Introduction

The Rise of Institutional DeFi and the Confidentiality Gap

Institutional engagement with blockchain has moved far beyond exploratory pilots, driven by the need for programmable, real-time settlement infrastructure that can support regulated financial operations. As banks, asset managers, and enterprises begin integrating blockchain rails into core financial workflows, the limitations of transparent, permissionless DeFi become increasingly apparent.

Public chains expose all state transitions making them fundamentally incompatible with the confidentiality, compliance, and operational safeguards required in regulated environments. Recent large-scale efforts, such as Project Guardian and EPIC by JP Morgan underscore this shift: institutions now expect privacy-preserving settlement, identity-abstracted compliance, and verifiable computation without revealing underlying financial data.

A Transitional Landscape Shift

This transition is further reinforced by a multi-trillion-dollar opportunity across tokenised RWAs and institutional DeFi, supported with accelerating nascent growth at $36.08B total value locked (TVL) across the RWA sector.

The Current State of RWA Sector & Global Market Opportunity for Tokenisation - Source: RWA.xyz, James Alexa

With a global RWA market exceeding $430 trillion and growing regulatory clarity encouraging on-chain adoption, financial products ranging from funds to credit markets are rapidly migrating to public blockchain infrastructure. Yet confidentiality is required at every stage of their lifecycle. Global payments, projected to reach $3.1 trillion in annual revenue, similarly demand programmable settlement rails that preserve privacy while enabling regulatory oversight. Public chains today lack the privacy guarantees necessary for these workflows, making an institutionally aligned confidentiality layer not just beneficial, but indispensable. Together, these forces establish a clear demand base for a scalable, end-to-end confidentiality layer capable of supporting the scale, compliance, and data-sensitivity of institutional finance.

The Zama Thesis: FHE as the Confidentiality Primitive

Against this backdrop, Zama presents a thesis centered on one core idea: confidentiality, verifiability, and decentralization must coexist for institutional blockchain adoption to scale. Fully Homomorphic Encryption (FHE) is a cryptographic primitive that enables this convergence. Zama delivers a sufficiently decentralized, computation-ready confidentiality layer that allows applications to operate end-to-end on encrypted data while maintaining public verifiability and auditability. This solves blockchain’s long-standing privacy limitation, enabling a new class of compliant, programmable financial workflows to be executed without exposing sensitive state or logic.

The true blocker to mainstream, institutional adoption has never been privacy alone, but verifiable computation over confidential data at scale. Zama’s fhEVM addresses this directly by enabling encrypted inputs, state, and execution natively within Solidity, while preserving deterministic verification through decentralized MPC.

This architecture transforms FHE from a theoretical construct into production infrastructure that is presently validated in the real world and secured by a cohort of industry-leading operators collectively safeguarding over $100 billion in assets. As hardware acceleration and cryptographic optimizations mature, FHE becomes viably competitive, positioning Zama as the leading proof-of-production confidentiality layer for institutional DeFi, enterprises, and public blockchain infrastructure.

Report Summary

With institutional adoption accelerating and confidentiality emerging as the final barrier to fully on-chain finance, Zama enters the market as the first-mover delivering scalable, production-ready encrypted computation for real-world financial workflows. This report will cover:

• The Confidentiality Imperative: Why transparency limits DeFi’s institutional scalability, and how encrypted computation enables compliant, privacy-preserving financial infrastructure.

• Zama’s FHE-Centric Architecture: A detailed breakdown of the technological stack and cryptographic workflows that bring end-to-end encrypted execution to the EVM and beyond.

• Strategic Positioning & Distribution Advantage: How Zama’s early technical lead, extensive open-source libraries, and institutional validations form a durable distribution moat across public chains and enterprise integrations.

• The Role of $ZAMA: An exploration of the token’s unique model, significance and value distribution as the economic backbone of a global confidentiality network.

