Ethereum startup EthSystems bets privacy is key to getting banks on public blockchains

EthSystems, a startup spun out of the Ethereum Foundation earlier this month, is betting that privacy, not scalability, is the biggest obstacle preventing institutions from moving financial activity onto public blockchains.

The company, which emerged from the Ethereum Foundation’s Institutional Privacy Task Force, is building confidentiality infrastructure for banks, asset managers and governments looking to use Ethereum for tokenized assets, stablecoins and other financial applications.

Rather than creating an entirely new blockchain, EthSystems helps institutions deploy privacy technologies that allow sensitive transaction data to remain confidential while still settling on Ethereum.

“Almost every single financial institution requires some level of confidentiality,” co-founder Mo Jalil told CoinDesk in an interview. “Confidentiality doesn’t necessarily mean something has to be anonymous or hidden. There just needs to be controls over who sees what, when and how.”

EthSystems is far from the only company focused on institutional privacy. Projects such as Canton Network, which is backed by major financial institutions including Goldman Sachs, BNP Paribas and DTCC, as well as Ethereum-native privacy protocols like Aztec and Miden, are also developing infrastructure aimed at enabling confidential transactions for enterprises.

Where the startup differs is that it plans to advise institutions on privacy architecture, build custom infrastructure where needed, and publish open-source research on institutional blockchain adoption. It says it’s not looking to compete with existing privacy projects, but intends to work alongside them, recommending and integrating technologies based on customers’ needs.

“We don’t have one specific product, we have several, and we’ll work with the existing privacy ecosystem rather than rebuild the entire privacy stack,” Jalil said.

EthSystems started as one of several organizations to emerge from the Ethereum Foundation amid a broader restructuring aimed at distributing responsibilities previously housed within the nonprofit. Unlike sister organizations EthLabs, which focuses on protocol development, and Ethereum Institutional, which coordinates enterprise engagement, EthSystems is dedicated to privacy and cryptography for institutional users.

The decision to become a for-profit company was driven by demand the team encountered while still inside the foundation. “We’d build these proof-of-concepts, and then institutions would ask, ‘Can we pay your team to take this into production?'” Jalil said. “Every time I’d have to say, ‘That’s not something we do.'”

Operating as a commercial business, he said, makes it easier both to fund the company’s work and to engage with procurement processes at large financial institutions.

“It just seemed like a more sustainable model,” Jalil told CoinDesk. “You can get financial institutions to fund your vision by doing the work they require and charging them a fee for it.”

The company said demand from institutions has changed remarkably over the past year. Early conversations were largely with innovation teams experimenting with blockchain technology. Today, Jalil mentioned that discussions increasingly involve the business units responsible for running trading desks and managing assets.

“Their experimentation phase is over. Now it’s actual people who want to get assets onchain and move real financial flows onchain.”

That shift reinforces EthSystems’ core thesis: institutions no longer need convincing that blockchain has potential, rather they need infrastructure that satisfies regulatory and confidentiality requirements.

“The only way to bridge the gap between public blockchains and institutional control is with cryptography and privacy,” Jalil said.

Read more: Ethereum Foundation spinout EthSystems targets banks with blockchain privacy technology