Confidential Vaults: The Missing Layer for Institutional Capital in DeFi

Confidential vaults add an encryption layer between allocators and existing onchain vaults. Deposits, positions, and exits stay private, while the vault and the curator's strategy stay unchanged. At Vault Summit, Irene Patrikios, who leads business at Zama, explained why this layer is what institutional capital still needs to come onchain.

‍

Edited transcript

Why is institutional capital still on the sidelines?

Institutional capital is coming onchain. Custody has matured, regulatory frameworks are taking shape, and tokenization is at scale. But confidentiality is still the missing gap. For the largest pools of capital, such as funds managing money for others, treasuries, and desks moving size, exposure is a real risk.

Vault 1.0 was the aggregator: one strategy, one contract, one yield. Vault 2.0 is modular. Morpho built the rails, curators turned risk into a discipline, ERC-4626 gave everyone a common language, and custody providers and wallets brought it to users. Every layer got better, but real capital is still on the sidelines.

From one deposit, you can see the funds going in, the amount two weeks later, and the amount exiting. Click on the wallet and you can see everything they hold and where it originated: the whole balance sheet.

For a fund or a company treasury, that means their LPs, their competitors, and the whole market can see all of it. So big capital splits flows into smaller executions, moves to permissioned rails, or waits. That is the cap on Vault 2.0.

How do confidential vaults work?

Vault 3.0 adds one layer to the vault stack: confidentiality. It sits between the allocator and the vault, and it doesn't ask any other layer to change. Taking the example of Steakhouse Confidential USDC vault on Morpho:

The allocator deposits confidential USDC into a batcher.
The batcher aggregates deposits and decrypts only the aggregate into the underlying vault.
The curator operates the vault as is.
The allocator receives an encrypted share of the vault.

The allocator's position, entry, and exit are private. Anyone entitled to see them, such as a regulator or an auditor, can be given access. This protects the allocator: the curator's strategy is still public onchain.

Who benefits from confidential vaults?

Participant	What they get
Allocators	A confidential position: deposit amounts and share balances stay encrypted
Curators	New demand from allocators who won’t deposit with public positions
Vault infrastructure	New deposits routed into existing vaults, with no changes to the vault
Wallets, custodians, neobanks	Confidential deposits for users through a low-lift SDK integration
Issuers	A 1:1 confidential version of any ERC-20, which holders can shield and unshield at any time

What they get
Allocators	A confidential position: deposit amounts and share balances stay encrypted
Curators	New demand from allocators who won’t deposit with public positions
Vault infrastructure	New deposits routed into existing vaults, with no changes to the vault
Wallets, custodians, neobanks	Confidential deposits for users through a low-lift SDK integration
Issuers	A 1:1 confidential version of any ERC-20, which holders can shield and unshield at any time

Traction: from one vault to $100 million in shielded TVL

We started with one vault, one curator, and one asset. With Morpho and Steakhouse Financial, we deployed the confidential Steakhouse USDC Prime vault. It went from zero to $46 million in six weeks. We had treated it as a beta, with a target of $10 million.

Holders of USDT or AUSD, or anyone wanting different RWA exposure or a different risk profile, still had to use public rails. So three weeks later, we launched 15 more vaults with four new curators: Bitwise, RockawayX, Armitage by Wintermute, and Flowdesk. We added four confidential assets: USDT, AUSD, tGBP, and WBTC. Two weeks after launch, shielded TVL reached $100 million.

What comes after confidential vaults?

Confidential vaults are step one. Institutional capital doesn't just sit in a vault. It trades, rotates between strategies, sits with custodians, hedges, and settles, and each step needs confidentiality. Zama is building across all of them:

Deposits: confidential deposits are live, and we are going deeper on what a confidential vault can be.
Swaps: users can move between assets while staying shielded, with no front-running.
Institutional access: we integrate where institutions already operate, including public blockchains, custody providers, and their rails.
More assets: more confidential stablecoins and RWAs.

On custody, we work with Dfns, and more institutional custodians are going live soon. The protocol is designed compliance-ready first. We work with Elliptic and Hypernative for wallet screening and ongoing monitoring.

The vault stack has a new layer

Curators can enable confidential deposits on their vaults. Wallet providers, neobanks, and front ends can bring confidential execution to their users through a low-lift integration: swaps, send and receive, shield and unshield, and confidential deposits.

The vault stack has a new layer. It brings us one step closer to apps that serve users and institutions the way they expect to come onchain, with their positions confidential onchain. Institutional capital needs more than vaults, and we are building it.