DFSA
Privacy coins have long been the subject of technical debate, particularly in light of regulatory developments. Issues such as combating financial crime, transparency, and accountability are now being addressed comprehensively. As a result, restrictions on privacy coins have moved beyond being exceptions and have become part of a broader trend. The decision taken by the Dubai Financial Services Authority (DFSA) on January 12, 2026, is also evaluated within this framework. However, let us state at the outset that this decision does not reflect an approach unique to Dubai, but rather reflects a common trend that is becoming apparent in global regulation. Let us briefly mention the three projects in this category and then discuss the details of the decision.
Privacy Coins and Their Operating Principle
Monero (XMR)
Monero positions privacy not as an optional feature, but as the default operating mode of the network, unlike the project we will discuss next. In transactions on the Monero network, the sender, recipient, and amount information are not publicly displayed on the chain.
This structure relies on three core mechanisms. First, stealth addresses generate a one-time address for the recipient in each transaction, preventing connections between addresses. Another core mechanism, ring signatures, makes it difficult to identify the sender by including the actual transaction input in a group with other inputs selected from the past. Finally, ringCT ensures the transaction amount remains hidden.
When these elements work together, it becomes practically impossible to monitor transactions on the Monero network from the outside. Since privacy is mandatory for all users, the anonymity pool on the network is extensive. While this creates a strong structure in terms of user privacy, it is seen as a serious problem in terms of regulation.
Zcash (ZEC)
Zcash addresses privacy in a more flexible framework compared to Monero. The project uses zero-knowledge proofs (zk-SNARKs) to verify the validity of transactions while allowing their details to remain hidden. Specifically, there are two different types of addresses on the Zcash network… Transparent addresses perform transactions that are public to everyone, similar to Bitcoin; shielded addresses hide the sender, recipient, and amount information. Users can switch between these two address types.
This structure offers a certain degree of flexibility for users and institutions seeking to comply with regulations. However, the fact that privacy is not the default setting limits the scope of anonymity. Therefore, Zcash does not offer a structure that is either completely anonymous or completely transparent.
Dash (DASH)
Dash does not position privacy as the main focus of the project. It aims more at the use of “digital cash” through fast and low-cost transfers. On the privacy side, it uses an optional mixing mechanism called PrivateSend.
PrivateSend reduces traceability by mixing multiple users’ transactions together using a method similar to CoinJoin. Masternodes coordinate this process but do not hold user funds. However, this structure does not provide complete anonymity; it only makes transaction tracking more difficult.
The fact that privacy is optional and basic usage is based on transparent transactions places Dash in a less problematic position for regulators compared to Monero. However, it should be noted that the mixing mechanisms used still carry the risk of falling under regulation.
Dubai’s Initiative to Ban Privacy Coins
Scope and Rationale
Under the ban effective January 12, 2026, privacy tokens such as Monero, Zcash, and similar tokens cannot be used by DFSA-licensed institutions for trading, fund management, derivative products, and promotional activities. However, while the decision does not prohibit individuals from holding these assets in their personal wallets, it states that the regulated financial system is closed to these assets.
Additionally, stealth addresses, ring signatures, and mixing software such as Tornado Cash have also been included in the ban. The DFSA considers that these tools increase the risks of money laundering and terrorist financing by concealing the parties involved in transactions. The decision is primarily based on anti-money laundering (AML) and counter-terrorist financing (CFT) rules. The Travel Rule, established by the FATF, requires the collection and, where necessary, sharing of sender and recipient information in crypto transfers.
Structures that offer default privacy directly conflict with these requirements. Ring signatures in Monero or shielded transactions in Zcash prevent this information from being identified on the chain. For regulators, this situation means not only risk but also a loss of oversight. The DFSA’s approach is based more on oversight feasibility than on the technology itself. An asset whose identity and transaction flow cannot be tracked is not wanted within the regulated financial system.
The Impact of the Ban
Dubai’s decision is not an isolated example on a global scale. VARA, Dubai’s official crypto regulator, the Virtual Assets Regulatory Authority, introduced a similar ban in 2023. We can interpret the delisting of privacy coins by exchanges in Asia and the restriction of anonymous transfers by the MiCA regulation in the European Union as different reflections of the same trend. In this context, rather than privacy coins disappearing entirely, it seems more likely that they will be gradually excluded from regulated markets. We can expect a decline in liquidity on centralized exchanges, developers turning to more selective privacy solutions, and users shifting to P2P or decentralized platforms.
Disclaimer
This content is for informational and educational purposes only. Regulatory frameworks evolve and may differ across jurisdictions. Readers should consult official DFSA publications or licensed advisors for compliance-specific guidance.
