0xbow, a platform focused on privacy in decentralized finance (DeFi), has successfully closed a $3.5 million seed funding round. The investment is aimed at expanding Privacy Pools, its technology designed to obscure on-chain transactions while maintaining regulatory compliance.

Bridging Privacy and Compliance

Privacy Pools uses smart contracts to batch and mix user transactions, which breaks the direct link between sender and receiver on the blockchain. A key feature is its Association Set Provider (ASP) system, which monitors deposits for suspicious activity without taking custody of user funds. This allows individuals to prove their funds are not linked to illicit sources, addressing a major concern in the crypto privacy sector.

The funding announcement follows a period of significant growth for the platform. Since launching on Ethereum in March 2024, Privacy Pools has processed $6 million in transactions from over 1,500 users and completed more than 1,180 withdrawals. The technology was also recently integrated into the Ethereum Foundation’s (EF) Kohaku wallet.

Investor Confidence and Market Context

The seed round was led by Starbloom Capital, with participation from Coinbase Ventures, BOOST VC, and Status Research & Development GmbH, among other angel investors. This follows a previous pre-seed round in 2024 that was backed by Ethereum co-founder Vitalik Buterin.

This investment highlights a growing institutional appetite for privacy solutions that can operate within legal frameworks. The crypto industry has faced years of regulatory uncertainty, exemplified by the federal trial of Roman Storm, a co-creator of the crypto mixer Tornado Cash. While the verdict on the legality of such tools left many experts divided, it underscored the demand for platforms that can balance user privacy with accountability.

Nathaniel Fried, the CEO of 0xbow, explained that the company is focused on providing financial privacy without creating a haven for illicit activity, stating that users shouldn’t have to choose between privacy and compliance. The new capital will be used to add more features, expand to other blockchains, and grow the engineering team. Currently, Privacy Pools supports ETH, wrapped Bitcoin (wBTC), and major stablecoins including USDC, USDT, and DAI.