The EU's crypto regulation is truly taking action this time. As soon as the new Transfer of Funds Regulation (TFR) was introduced, the "Travel Rule" became an unavoidable topic for every Virtual Asset Service Provider (VASP)—transaction information must be shared in real-time, and both parties' identities must be verified accurately. These requirements directly confront privacy coin projects.

Take Dusk as an example. Its design philosophy is quite clever: all daily transactions are encrypted end-to-end, ensuring user privacy is not compromised; but regulators have a special key that, upon court order, can open the "black box" to view specific transaction records. This "post-audit" framework, which sounds acceptable for anti-money laundering verification in the past, is now under pressure.

The problem lies in the new requirements of the TFR. It doesn't ask for post-transaction cooperation but demands real-time reporting during the transaction. When each transaction occurs, the involved VASP-related information must be transmitted immediately to the other party without delay. This poses a fundamental challenge to Dusk's system architecture: in a network where privacy is encrypted by default, how can you automatically and instantly determine whether the transaction counterparty is a regulated service provider? How can you ensure the information is transmitted accurately and without error?

This almost inevitably requires the introduction of some form of on-chain tagging system or trusted oracles to label and identify transaction participants. Once you start doing this, Dusk's promise of "complete privacy" begins to waver. A more practical issue is that this is no longer just a cryptographic challenge but a complex compliance engineering problem.

From the regulators' perspective, they would prefer a system with built-in automated reporting from the design stage—rather than a "black box" that requires them to actively request keys, manually decrypt, and repeatedly review. The former is obviously more transparent, efficient, and easier to integrate into existing regulatory frameworks.

This is the reality facing privacy coins: from conceptual technology to real-world application, a bridge must be crossed. It can no longer be just "I can let you verify after the fact"; it must prove "I can seamlessly adapt to your real-time regulatory processes." This challenge is significant and there is no simple answer.