Partial solutions

Generally, the two issues of bitcoin are solved separately. Stablecoins address bitcoin's volatility, and privacy coins address its pseudonymity.

What "decentralized" means for a stablecoin

Only decentralized stablecoins are in line with the bitcoin philosophy. Decentralization, in this case, has three components:

• Censorship resistance — non-excludability. Every network participant has equal rights to issue, transfer and (where applicable) redeem the stablecoin, and no one can ban them from doing so.
• Non-custodial design — non-seizability. A private key owner is the only person who controls the respective balance and, where applicable, the collateral that backs it.
• Governance-less — non-upgradeability. DAOs are usually considered a way to eliminate a single controlling entity, but if a DAO is controlled by governance-token holders, a single entity can capture it by accumulating the majority of tokens. The only way to make a stablecoin truly decentralized is for its smart contracts to be immutable — non-upgradeable by any entity.

How privacy coins fix pseudonymity

Privacy coins fix bitcoin pseudonymity issues using different techniques: built-in mixers, ring signatures, stealth addresses, and zero-knowledge proofs, to name a few.

The gap

To sum up: we have stablecoins that are not confidential and privacy coins that are not stable. A ridiculous situation when you can't have both at once. Why not combine stability and privacy in one cryptocurrency? Here is where confidential stablecoins come into play.