A guest blog post by Valerio Leo, Founder of Raycash, on advancing confidential onchain finance. This article explores how decoys and an asynchronous wrapping flow can make the transition from public ERC-20 assets to confidential ERC-7984 tokens significantly more private, while remaining compatible with the existing token ecosystem.

Part 1 of 2: how decoys and an asynchronous, two-step wrap break the link between a deposited ERC-20 and the confidential ERC-7984 it mints.

Once you're holding an ERC-7984 token, your balance is effectively encrypted. That part is solved. But how those tokens come into existence matters just as much, and there are two ways it happens:‍

• Native minting. An issuer mints confidential tokens directly. If Circle decided to issue a natively confidential ERC-7984 stablecoin, this is how it would work: confidential from birth, no ERC-20 involved.
• ‍Wrapping. You deposit a normal ERC-20 and a wrapper mints you the confidential ERC-7984 equivalent, one-for-one. This is how the existing ERC-20 world, the USDC and USDT already in circulation, becomes confidential.

Wrapping is the on-ramp most people will actually use, because most value already lives as plain ERC-20. The catch is in the timing. This design keeps the UX simple and efficient, but it also means the initial wrap transaction remains publicly observable. So while the token you end up with is confidential, the act of getting it reveals how much you wrapped and where it went.

The token does its job. The only thing it exposes is the very first step, the wrap itself, and everything after that is private. This post is about closing even that one gap, the on-ramp: an anonymous wrap that uses decoys and an asynchronous two-step flow to break the link between the ERC-20 you deposit and the confidential ERC-7984 you receive.

This is one of the things we're building at Raycash, and what follows is the design we landed on.

What current wrappers can reveal

Using a wrapper makes one transaction, the first one, non-confidential. That's a known and usually accepted tradeoff, and most of it fades the moment the recipient spends: once they move tokens, the amount is encrypted and their balance becomes unknowable again. But one fact never fades. If an address was funded through a wrapper, anyone can say with 100% certainty that it received X tokens at that first transaction. It is indisputable. It reveals nothing about the recipient's current balance, but it permanently establishes that they received at least X.

Here is where that comes from. Confidential ERC-7984 tokens (built on @zama's FHEVM) hide amounts, not addresses: balances and transfer amounts are encrypted, but the sender and receiver of every transfer are public. That's the privacy you're buying, and it's strong. The confidentiality model works exactly as intended. The remaining observable information comes from the wrapping flow itself, which today is initiated in a public transaction.

The canonical entry point is:

function wrap(address to, uint256 amount) public;   // both `to` and `amount` are cleartext

Both arguments are public, and the mint happens in the same transaction. So at the moment of wrapping, call it tx0, the chain records in the clear that address to just received exactly amount of the confidential token.

How bad is that? Often, not bad at all. Take a large holder wrapping 5M USDC to itself. tx0 is public, so everyone sees that address now holds 5M confidentially. But that figure is known only at tx0. The moment it makes its first confidential transfer, the amount is encrypted, and an observer can no longer tell whether it moved all of it, none of it, or anything in between. The public number is just a starting upper bound that decays into uncertainty from tx1 onward.

In other words, the only thing you ever expose is the on-ramp itself. Once you hold the confidential token, you're private. That's a fine trade for an institution wrapping to itself. But when you wrap to a recipient (paying someone, funding a desk, distributing to a counterparty), that tx0 snapshot of who got how much, captured before confidentiality kicks in, is often the precise fact you wanted to keep private.

The thing being exposed is a link: the deposited ERC-20 (a public depositor, a public amount) is tied, in a single transaction, to the recipient of the freshly minted confidential tokens. Break that link, and the on-ramp becomes private too.

Closing that loop is what we set out to do at Raycash: to push fhEVM far enough that the first mile gets the same privacy as everything after it.

The idea: split the wrap, and hide it in a crowd

fhEVM can compute on more than just numbers; it works on encrypted addresses too. That makes one design tempting: keep a mapping(eaddress => euint64), an encrypted recipient pointing at an encrypted balance, and credit people through it. It doesn't work. An EVM mapping keys on the literal ciphertext handle, and every encryption of the same address produces a different handle. Encrypt Alice's address twice and you get two unrelated keys, so there is no "Alice's slot" to find and add to. Encrypted addresses can't index storage.