Zama: Infrastructure for Scalable Privacy-Preserving Verifiability

The Paradigm Shift: From Permissionless DeFi to Institutional DeFi

The early era of DeFi was built around permissionless participation and full transparency, enabling open experimentation across on-chain financial primitives. However, the very attributes that made DeFi powerful for retail users where public state, composability, and open access directly conflict with the confidentiality requirements of regulated financial institutions. For institutions operating under strict regulatory, privacy, and operational constraints, this model is fundamentally incompatible.

Technical Highlight on Hybrid On-chain Off-Chain Privacy Workflows - Source: Project Kinexys

As institutional workflows move on-chain, a hybrid model is needed: one that preserves DeFi’s programmability and composability while meeting obligations around KYC, AML, and data protection. Confidentiality becomes not a feature but an absolute requirement. Without strong privacy guarantees, institutions cannot leverage public chains for settlement, issuance, asset servicing, or identity-driven logic.

This is the gap Zama closes by enabling confidential-preserving solutions while maintaining full auditability, verifiability, and compliance-aligned control. In doing so, Zama presents itself as the missing infrastructure primitive required for institutional-grade blockchain adoption.

Zama: Pioneering Confidentiality Standards with FHE

Zama introduces the first production-grade, full-stack confidentiality architecture purpose-built for blockchain execution. At the center of this design is the fhEVM, an extension of the Ethereum Virtual Machine that enables smart contracts to operate directly on encrypted state using FHE. By embedding encrypted data types and homomorphic operations directly into Solidity, Zama allows developers to write confidential logic without requiring cryptographic expertise, preserving both developer ergonomics and composability.

The Full-Stack Confidentiality Framework

Building on the fhEVM’s ability to natively operate over encrypted state, Zama extends confidentiality beyond smart contract logic into a fully integrated execution stack.

Key Prospects of FHE End-to-End Encryption - Source: Project Kinexys, Zama

Zama’s architecture delivers a deeply integrated confidentiality framework designed to support encrypted computation and verifiable privacy at institutional scale. Rather than treating privacy as an application-layer add-on, Zama embeds confidentiality across the full execution lifecycle that spans across on-chain logic, off-chain computation, cryptographic governance, and cross-chain interoperability. The system is intentionally modular, with each layer addressing a distinct responsibility while collectively enabling secure, auditable, and composable confidential applications.

At a high level, the stack comprises several core components that together form a unified confidentiality substrate for public blockchains.

This modular design allows each layer to scale independently while preserving end-to-end confidentiality, deterministic verification, and composability across applications and chains.

How It All Comes Together

Zama’s FHE Architecture Overview - Source: Zama Documentation

At runtime, on-chain execution is coordinated through Host Contracts, which serve as the authoritative interface between public blockchains and encrypted application logic. These contracts validate encrypted inputs, enforce permissioning rules, and maintain encrypted state transitions in a deterministic and fully auditable manner.

Computationally intensive operations are offloaded to a decentralized network of Coprocessors, which execute homomorphic computations directly over ciphertexts and return only encrypted outputs to the chain. Crucially, neither Coprocessors nor node operators ever gain access to plaintext data, preserving confidentiality throughout the execution lifecycle without compromising correctness or verifiability.

Workflow orchestration is handled by the Gateway, which verifies encrypted inputs, manages global access-control policies, and routes computation requests across Coprocessors and supported chains. Decryption authority is governed by the KMS forr key generation, storage, rotation, and access enforcement. This design ensures that no single party can decrypt sensitive data, aligning cryptographic governance with institutional security and compliance requirements.

Finally, a lightweight Relayer & Oracle layer abstracts cryptographic complexity away from end users and applications by handling encryption, decryption, and request forwarding. This enables wallets, dApps, and enterprise systems to integrate confidential workflows without requiring bespoke backend infrastructure or cryptographic expertise.

Taken together, these components form a coherent execution environment where encrypted computation, deterministic verification, and composability coexist natively to unlock a new class of institution-ready applications on public blockchain infrastructure.

