The following article is a guest post and opinion of Prabal Banerjee (Co-founder of Avail) and Shailey Singh (Marketing Manager and Researcher at Avail)

Imagine a world where you walk into a bank and apply for a $1 million loan. Instead of handing over your full income history and credit report, you generate a cryptographic proof confirming you meet every loan criterion without exposing actual numbers or documents. The bank verifies the proof instantly. No raw data changes hands. No paper trail for hackers to follow.

Today, for a financial institution to verify a fact—whether it’s a customer’s loan eligibility or proof of compliance—it must reveal every underlying piece of data, including sensitive personal information. That data lives in centralized systems, secured by or shared with third parties, creating an ever-expanding attack surface.

This is the paradox at the heart of modern finance: compliance demands disclosure, but disclosure erodes privacy and security. Zero-knowledge technology flips that script.

In a world of mounting cyber threats, regulatory scrutiny, and customer fatigue, zero-knowledge proofs (ZKPs) offer a better model for trust: verifiable, privacy-preserving, and future-ready. ZKPs let one party (the prover) convince another (the verifier) that a statement is true, without revealing why or exposing the underlying data.

Integrating ZK technology into traditional finance may seem futuristic, but the truth is, we need it now.

A Surge in Cyber Risk

Data privacy and security go hand in hand. The financial sector is under siege. In 2024, the average cost of a data breach for banks and insurers skyrocketed to $6.08 million—about 22% higher than the $4.88 million cross-industry average. Companies take an average of 168 days to detect and 51 more to contain these breaches, prolonging operational chaos and reputational damage.

In 2023, the financial industry accounted for 27% of all data breaches handled by Kroll—more than any other sector. These aren’t outliers; they’re bleeding-edge trends that cut into profits and erode public trust. Consider Equifax, which lost over $5 billion in market cap and 13% stock value after its 2017 breach; or Bank of America’s vendor-related breach that exposed the records of 7.6 million customers, prompting forensic investigations and intensified regulatory scrutiny.

Compliance Overload

Regulatory demands have outpaced legacy infrastructure. In the United States, Dodd‑Frank and SOX require firms to disclose detailed or near-real-time compliance data.

Europe’s MiCA adds granular reporting for crypto companies. Firms face nonstop exposure, rising complexity, and compliance fatigue. The result: bloated tech stacks, siloed data, and mounting vulnerability under constant internal and external scrutiny.

Banks Demand More Personal Data

Banks and fintechs are asking users to surrender increasing amounts of personal data: documents, income history, even biometric data, just to get started. Customer acquisition has become a leak-prone liability.

A 2023 Fenergo study found 67% of banks have lost potential clients due to clunky KYC and onboarding. Banks contact new customers an average of 10 times during onboarding, requesting countless documents, costing around $128 per customer and seeing an average 18% abandonment rate, per a 2024 report. These data-hungry paths are alienating users while making institutions data-rich and danger-rich.

Zero-Knowledge Tech: Proof Without Exposure

Zero-knowledge proofs change this calculus. ZKPs are built on decades of cryptographic research. Foundational work by researchers like Shafi Goldwasser, Silvio Micali, Oded Goldreich, Amit Sahai, and others laid the groundwork for modern zero-knowledge systems, defining both their theoretical limits and practical designs. Today, ZKPs have moved from mathematical concepts to real-world tools.

Under the hood, zero-knowledge systems rely on advanced cryptography to generate compact, verifiable proofs. No raw data ever needs to be revealed. Rules and inputs are programmatically smart-contract encoded, the proof is generated without exposing the underlying data, and the verifier receives a tamper-proof cryptographic assurance that all conditions were satisfied.

Recent breakthroughs have made these proofs fast enough for real-time use and efficient enough to scale across high-volume financial systems.

After the collapse of crypto giants like FTX, proving reserves became a top priority for crypto firms, especially exchanges. Centralized exchanges like Kraken, Gate.io, and OKX have already proven reserves without exposing sensitive details.

Traditional banks can adopt similar mechanisms to prove Basel III compliance or liquidity thresholds without ever leaking proprietary risk models.

Some already have. In 2023, Société Générale Forge explored zero-knowledge technology to enhance confidentiality in digital bond issuance (fully subscribed by AXA Investments and Generali Investments) on Ethereum L1. In March 2024, the European Banking Authority began exploring ZKPs as part of its digital compliance toolkit. Singapore’s MAS has also funded ZK-based pilots for cross-border data privacy.

The other important aspect is scale. Interbank markets process trillions daily, but most require full disclosure for settlement—from counterparties to trade details. ZK-rollups can batch thousands of trades into a single proof, offering near-instant finality without revealing anything other than what needs to be proved.

Why Now? Tech + Timing

Zero-knowledge proofs aren’t new. But what is new is that they’re finally fast, scalable, and accessible.

Proof generation speed has improved dramatically in the past two years alone. With zk-SNARKs and zk-STARKs, proofs can now be generated in seconds and verified in milliseconds—even for complex financial computations. Developers are advancing ZK tech in the context of rollup architecture acceleration, with Ethereum’s rollup-centric vision.

Tooling has matured as well. Today, developers can plug into open-source libraries like Halo2, PLONK, or zkVMs with real-world use cases. Platforms like Polygon, zkSync, StarkWare, and Scroll are already deploying ZK-powered financial apps.

Legacy institutions may face challenges in upgrading entrenched infrastructure, aligning with regulatory frameworks, building internal cryptography domain expertise, and educating teams. But these limitations are shrinking fast.