But they are a great fit for matching. You can take an encrypted address and later check whether it equals a given cleartext address, under encryption, without revealing the answer. So rather than key a balance by recipient, you record each deposit as a note that carries its encrypted recipient, and match against it when the time comes. That is a UTXO model: notes you match to spend, not balances you look up.

Concretely, this splits the wrap into two steps. Today a wrap does two things in one transaction: it takes custody of your ERC-20, then mints confidential tokens to a recipient, and fusing them is what creates the public link. We separate them: one step records a note, a later step matches and mints it. The privacy lives in the detail of each step, so both are worth walking through.

Step 1, initWrap: record a note with an encrypted recipient

The first step takes the ERC-20 and records a note. It mints nothing. Every note goes into a single append-only list shared by all users:

Deposit[] public deposits; // ever-growing; every wrap from every user lands here
2struct Deposit {
3  address depositor; // public: who funded the deposit
4  uint256 originalAmount; // public: cleartext amount in
5  euint64 amount; // encrypted
6  eaddress recipient; // encrypted: who the confidential tokens are for
7}
8
9function _initWrap(
10  address depositor,
11  uint256 amount,
12  externalEaddress encryptedRecipient, // caller-supplied ciphertext...
13  bytes calldata inputProof // ...with a proof binding it to this    input
14) internal returns(uint256 depositIndex) {
15  // verify the caller's encrypted recipient against its proof (Zama's   FHE.fromExternal)
16  eaddress recipient = FHE.fromExternal(encryptedRecipient, inputProof);
17  // scale to the wrapper's confidential precision, then encrypt the   amount
18  euint64 encryptedAmount = FHE.asEuint64(SafeCast.toUint64(amount / rate()));
19  deposits.push(Deposit({ // add to the global list
20    depositor: depositor,
21    originalAmount: amount,
22    amount: encryptedAmount,
23    recipient: recipient
24  }));
25  depositIndex = deposits.length - 1; // its position in the ever-  growing list
26  // emit WrapInitiated(depositIndex, depositor, amount,   FHE.toBytes32(recipient));
27

The recipient arrives as an encrypted address (externalEaddress) plus an inputProof; FHE.fromExternal checks the proof and stores it as ciphertext. The amount arrives in cleartext, since it's a public ERC-20 transfer, and gets encrypted on the way in. So the WrapInitiated event tells an observer the depositor and the cleartext amount, plus an opaque handle for the recipient. Not who it's for.

That shared, ever-growing list is the whole game. Every wrap from every user lands in it, and the next step is where that matters.

Step 2, finalizeWrap: match and mint

Nothing is minted until the recipient decides to finalize, and that happens at a time of their choosing, possibly far in the future. Until then the note just sits in the shared list, unspent, exactly like a UTXO. They mint only when they actually want the balance.

To finalize, the recipient calls in with their own cleartext address and a set of note indices from the list. Here is the part that surprises people. In ordinary EVM, pointing at a note that isn't yours should just revert: you don't own it, so the call fails. fhEVM removes that failure. It gives you an encrypted ternary, FHE.select, which returns one of two values according to an encrypted flag, and the chain never learns which branch was taken. So you can homomorphically compare a note's encrypted recipient against the cleartext address with FHE.eq, get back an encrypted boolean, and select the note's amount if it matched or zero if it did not.

eaddress encryptedRecipient = FHE.asEaddress(recipient);
euint64 sum = E_ZERO; // encrypted zero
for (uint256 k; k < depositIndices.length; k++) { // any notes from the list
  Deposit storage d = deposits[depositIndices[k]]; // (index validation elided)
  ebool isMatch = FHE.eq(d.recipient, encryptedRecipient); //  encrypted yes/no
  euint64 payout = FHE.select(isMatch, d.amount, E_ZERO); // amount if mine, else 0
  sum = FHE.add(sum, payout); // encrypted running sum
  d.amount = FHE.select(isMatch, E_ZERO, d.amount); // obliviously nullify
}
_mint(recipient, sum); // sum is encrypted

That is the whole trick. Pointing at a note that isn't yours doesn't fail; it simply pays out zero. So you can pad your finalize with other people's notes pulled from the shared list, and they cost you nothing but a little gas. Those padding notes are the decoys. To anyone watching, your finalize touches a pile of notes, only the encrypted matches pay out, and the chain never reveals which ones did.