Key Attributes of the Zama Confidentiality Stack

End-to-end Privacy-Preserving Computation

Zama’s architecture is defined by four core attributes that collectively enable scalable, verifiable encrypted computation for institutional and enterprise use cases. At the foundation is privacy-preserving computation, achieved through the combination of the FHEVM and the Coprocessor network. Together, they allow applications to operate on encrypted state and execute encrypted logic end-to-end without ever revealing plaintext to node operators, validators, or compute providers. This ensures confidentiality across the entire lifecycle of financial workflows while maintaining deterministic contract execution.

Secure Cryptographic Governance

Complementing privacy, the stack incorporates secure cryptographic governance through its MPC-based KMS. Instead of relying on trusted hardware or centralised key custodians, Zama distributes key material across multiple independent operators who collectively authorize decryption through threshold participation. This design aligns with institutional requirements for trust minimization, operational resilience, and compliance-aligned control, ensuring no single entity can compromise encrypted data.

Zama Network’s Throughput Specification & Future Scaling Trajectory - Source: Zama

Lightweight ZK Validation

To strengthen the integrity of encrypted workloads, Zama integrates lightweight zero-knowledge validation directly into the Gateway. These proofs verify that encrypted inputs are well-formed and conform to expected structures before they enter computation. By shifting correctness checks to ZK proofs, the protocol reduces opportunities for malformed ciphertexts or adversarial manipulation, while avoiding the overhead typically associated with full ZK execution environments.

Native Solidity Composability: A Familiar Development Interface

Effects of Developer Inclusivity via Native Solidity Composability - Source: 0xCheeezzyyyy, MementoResearch

Finally, Zama preserves native Solidity composability, allowing developers to write encrypted applications within the existing EVM paradigm. The FHEVM and Host Contracts maintain compatibility with existing tooling, contract patterns, and composability layers, enabling confidential logic to integrate seamlessly with DeFi, RWA tokenization systems, enterprise workflows, and compliance middleware.

Supported by the Relayer, which abstracts cryptographic interactions for wallets and backends, the stack provides end-to-end integration flexibility that allows enterprises and Web2 systems to adopt encrypted execution without rearchitecting their infrastructure.

Together, these attributes make Zama’s confidentiality layer uniquely suitable for institutional DeFi, regulated asset markets, and real-world financial automation offering a complete solution where confidentiality, programmability, and verifiability coexist at scale.

Zama’s Unique Edge in the Privacy Landscape

While multiple privacy-focused approaches exist, none achieve the same breadth or completeness as Zama’s FHE-based design.

Zama’s FHE Comparison Analysis Overview - Source: Zama

• TEEs rely on trusted hardware assumptions and remain vulnerable to side-channel attacks, limiting their suitability for high-stakes financial flows.

• MPC-only systems provide strong security but are too slow and communication-heavy for general-purpose smart contract execution.

• ZK-only systems excel at proving correctness but cannot maintain encrypted state or support the rich conditional logic required by institutional applications.

Zama’s approach uniquely combines encrypted state, encrypted computation, composability, and public verifiability in a single architecture. This union of confidentiality, programmability, and deterministic verifiability sets Zama apart as the most complete infrastructure solution for institutional DeFi. It establishes FHE as the confidentiality primitive capable of supporting the next generation of compliant, high-performance, institution-aligned blockchain applications.

Unlocking New Onchain Use Cases with Confidential Computation

By removing the constraint of public-state transparency, Zama expands the design space of blockchain applications across finance, identity, governance, and data markets. Many real-world workflows that are impractical on transparent ledgers become viable once encrypted computation is available natively.

Potential Use Cases Utilising Confidential Computation - Source: Project Kinexys, 0xCheeezzyyyy, MementoResearch

DeFi-Native Confidential Finance: Composability Meets Compliance

As DeFi matures, its primary bottleneck is no longer access to liquidity or execution efficiency, but the inability to reconcile public-state transparency with institutional confidentiality and regulatory obligations. Zama’s encrypted execution layer directly addresses this tension by enabling DeFi-native financial primitives that preserve privacy while remaining fully composable and programmatically compliant.

