In mid-September, Zama took “confidential DeFi” from concept to at-scale operations: it opened 16 confidential curated vaults on Ethereum built on top of Morpho. Five institutions—Steakhouse Financial, Armitage by Wintermute, Flowdesk, RockawayX, and Bitwise—served as curators, covering five assets: USDC, USDT, WBTC, AUSD, and tGBP.
Taking the structure apart, the 16 vaults fall into two categories: 12 “hybrid” vaults. In essence, these are confidential entry points added to existing public vaults—same strategy, liquidity, risk profile, and underlying vault, with only deposits and positions kept non-public. The other 4 “exclusive” vaults are entirely new, with no public counterpart—for example, Wintermute’s confidential WBTC vault.
This isn’t an isolated case. The first confidential USDC vault launched in June, and within seven weeks, TVL grew from zero to $40 million.
Technically, it relies on FHE (fully homomorphic encryption), and the associated token standard is ERC7984. Zama also partnered with Merkl to extend the incentive engine to confidential tokens, so rewards are calculated on encrypted balances and distributed using confidential transfers. Even leaderboard data isn’t publicly disclosed, and it also launched Zama Swap for confidential trading.
Why do this? Because the most counterintuitive thing about DeFi is that on-chain transparency is a protection for retail users, but a pure disadvantage for large positions. Your entry, liquidation prices, and position-reduction actions are all visible to the entire network—effectively granting the counterparty free information advantages. Front-running, targeted liquidations, and copy-trading can be executed precisely. So privacy on-chain is first a matter of market microstructure, and only later a compliance issue.
The trade-offs also need to be stated clearly: confidential computation costs more than plaintext computation, and composability gets reduced. A vault can see its own position, but external protocols can’t—meaning many “LEGO-style” integrations won’t be possible. This rollout starts with “curated vaults” rather than “end-to-end privacy across the whole chain.” I believe that choice reflects a compromise between cost and composability.
I’m inclined to think that whether institutional capital should go on-chain, privacy isn’t a nice-to-have—it’s a necessity. $ETH growing these kinds of infrastructure is more meaningful than adding yet another yield aggregator.
Over to you: for institutions entering the market, is privacy a must-have or a nice-to-have? If you had to sacrifice some composability for confidentiality, would you be willing?
#Zama opens 16 confidential Morpho vaults on Ethereum
Taking the structure apart, the 16 vaults fall into two categories: 12 “hybrid” vaults. In essence, these are confidential entry points added to existing public vaults—same strategy, liquidity, risk profile, and underlying vault, with only deposits and positions kept non-public. The other 4 “exclusive” vaults are entirely new, with no public counterpart—for example, Wintermute’s confidential WBTC vault.
This isn’t an isolated case. The first confidential USDC vault launched in June, and within seven weeks, TVL grew from zero to $40 million.
Technically, it relies on FHE (fully homomorphic encryption), and the associated token standard is ERC7984. Zama also partnered with Merkl to extend the incentive engine to confidential tokens, so rewards are calculated on encrypted balances and distributed using confidential transfers. Even leaderboard data isn’t publicly disclosed, and it also launched Zama Swap for confidential trading.
Why do this? Because the most counterintuitive thing about DeFi is that on-chain transparency is a protection for retail users, but a pure disadvantage for large positions. Your entry, liquidation prices, and position-reduction actions are all visible to the entire network—effectively granting the counterparty free information advantages. Front-running, targeted liquidations, and copy-trading can be executed precisely. So privacy on-chain is first a matter of market microstructure, and only later a compliance issue.
The trade-offs also need to be stated clearly: confidential computation costs more than plaintext computation, and composability gets reduced. A vault can see its own position, but external protocols can’t—meaning many “LEGO-style” integrations won’t be possible. This rollout starts with “curated vaults” rather than “end-to-end privacy across the whole chain.” I believe that choice reflects a compromise between cost and composability.
I’m inclined to think that whether institutional capital should go on-chain, privacy isn’t a nice-to-have—it’s a necessity. $ETH growing these kinds of infrastructure is more meaningful than adding yet another yield aggregator.
Over to you: for institutions entering the market, is privacy a must-have or a nice-to-have? If you had to sacrifice some composability for confidentiality, would you be willing?
#Zama opens 16 confidential Morpho vaults on Ethereum