The last line of the loop is the subtle one. Every note in the batch has its encrypted amount rewritten: to encrypted-zero if it matched (spent), or back to its own value if it did not (untouched). Both cases write a fresh, opaque ciphertext to the same slot, so they are indistinguishable on chain. This is an oblivious nullification, and it's what makes decoys truly free: a decoy that wasn't yours is rewritten to the value it already held, so it stays untouched and its real owner can still spend it later. You can borrow anyone's notes with no risk to them.

This is why the batch matters. Finalize a single note alone and it points at one recipient; even encrypted, that one-to-one shape is easy to correlate over time. Finalize inside a batch and the recipient is matched against many notes at once under encryption, so no one can tell which were actually theirs, one, several, or none. A minimum batch size is enforced so a wrap can never finalize alone. And since decoys are just other notes from the ever-growing list, the longer a note waits the larger the crowd it can hide in, which is why finalizing later is usually better. Between splitting the wrap across two transactions and matching inside a crowd, there is no longer a way to tie a deposited ERC-20 to the confidential balance it became.

What this looks like for the recipient

The recipient never has to touch the chain to get paid. They encrypt their own address with Zama's tooling and hand the ciphertext to whoever is paying them: "send 2000 USDC to this encrypted address." The payer deposits, and the recipient just watches the WrapInitiated events for the one carrying their encrypted address with a cleartext amount matching what they expected. That tells them which deposit, which index, is theirs. Then, whenever they choose, they finalize that index alongside a handful of decoys to mint the balance.

What's public, what's hidden

Public

Each deposit's depositor and cleartext amount (it's a cleartext stablecoin coming in).

At finalize: the recipient address, and which deposit indices were in the batch.

Hidden

Which deposits in the batch matched the recipient: the deposit-to-recipient link.

Whether any given deposit was consumed: the oblivious nullification makes a spent deposit and a decoy look identical.

How much the recipient received: the minted sum is encrypted, and can be zero. Seeing a recipient address and a list of indices tells you nothing about whether they actually received anything from those deposits.

‍

Net effect: the traceable cleartext on-ramp is severed from the recipient, the credited amount is unreadable, and you can't even confirm a given deposit was ever spent.

Downstream, nothing changes: this is an on-ramp layer only

Once finalizeWrap mints, the recipient holds ordinary ERC-7984 tokens and spends them exactly like any other confidential token: amounts hidden, sender and receiver public, the same Zama assumptions, unchanged. AsyncWrapper adds privacy at exactly one boundary, the wrap. After that you're in standard ERC-7984, where the decay logic above applies in full: from the recipient's first transfer, their balance becomes unknowable.

Decoys: your privacy dial

The strength of the anonymity isn't fixed by the contract. It's a dial the finalizer controls.

You choose the size, and you pay for it. Each decoy is another FHE.eq / select / add pass in the loop, so a larger anonymity set costs more gas. That's the right trade: spend a little on a routine wrap, spend more on the transfers where privacy really matters. The batch size is yours to set, per finalize.

The contract sets a floor. A minimum decoy count is enforced so no one can finalize with too few, least of all zero. A zero-decoy finalize would resolve a deposit one-to-one in the open, and because deposits double as each other's decoys, that transparency pollutes the anonymity set everyone else is relying on. The floor protects the commons.

Size isn't everything; quality matters too. Decoys whose public amounts, depositors, or timing make them implausible candidates can shrink the effective anonymity set well below its nominal size. A large batch of bad decoys can be weaker than a small batch of good ones. Choosing them well is a strategy in its own right, and we'll cover it in a separate post.

Part 2: non-custodial deposit screening. The same two-step design, where deposits sit in the list before anything is minted, gives a deployment a natural place to screen deposits for compliance before they're ever added as a balance into the AsyncWrapper, without the protocol taking custody of anyone's funds. That's how Raycash confidential on-ramp stays both anonymous and compliant.

Additional links

• Follow Raycash on X
• Raycash website