• (Transactional Layer) Confidential Payments & Settlement Rails: Zama enables encrypted payment flows for stablecoins, treasury operations, payroll, and cross-border settlement, where capital flows remain confidential end-to-end. Compliance logic can be enforced directly within smart contracts, allowing regulated payment systems to operate on public blockchains without information leakage. This positions encrypted stablecoins and onchain settlement as viable successors to traditional banking rails.

• (Asset Layer) Institution-Grade Tokenization: Encrypted execution unlocks real-world asset tokenization within DeFi while preserving confidentiality around investor identity, holdings, and trading activity. Assets such as fund shares, bonds, equities, and structured products can be issued and traded on shared public blockchains, avoiding the liquidity fragmentation of permissioned ledgers. KYC, AML, and eligibility checks are enforced on encrypted data, allowing tokenized assets to remain fully composable with DeFi protocols without exposing sensitive information.

• (Infrastructural Layer) Confidential DeFi Market Structure: Zama enables confidential DeFi primitives where trade sizes, positions, and strategies remain private, materially reducing front-running, MEV extraction, and strategic signalling. This extends beyond swaps to confidential lending, private collateralization, onchain credit assessment, derivatives pricing, and risk management (areas where full transparency has historically deterred institutional participation). By preserving interoperability with existing liquidity and execution layers, encrypted computation elevates DeFi to institutional operating standards without sacrificing composability.

Taken together, these capabilities align with key market trends such as regulated stablecoins, accelerating real-world asset tokenization, and rising regulatory scrutiny of onchain finance. Rather than treating compliance as an external overlay, Zama makes verifiability, enforceability, and privacy embedded natively within smart contracts.

In doing so, confidentiality becomes the missing layer that allows DeFi to scale into regulated, global financial infrastructure without sacrificing composability or decentralization.

Protocol-Level Confidential Primitives: Allocation, Identity, and Governance

Zama enables protocol-native confidentiality primitives that govern how value, access, and decision-making are coordinated onchain. At the allocation layer, encrypted execution supports crypto-native mechanisms such as sealed-bid auctions and confidential token distributions, where bids and allocations remain private until settlement.

This improves price discovery while eliminating mempool-based manipulation and strategic signaling. Zama’s own public token auction is being conducted using this mechanism, serving as a production-grade demonstration of encrypted allocation at scale. The same primitives extend to private airdrops, grants, vesting schedules, and staking rewards, reducing security risks and unwanted disclosure.

At the coordination layer, Zama enables composable onchain identity and private governance. Credentials and attributes can be verified by smart contracts while remaining encrypted, allowing protocols to enforce compliance, access control, and permissions without exposing sensitive data. Governance processes similarly benefit from confidential voting, where individual votes and stake weights remain private and only final outcomes are revealed, mitigating coercion, bribery, and strategic manipulation.

These use cases position confidentiality can enable fairer and more credible mechanisms that creates more institution-ready coordination on public blockchains.

Going Beyond Finance: The Infinite Use Case Surface Area

More broadly, once encrypted computation becomes composable infrastructure, the use-case surface expands quickly: corporate workflows (payroll, reporting, cap tables), markets (sealed submissions that reduce reflexivity), and data/AI coordination (private data sharing and policy-bound access). The key point is that confidentiality multiplies what can be built on any vertical.

The Unique Positioning: Distribution, Alignment & Future Trajectory

A Leader in Innovation: Technical Niche with Early Distribution

Zama’s early inception and multi-year investment in FHE infrastructure has given it a structural lead unmatched across the confidentiality landscape. As the first team to operationalize FHE for smart-contract environments, Zama laid the foundations for shared-security encrypted computation well before privacy became a core institutional requirement. This head start allowed Zama to secure early ecosystem integrations, capture developer mindshare, and formalize distribution channels long before competitors recognized the strategic importance of encrypted execution.

Crucially, this distribution advantage extends beyond developers to operators. The Zama Protocol is secured by a cohort of industry-leading operators collectively safeguarding over $100 billion in assets, including Ledger, Fireblocks, Etherscan, OpenZeppelin, and LayerZero. By anchoring its network to trusted infrastructure providers early, Zama has embedded institutional credibility directly into its security and governance model which creates a unique moat in both technical and reputational terms.

