak existing applications, but new capital continues to flow in.	STRK is weaker than ZEC/DASH on the engineering side but has shown the strongest performance in terms of “sentiment + trading structure,” becoming the most typical trading-driven privacy narrative asset in this rally.	– Primarily driven by trading and market sentiment.

Why Related Concepts like ZK/FHE Failed to Rally

ZK and FHE-related concept projects did not see a corresponding rally, mainly because:

• Their business scenarios have not yet been validated, and they lack a sustainable demand loop.
• They are still in the early R&D stage with insufficient engineering implementation.
• They lack long-term narrative accumulation and have not gained recognition from mainstream capital.

Therefore, the nature of this rally is still a re-pricing of traditional privacy coins’ valuations, not a speculative frenzy based on future expectations for ZK or FHE.

5. Does This Privacy Rally Have Sustainability?

The resurgence of the privacy sector in 2025 is not accidental. It is a “confluence rally” and a “structural capital demand” formed by the combined effect of four factors: a marginal weakening of regulatory attitudes, contracting liquidity for mainstream altcoins, accumulated demand for native narratives, and long-overdue engineering progress. However, the core uncertainty for its sustainability lies in whether privacy assets can truly play a foundational role in emerging fields like PayFi, AI Agents, and On-chain Banks.

If they can fulfill these roles, the privacy sector could grow into a “value-anchoring sector” for the new cycle. If not, this rally may enter a differentiation phase after one or two quarters.

The rise of the privacy sector in 2025 is not just a catch-up rally, nor is it driven solely by sentiment. It is a structural consequence of the crypto industry entering the institutional era. BTC has been redefined as “digital gold,” ETH has become the capital market for L2s, and privacy has once again become a core value proposition of Web3.

The essence of this rally is a re-pricing of the value of privacy, a periodic return to the Cypherpunk spirit, a reflection of the imbalance in mainstream capital structures, and a delayed fulfillment of engineering breakthroughs. The real question to ask is not “why is privacy rallying,” but rather: in an era of parallel development of AI and institutionalization, will privacy once again become a mainline value for crypto assets? Does the privacy sector have the opportunity to experience a structural, long-term trend? All this remains to be further validated by the market.