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The Web3 + AI Daily: On Aztec, EU AI Act

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Aztec Launches Alpha V5, Cuts Team in Half

Those of you who regularly read my newsletter know that privacy is a topic I care deeply about. It's also one of the most consequential verticals in the crypto space, whose importance is only growing as AI becomes more pervasive. That's why today I'm taking a closer look at Aztec - the Ethereum Layer-2 chain designed for private transactions.

It's been a couple of turbulent months at Aztec. After launching its mainnet and token $AZTEC in January, in June the network suffered two consecutive hacks within the span of a single week.

Aztec Network has been hit by another $2 million hack, its second this week. Following Sunday’s $2.2 million loss from Aztec Connect, Aztec’s Private Rollup Bridge has now been drained of a similar amount. The firm stressed, in both cases, that the affected contracts are “immutable” and were “deprecated” in 2022 and 2023.

The Aztec Foundation also stated that neither exploit had any connection to the current network or the AZTEC ERC-20 token, emphasizing that the affected contracts belonged to legacy infrastructure that had remained live on Ethereum after the products were sunset.

These incidents didn't stop the team from building, though, since in in mid-July Aztec released Alpha V5 - a major protocol upgrade introducing faster and cheaper private transactions, alongside applications that combine confidential user data with public blockchain state.

Alpha V5 reduces private-transaction proving times by more than 2x compared to the previous version, lowers the cost of a fully private transaction by roughly 50%, resolves the critical issues found in V4, and sees the first wave of apps go live.

As the only decentralized privacy L2, Aztec is the credibly neutral privacy layer for Ethereum. Aztec allows anyone to write smart contracts that include both private and public aspects – every private transaction is proven on the user's own device, so no operator, sequencer, or intermediary can see the data.

Why is this important? Aztec opens the door for a wide range of industries and use cases to leverage decentralized computing without compromising the confidentiality of their data. Something as simple as receiving your salary on-chain can now be performed risk-free.

Unlike Ethereum’s base layer, where every validator processes and stores transaction inputs, outputs, and execution data to reach consensus, Aztec’s execution layer moves private computation to the user’s device. Instead of revealing transaction details to the network, the system generates cryptographic proofs locally before submitting them for verification on-chain, reducing the amount of visible transaction data while preserving Ethereum’s security guarantees.

Moreover, along with Alpha V5 came Shield - a private bridge for moving assets between Ethereum and Aztec, powered by human.tech by Holonym Foundation. This is a significant breakthrough that, if successfully applied across the industry, could revolutionize compliance and KYC (Know Your Customer) practices.

Finally, last week, Aztec Foundation - Aztec's governance, security, and ecosystem arm, announced a 18-person layoff, representing roughly 55% of its workforce.

[Co-founder Zac] Williamson positioned the restructuring as the Foundation transitioning from a build-oriented organization to one focused on security and scalability of the decentralized network. The remaining 15-person team will concentrate on keeping things stable and secure rather than shipping new features at breakneck speed.

Building a fully decentralized, privacy-first L2  from scratch takes a big organisation focused on that specific task. Securing one, and filling it with applications people actually use, takes a different set of skills dedicated to stability and commercial success. . We shipped the network. The job in front of us is different from the job behind us, and the Foundation needs to adapt to meet this moment.

Aztec claims that the foundation is well capitalized "for many years of operation at this size." Speaking from experience, I don't believe such a significant restructuring is driven solely by a shift in strategic focus - development work will continue behind the scenes regardless. Rather, it suggests that, like much of the crypto industry, the bear market is taking a heavy toll on the company.

Aztec Foundation lays off 55% of workforce amid restructuring

Aztec Foundation cut 18 employees, reducing its team by 55%, as the privacy-focused Ethereum Layer 2 project shifts from building to network

https://cryptobriefing.com
Aztec Foundation lays off 55% of workforce amid restructuring

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The EU AI Act Enters Into Force

August 2nd, 2026 marked the day when some of the provisions of the EU AI Act took effect, along with new transparency obligations for AI providers and deployers. The following post by Oliver Patel, AIGP, CIPP/E, MSc informs on all you need to know:

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However, as Bruna Santos and Jacobo Castellanos commented for Tech Policy Press, some of the exemptions set out in the guidelines are so vague that they open friction points and risk watering down the rules:

The first is vagueness in the key exemptions. The "obviousness" exception for interactive AI, and the line between exempted "standard editing" and regulated "substantial semantic alteration", both rest on subjective, case-by-case judgements, which creates real uncertainty for developers, deployers and platforms that blend ordinary editing with generative tools.

The second is an internal tension on watermarking. The guidelines acknowledge that universal, provider-agnostic watermarking and detection do not yet exist, especially for text, while the Code requires synthetic outputs to be machine-readable and detectable through "effective, interoperable and reliable" solutions. As we note above, detection is genuinely unreliable, so the candour is welcome, but the gap between what the guidelines admit and what the Code mandates risks eroding confidence in the marking regime just as it takes effect.

Meanwhile, there are numerous provisions that are yet to become applicable and enforceable:

Not every part of the AI Act is moving at the same speed. The AI Omnibus, a package of amendments to the Act, pushed back the rules for high-risk AI systems to 2 December 2027, and those for high-risk systems built into regulated products to 2 August 2028. The same package moves faster on the harm side. From 2 December 2026, it bans AI systems that generate non-consensual sexually explicit content or child sexual abuse material.

Several different bodies will be enforcing the rules, including the AI Office, the national competent authorities, and the European Data Protection Supervisor. In short, the work is ongoing and there's still a lot to be done to ensure EU citizens' safety.

I must say, I've been critical of the EU AI Act in the past, largely because I believed that overregulation would further slow an AI industry that was already lagging behind the U.S. However, while Europe still has a long way to go, I'm increasingly grateful to live in a place where the whims of tech billionaires aren't simply accepted without scrutiny.

I'll continue following closely the effects of the AI Act and discuss them with you here. Let me know your thoughts.

Thank you for reading! My name is Albena, and every day I share insights into the groundbreaking convergence of blockchain and AI. If you’re enjoying them, hit the subscribe button and never miss a key Crypto × AI update.

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Disclaimer: None of this should or could be considered financial advice. You should not take my words for granted; rather, do your own research (DYOR) and share your thoughts to encourage a fruitful discussion.