A Strategic Lead by Accreditations

Collectively, this creates a strong strategic positioning given Zama’s set of unique levers that:

• Strategic Distribution: As the pioneer of FHE-based confidentiality, Zama has secured partnerships with industry standards like OpenZeppelin and over 24 ecosystem partners, ensuring broad developer accessibility and trust.

• Early Mover Advantage: With continuous development since 2020, Zama is one of the only teams with mature, production-ready FHE infrastructure now positioned as the de facto confidentiality layer for EVM ecosystems.

• Extensive Technical Suite: Its open-source libraries spanning from TFHE-rs, FHEVM, Concrete ML, and TKMS dominate industry usage, creating a strong developer pull and establishing Zama as the default choice for encrypted applications. This is entirely backed by the largest FHE research team globally, with nearly half holding PhDs in cryptography or related fields, Zama’s technical credibility is unmatched across the confidentiality sector.

The Promising Road Ahead: Long-Term Plans & Expansion Strategy

Looking forward, Zama’s roadmap strengthens this advantage through targeted expansion across execution environments and cryptographic capabilities. Ethereum mainnet support in 2025 unlocks immediate deployment of encrypted applications across the largest smart contract ecosystem, followed by EVM L2 integrations in 2026 to enable composable confidential apps across major rollups. Solana support later that year brings FHE to high-performance SVM workloads.

Scaling Roadmap of Zama Network - Source: Zama Protocol Litepaper

Beyond chain expansion, Zama’s roadmap includes a series of deep cryptographic upgrades such as ZK-MPC, post-quantum ZK, permissionless operator sets, and MPC verifiability progressively deepen decentralization and operator diversity.

Key future milestones laid out in their litepaper include:

• 100k TPS Target: This involves a multi-pronged strategy (FHE-specific ASIC acceleration, a transition to ZK-based rollup architecture) and sub-100ms latency to create a pathway to unprecedented encrypted throughput.

• KMS Security Enhancements: Larger MPC committees, ZK-verified contributions, and full attestation support strengthen the reliability of decentralized decryption.

• Full Quantum-Proof Stack: The roadmap includes post-quantum ZK proofs and alignment with emerging post-quantum signature standards to achieve end-to-end quantum resistance.

This forward strategy positions Zama to serve as the foundational confidentiality substrate for both Web3 and enterprise-scale verifiable compute, enabling encrypted execution to scale sustainably over the long term without compromising decentralization, security, or performance.

A Niche Distribution Moat Driven by Technical Edge & Industry Positioning

This accumulated progress establishes a rare distribution moat defined by both technical primacy and accreditation-driven credibility. As the pioneer of fhEVM libraries with an uninterrupted development record since 2021, Zama benefits from a reputation rooted in invention, open-source leadership, and recognized research excellence.

The company’s institutional accreditations includes validation from entities like JPMorgan which further position it as the only credible infrastructure for compliance-aligned confidentiality.

Zama Protocol’s Technical Leadership, Feature & Partnerships - Source: EIP, Zama

Early Extensive Production-based Integrations

With 24+ ecosystem partners already building production-grade integrations, Zama has a strong early lead that compounds via network effects: more integrations drive more usage, which strengthens accreditations and reinforces the ecosystem’s reliance on Zama as the canonical FHE layer. Over time, this feedback loop cements Zama’s role as the de facto provider of encrypted computation across both institutional and enterprise environments.

Sector-Wide Technical Leadership Through Standardization

Beyond product execution, Zama is actively shaping the standards layer for on-chain confidentiality which is an essential prerequisite for institutional and TradFi adoption. Understanding that regulated capital requires shared and auditable primitives, Zama is also leading Ethereum-native standardization efforts by contributing to a confidentiality-focused Ethereum Improvement Proposal that establishes ERC-7984 as the canonical standard for confidential transactions on Ethereum. By defining privacy at the protocol level, Zama positions itself as the reference implementation for compliance-aligned confidentiality, reinforcing its distribution moat through aligned developer adoption, institutional trust, and protocol-level legitimacy.