Today, the pieces are in place. The time to act is now.

Those who move early will set new standards. The new model of trust is “verify, never reveal.” Early adopters will set the standard and win the clients.

Mentioned in this article

The chief executive of exchange-traded fund (ETF) provider VanEck is predicting that “super apps” will challenge traditional finance’s payments system.

In a new interview with CNBC Television, VanEck CEO Jan Van Eck says that apps that offer support for stablecoins will soon begin to put pressure on traditional methods of payments.

According to Van Eck, since stablecoins skip out on intermediaries such as Visa and Mastercard that charge about 3% in fees for payments, the super apps could serve as viable alternatives.

“I definitely think that this will put cost pressure on the payments system because it is cheaper and allows all these competitors to come into the market, whether it’s a Kraken, whether it’s a Robinhood, whether it’s an X, there are going to be a lot of super apps.”

On Friday, President Trump signed into law the GENIUS Act, which establishes a stringent regulatory framework for firms issuing payment stablecoins.

Van Eck goes on to note that while the stablecoin issuer Circle has done well so far this year, new competition is gearing up to enter the space.

“It’ll be several quarters before it’ll impact earnings, either to the positive or the negative. But stocks are kind of moving in anticipation of that right now.

And you see the incumbents – Ethereum has had a great month; Circle, the one public stablecoin company, has had a great run since its IPO (initial public offering). The market is getting ahead of it, but those are just the incumbents; there are going to be a lot of competitors entering into this space.”

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Disclaimer: Opinions expressed at The Daily Hodl are not investment advice. Investors should do their due diligence before making any high-risk investments in Bitcoin, cryptocurrency or digital assets. Please be advised that your transfers and trades are at your own risk, and any losses you may incur are your responsibility. The Daily Hodl does not recommend the buying or selling of any cryptocurrencies or digital assets, nor is The Daily Hodl an investment advisor. Please note that The Daily Hodl participates in affiliate marketing.

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March 26th Tokenization Recovery: How to Avoid Tradfi’s Acquisition

By Jesse Knutson, Head of Operations at Bitfinex Securities

Tokenization is at a turning point. The recognition is that outside the crypto world, tokenizing assets can be a ticket to fund them in a truly different way.

The traditional banking giant is working on a project to understand how this possibility can be exploited. The governments of major financial centres from the UK to Singapore have launched sandboxes to see how regulations can support capital market infrastructures supported by blockchain technology.

The Blockchain and Finance press is littered with successful pilot headlines, including Siemens’ $330 million digital debt issued last year as part of a European Central Bank trial to settle blockchain central bank money.

These news articles were undoubtedly positive in shedding light on symbolization. But there’s a problem. Many of the reported “success stories” have so far been excluded from what tokenization could enable, as they are essentially disguised transactions.

Take a look at Siemens’ example. Digital bonds were undoubtedly a success as long as they were proven to be resolved much faster than is possible today through traditional means. However, the bonds were issued on a private blockchain, and it appeared that Deutsche Bank was needed to promote settlements and did not provide a mechanism for independence.

In my view, this is not what tokenized bonds should look like. The heart of tokenization is intermediation, empowering users by streamlining the technologically outdated portion of the capital market ecosystem. Tokenization will replace the work of reporting transfer agents, central depository agencies, clearing systems, custodians, and compliance, with cheaper, faster, and more transparent on-chain solutions. At the same time, it offers more flexibility for investors, such as offering much lower entry points compared to traditional markets.

I’m worried that tokenization could further descend the path of being led by Tradfi Behemoth, who is looking for ways to create new, innovative products based on clients. Larry Fink’s recent call to the US SEC to “quickly approve bond and equity tokenization” could mean we are approaching the point of no return.

Despite President Donald Trump’s clear embrace of the crypto community, the specific announcements we see on US stance on crypto, particularly in the strategic Bitcoin Reserve, are seen by some as overwhelming. This could prove to be crucial for the current banking sector.

While key crypto players are still working on where the industry is heading, this gives them the opportunity to leverage the US administration encrypted in the bank lobby. It misses the opportunity for traditional financial players to leverage blockchain technology for their own purposes and improve the final line while still developing new, narrow client-based products while maintaining the current state of the capital market.

Few investors are likely to benefit from tokenized products from large banks compared to the general population. Millions of people around the world enjoy the opportunity to invest in inventory and corporate bonds, but only dream of reaching a certified investor or comparable threshold.

Tokenization also provides investors with the opportunity to regain control of their assets. Technologies such as BlockStream’s Liquid Network leverage whitelists to enable peer-to-peer trading, the ability to move assets across the trading platform, and even self-supporting assets. In the future, we look forward to more detailed voting and paying dividends. Integration with USDT and BTC is also important to reduce the flow of capital friction between the traditional RWA and Crypto markets.

Our current capital markets are created only for the minority. Tokenization allows you to solve this. Now, banks and everything have the technology to enable SMEs to raise the capital they need to grow without being involved within the regulatory and compliance guardrails. For future investors, anyone with a dollar in their investment can start growing wealth through the US Treasury Department. I’ve already seen this on Nexbridge’s USTBL product on El Salvador.

To avoid the acquisition of Tradfi of tokenization, regulators are needed to understand the promise of a larger picture of tokenization. It is important that tokenized versions of sophisticated investment products are properly regulated, but no matter how much you invest, all major jurisdictions are also needed to clarify how tokenized products can be opened to retail investors.

Tokenization represents a generation of opportunities to democratize access to capital. We owe it to millions of people and businesses around the world to ensure we don’t lose sight of this.

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