Protecting Financial Privacy in the Digital Age: SEC Commissioner Hester Peirce’s Call for Government Support of Blockchain Privacy Technologies

Main Points :

• Hester Peirce emphasizes constitutional financial privacy rights amid increasing traceability
• Blockchain and DeFi empower unbanked and oppressed users with transparent peer-to-peer finance
• Privacy technologies like zero-knowledge proofs and mixers deserve legal support
• Over 11% of global crypto transactions use privacy coins, with Asia-Pacific leading at 29%
  
• DeFi’s Total Value Locked (TVL) reached a three-year high of $153 billion in late July 2025
  
• Tornado Cash co-founder trial highlights tensions between privacy tools and law enforcement
• Open-source developers should not be held liable for users’ actions with privacy software
• Trump administration’s report also recommends safeguarding self-custody rights

1. Constitutional Right to Financial Privacy

SEC Commissioner Hester Peirce opened her keynote at a major blockchain conference by underscoring that, even as digital finance becomes more auditable, the U.S. government must actively protect individuals’ constitutionally guaranteed privacy rights. She noted that concerns over blockchain’s disintermediation often arise from a genuine desire to shield the nation from adversaries and criminals. However, she warned that eroding privacy for all users under the guise of security is a flawed approach. Peirce argued that an excessive focus on traceability risks infringing on civil liberties enshrined in the Constitution.

In her remarks, she insisted that privacy technologies should be embraced rather than restrained, as they strengthen democratic values by empowering citizens to transact without undue surveillance.

2. Enabling Financial Inclusion Through DeFi

Peirce highlighted that blockchain, smart contracts, and cryptographic tools enable peer-to-peer transfer of value without central intermediaries. This shift, she explained, allows individuals who face barriers to traditional banking—due to geography, credit history, or political repression—to access loans and financial services via decentralized finance (DeFi) protocols under transparent, predefined conditions.

“DeFi protocols can offer on-chain lending with clear rules, bringing credit access to the unbanked and underbanked,” Peirce stated, noting that some DeFi platforms now boast billions in locked assets and support millions of users globally.

Indeed, the DeFi sector hit a three-year high of $153 billion in Total Value Locked (TVL) on July 28, 2025, propelled by Ethereum’s rally toward $4,000 and surging restaking inflows.

3. Privacy Adoption Trends

On the subject of privacy coin usage, recent data reveal a rising trend: as of Q1 2025, privacy-focused assets accounted for 11.4% of all crypto transactions globally—up from 9.7% in 2024. Regionally, adoption varies significantly: North America reports 18% of users holding privacy coins, while Asia-Pacific leads at 29%, showcasing growing demand for private transactions in jurisdictions with stronger censorship or surveillance.

Please insert the following chart here as Figure 1:

Figure 1: Regional Privacy Coin Usage Share (2025 Q1)

4. Regulatory and Enforcement Concerns

Despite these benefits, Peirce acknowledged that disintermediation provokes fear among intermediaries, regulators, and law-enforcement agencies. Financial institutions worry about losing customers; regulators fret over unenforceable rules; law enforcement laments loss of traditional intelligence sources. Peirce conceded these concerns are understandable but stressed they should not justify blanket restrictions on privacy technologies. Instead, she encouraged regulators to develop frameworks that integrate blockchain privacy tools responsibly.

This debate is underscored by the high-profile U.S. trial of Tornado Cash co-founder Roman Storm, whose jury is deliberating over charges including money-laundering conspiracy. Tornado Cash, a mixer service that obfuscates transaction origins via coin mixing, faces accusations of facilitating illicit flows, though industry advocates argue for its legitimate privacy utility.

5. Liability Protections for Open-Source Developers

A key point in Peirce’s speech was that developers of open-source privacy software should not be held criminally liable for their users’ misdeeds. She cited examples such as zero-knowledge proofs and cryptographic mixers, tools that, while potentially misused, are fundamentally neutral. Punishing creators for downstream abuse, she warned, would stifle innovation and deter further advancement in privacy research.

6. U.S. Government Recommendations on Self-Custody

Peirce noted that the prior Trump administration released a comprehensive report on cryptocurrency regulation at the end of July 2025. Among its recommendations was the protection of individuals’ rights to self-custody—holding crypto assets without third-party intermediaries—a policy aligned with Peirce’s call for privacy preservation.

Conclusion

Commissioner Hester Peirce’s statements mark a significant affirmation by a federal regulator of the value of financial privacy technologies in the blockchain age. By advocating constitutional protections, financial inclusion via DeFi, responsible regulation, and liability shields for developers, Peirce charts a path where privacy and compliance can coexist. As DeFi’s TVL continues to surge past $150 billion and privacy coin adoption grows globally to 11.4% of transactions, policymakers face a pivotal choice: quash blockchain innovation through overbroad restrictions, or harness privacy tools to empower users while mitigating illicit risks through targeted, technologically informed regulation.