$ZAMA: The Core Ecosystem Value Distribution

At the core of the Zama ecosystem sits $ZAMA, the protocol’s native value and security asset, engineered to directly align value accrual with real network usage.

$ZAMA Token Value Capture Overview - Source: 0xCheeezzyyyy, MementoResearch

The token follows a disciplined mint-and-burn model: all protocol fees are burned, while new issuance is reserved exclusively for compensating operators who perform critical network functions such as encrypted computation, ZK verification, and decentralized decryption. Developers face no fees for deploying or executing confidential logic, lowering friction for adoption. Instead, fees apply only to infrastructure-level services (ZK input validation, ciphertext decryption, and cross-chain encrypted transfers) where each execution transparently priced in USD via oracle. With confidential transactions typically costing between $0.008 and $0.8, the protocol remains economically accessible while still capable of generating substantial revenue at scale.

Fundamental Economic Scaling

This model creates a powerful throughput-driven flywheel. At approximately $1 million in annual fees per 3 TPS on a single host chain, adoption across institutional DeFi, RWA settlement flows, and encrypted stablecoin payments can scale rapidly. As global throughput approaches the protocol’s 100k TPS target, aggregate annual fees could exceed $3 billion, all of which is directly converted into deflationary pressure on $ZAMA. Unlike speculative fee models, value capture here is usage-based, and anchored in verifiable demand for confidentiality rather than discretionary token incentives.

Capitalising on The Rise of Institutional Use Cases

More broadly, Zama’s value distribution framework is designed to scale alongside the growing structural demand for confidentiality across blockchains. As financial applications mature, privacy will become a pre-requisite driven by regulatory constraints, competitive sensitivity, and compliance requirements. This is further reinforced by production-grade pilots and institutional accreditations (including from JPMorgan) position Zama as a credible infrastructure for regulated, encrypted workflows at scale.

Zama’s expanding set of cryptographic accreditations, formal audits, and enterprise-grade security validations increasingly position the protocol as a trusted confidentiality standard, lowering adoption risk for institutions and regulated entities. These trust signals compound network effects, reinforcing Zama’s role as neutral infrastructure rather than an application-specific solution.

Taken together, the token economy creates balanced incentives across operators, developers, and users, while positioning $ZAMA as the premier proxy for the broader privacy and confidentiality landscape. As more applications rely on encrypted computation by default, $ZAMA evolves into the universal meter of confidentiality where serves as the pricing, settlement, and security layer for verifiable encrypted operations.

Over time, this elevates $ZAMA into the backbone of a multi-domain security economy, accruing value as real-world workflows, regulated assets, and enterprise systems increasingly enforce correctness, compliance, and confidentiality through Zama’s infrastructure.

Conclusion

Zama stands at the forefront of a structural transition in blockchain infrastructure where confidentiality, compliance, and verifiable computation become mandatory requirements. As institutional DeFi, RWA markets, and enterprise automation move on-chain, the industry’s reliance on public-state transparency becomes a bottleneck that only a purpose-built confidentiality layer can resolve.

This is precisely where Zama’s full-stack FHE architecture delivers this missing primitive via offering deterministic verifiability across a shared, decentralized substrate. Its early investments in research, open-source tooling, and enterprise-aligned integrations position it not only as the technical pioneer of FHE for blockchain, but as the natural destination for builders and institutions demanding privacy-preserving programmability.

Looking ahead, Zama’s roadmap cements its trajectory as an ideal confidentiality engine for global-scale onchain computation. As more applications, institutions, and real-world assets rely on encrypted workflows, the role of $ZAMA becomes increasingly central as the ecosystem’s economic anchor. In aggregate, Zama emerges not simply as a privacy solution, but as the foundational verifiability layer for the next generation of financial infrastructure: unlocking a world where correctness, compliance, and confidentiality can finally coexist at scale.

Authors: @0xCheeezzyyyy, Memento Research

This report was written in partnership with Zama. This report has been prepared for informational purposes only. It does not constitute investment advice, financial advice, trading advice, or any other sort of advice, and you should not treat any of the report’s content as such.