Varun Datta, venture capitalist and CEO of Web3 investment firm Truth Ventures, explores why greater institutional adoption of blockchain could create growing demand for privacy infrastructure.
For much of Web3’s history, privacy has been treated as a question of how much information individual users should reveal when they transact online. That debate is not going away, but I think a much larger commercial question is beginning to emerge. If banks, asset managers and other financial institutions move more activity onto blockchain infrastructure, how much of that activity can realistically remain visible to everyone? The answer is probably very little.
This is becoming more relevant as institutional adoption moves beyond experiments. I have written previously about how institutional capital is changing the Web3 market, with attention moving beyond simple digital asset exposure towards tokenisation, settlement and the infrastructure supporting them. In September, the Eurosystem launched Pontes, which allows wholesale transactions in tokenised assets to settle in central bank money. The ECB is also preparing to invest a portion of its own funds in tokenised securities, while major UK banks have been testing tokenised commercial bank deposits.
These developments are important for Web3, but they also expose one of the limitations of using public infrastructure for institutional finance. Banks cannot reveal sensitive client activity every time they transact. Asset managers do not want to disclose positions and trading strategies to the market in real time, while companies have legitimate reasons for keeping treasury activity and commercial relationships confidential. The interesting consequence is that greater institutional adoption of blockchain may increase the need for privacy rather than reduce it.
Privacy and transparency are not opposites
There has always been a tension here because transparency is one of blockchain’s most useful characteristics. Transactions can be independently verified and records can be shared between participants without relying entirely on one organisation to maintain the definitive version of events. I do not think institutions will want to lose those advantages. What they will need is greater control over which information becomes public.
That is a different definition of privacy from the one that has sometimes dominated cryptocurrency. A regulated bank is unlikely to want transactions that cannot be audited by anybody. It still has obligations around KYC, anti-money laundering, sanctions and regulatory reporting. What it needs is the ability to satisfy those obligations without necessarily exposing the same information to every participant on a network.
This distinction is becoming much more prominent. On 29 September, Banca d’Italia published research into privacy-enhancing technologies and auditability in digital payment systems looking specifically at the need to combine confidentiality with regulatory oversight, traceability and accountability. I think that is a useful way to think about where this market is heading. The institutional privacy problem is not necessarily about hiding transactions. It is about allowing information to be verified without making all of that information public.
Zero-knowledge proofs are one of the technologies that could make this possible. In simple terms, they allow one party to prove that something is true without revealing all of the underlying information used to establish it. In finance, the applications are potentially significant. An institution could demonstrate that a particular compliance condition has been met without publishing the underlying client information, while a participant could potentially prove that it satisfies an eligibility requirement without revealing every piece of data used to reach that conclusion.
The Ethereum Foundation’s explanation of zero-knowledge proofs describes the same basic principle: verification does not always require disclosure. Zero-knowledge technology is not the only approach being explored. Ethereum’s institutional work on privacy also points to fully homomorphic encryption, trusted execution environments and privacy-focused Layer 2 networks. Each approaches the confidentiality problem differently and brings its own compromises around performance, security and trust.
This is still developing technology, so I would be cautious about assuming that any one of these approaches becomes the standard. What matters more from an investment perspective is the requirement they are all attempting to solve.
Institutional adoption creates a different market
Privacy has historically had a difficult commercial relationship with the internet. People frequently say that they value it, but consumer behaviour has shown repeatedly that convenience can be more important. That makes it difficult to determine how large the economic opportunity really is.
Institutions are different because confidentiality is often not optional. A fund manager has a commercial reason not to reveal a position before it has finished building it. A bank has legal and contractual obligations surrounding client information. Businesses routinely protect information about payments, suppliers and counterparties because revealing it could affect negotiations or expose their strategy.
Moving the underlying transaction onto blockchain infrastructure does not make those requirements disappear and, in some cases, makes them more difficult to satisfy. This is why I think privacy could become another important layer of Web3 infrastructure.
The launch of Pontes by the Eurosystem is a good example of how quickly tokenised finance is moving towards established financial institutions. An initial group including Deutsche Bank, Santander, Société Générale, the European Investment Bank and several other banks and public-sector institutions has already been onboarded. The ECB has also said it intends to gain practical experience investing in tokenised securities itself.
None of this proves that a particular privacy technology will succeed, but it does make the underlying problem more tangible. The greater the value of assets and transactions moving onto blockchain infrastructure, the more commercially sensitive information potentially moves with them.
The infrastructure opportunity
At Truth Ventures, we have consistently been more interested in infrastructure than in trying to predict which application or token will dominate a particular cycle. I have argued that that tokenisation is becoming part of financial infrastructure, with areas such as privacy, scalability and interoperability likely to become more important as that market develops. Privacy increasingly fits that thesis.
The infrastructure opportunities I find most interesting tend to have a simple characteristic: demand for them should increase if the wider ecosystem succeeds. More blockchain activity increases the need for scalability. More fragmented markets increase the importance of liquidity and interoperability. More interaction between digital assets and real-world institutions makes identity and compliance infrastructure more important. Privacy could follow the same pattern.
There is already evidence that investors are paying attention. Galaxy Research’s latest venture data placed privacy and security among the leading categories for crypto investment outside trading, exchanges and lending during the second quarter of 2026. But I would distinguish between investing in privacy as a narrative and investing in infrastructure that solves a specific institutional problem. The latter is considerably more interesting.
For financial institutions, the useful technology may not be the system that makes the greatest amount of information private. It may be the one that allows them to decide precisely which information needs to be disclosed, to whom and under what circumstances. That is a more difficult problem because it requires privacy and compliance to work together.
It also reflects where institutional blockchain adoption appears to be heading. The financial system is unlikely to become completely public simply because parts of its infrastructure move onchain. Equally, regulators are unlikely to accept systems where legitimate oversight becomes impossible. There will need to be infrastructure capable of operating between those two requirements.
For a long time, privacy was discussed as one of the philosophical benefits of cryptocurrency. As tokenisation moves further into conventional finance, I think we will increasingly discuss it in much more practical terms. Banks, asset managers and businesses using blockchain infrastructure will need ways to protect commercially sensitive information without sacrificing verification and oversight.
If institutional adoption continues, the companies that solve that problem may end up providing some of the infrastructure that makes wider adoption possible in the first place.
Vaun Datta
Varun Datta is a venture capitalist and the founder and CEO of Truth Ventures, a Web3-focused investment firm backing early-stage companies building the infrastructure for the next phase of decentralised technology. His investment interests include blockchain infrastructure, decentralised AI, DePIN, privacy and scalability, with a focus on technologies capable of supporting long-term adoption beyond individual market cycles.
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