Confidential DeFi is starting to move real capital.
Within days of launching 16 confidential vaults across five assets and five curators, shielded TVL grew from roughly $35 million to nearly $60 million. The new vaults also expanded what confidential assets can do onchain, from earning up to 5% on WBTC to moving between positions through confidential swaps.
One of the curators behind that expansion is Armitage, Wintermute's curation arm, which now runs six confidential vaults across USDC, USDT, and WBTC.
In this conversation, Kyle O'Brien, VP of Capital Markets at Zama, sits down with Igor Igamberdiev, Head of Research at Wintermute, and Zama CEO Rand Hindi to discuss why institutions are looking for confidential yield, why a market maker is entering vault curation, and what it will take to bring more institutional capital and trading activity onchain.
Edited transcript
Kyle O'Brien: It has been a little over 48 hours since the launch. Rand, what are you seeing, and who is the money coming from?
Rand Hindi: Before the launch, we had around $35 million of TVL in the confidential USDC vault. We are now close to $60 million. That is staggering for three reasons. These are confidential vaults, a new primitive people have to learn about. They are not yet widely integrated into yield aggregators and wallets, so people have to look for them. And it shows something fundamental: people want confidentiality. These are not even the highest-yield vaults you can access right now. The confidentiality is what makes people want to try them.
The protocol is permissionless and private, so we cannot know exactly where the money comes from. But people reach out to do their due diligence before depositing, and the big pockets are clearly institutional: funds, family offices, high-net-worth individuals looking for sources of yield they cannot get in traditional banking. Nobody wants others to know they just deposited a hundred million dollars into a given strategy. With an average deposit close to $350,000, this is serious capital starting to flow into the system.
Kyle O'Brien: Igor, Wintermute had to make an internal decision to support confidential vaults. What was the thesis?
Igor Igamberdiev: It is similar to HTTPS adoption in the early days. Not all information should be available to every party, whether that is a middleman or your internet provider. Some things, like your bank details, should never travel to their destination in plain text. It is the same with vaults: some counterparties and institutions are not happy with the current state of things, and over time we expect more adoption of confidential deposits. When Zama started the confidential vaults, first with Steakhouse and now with 16 vaults, working closely with them on something exclusive was a no-brainer.
Kyle O'Brien: Bitcoin is notoriously difficult to earn yield on. Now that we have confidential WBTC and a vault paying 5% on it, we have encrypted Bitcoin that earns yield while you hold it. Why does that matter?
Igor Igamberdiev: After the DeFi summers, there was no yield for BTC at all. Wrapped BTC on Aave or Morpho is used as collateral and earns maybe 10 basis points at most. So having a venue where you can make up to 5% is a game changer. Many people hold BTC. It is a question of knowing this opportunity exists.
Rand Hindi: I have been in crypto since 2013, when the only thing to hold was Bitcoin. There is something about this product that gets me very excited, and I do not think people understand the impact of it yet.
Kyle O'Brien: Igor, you are curating vaults for three assets. What is the criteria, and where do vaults go from here?
Igor Igamberdiev: We started with USDC and USDT because there are plenty of yield opportunities and people have cash on hand ready to deploy. Blue chips like ETH or BTC are much harder: the yield on lending markets is basically looping, so you cannot beat staking yield and pass it on. With BTC, though, we will see more attempts to provide yield, and with proper risk management that finally gets us out of the 10-basis-point world.
Rand Hindi: Today vaults are primarily collateralized lending. The way I see them, they are simply investment strategies onchain. The yield can come from lending, from stock trading strategies, from derivatives, or from market making. Once RWAs enter the loop, imagine vaults that are strategies on private debt. The limited yield opportunities today exist because we have not had enough assets to build elaborate strategies. That changes in the next 12 to 18 months. There will be millions of vaults, built by agents, humans, anons, bots, and professional curators. And the day the US starts cutting rates and people look for better opportunities than parking money at JP Morgan, we get a Cambrian explosion of liquidity into those vaults.
Kyle O'Brien: So far we have shielded deposits, not strategies. As vault profiles expand toward actively managed positions, the curators themselves become hedge funds housed inside a vault. Does that change who needs confidentiality?
Rand Hindi: Take tokenized stock portfolios onchain. If you are a very good stock picker, you could run a vault holding tokenized stock positions, even shorts, even perps. But if the composition of your portfolio is public, why would anyone pay you a performance fee? They would just copy-trade you. Worse, if your strategy is fully onchain, you get front-run on every execution. It is impossible to run an onchain trading strategy if you cannot hide the strategy and the trades you are about to make. With confidentiality, you can hold confidential positions, swap them confidentially, and actually get paid for your edge.
Igor Igamberdiev: From a regulatory standpoint, simple lend-and-borrow does not attract much attention, while more generalized strategies raise new questions, so our position is to wait for a clearer landscape. But this could be the future of finance, because TradFi also has dark pools. Many parties do not want their positions publicly visible, simply because they have reporting obligations or orders on the book.
Kyle O'Brien: Leverage, looping, meta-vaults. Are we speed-running something fascinating but also risky, and what keeps it safe?
Igor Igamberdiev: I would not say it makes the situation much riskier. That is what curators are for: doing the due diligence and setting the right parameters. Looping is common in TradFi anyway; it is just much easier onchain, because you do not need to go to Goldman Sachs to find liquidity for your specific collateral. What matters is the credibility of operators. As we saw last year, some do not do enough diligence, and then you get bad debt. In a way it is similar to what happened with ETFs: people diversified risk for years, but doing it was expensive and they did not know the optimal allocation. That is the curator's work, finding the assets that generate good yield for depositors while staying safe, without unnecessary tail risk from smart contracts, bad debt, or counterparties.
Rand Hindi: People ask why you need curators if agents can auto-curate vaults. You will have AI curators. But you will never replace the credibility of a tier-one curator. When people go to Armitage or Steakhouse, they do not go for the strategy. They go for risk management, approach to the market, the products they build. If I am a pension fund, I need someone credible to tell me a strategy is within my parameters for 20 years. There might be a million vaults, but there will be a power law, and the vaults that attract institutions will be built by the best curators.
Kyle O'Brien: Crypto does about $30 billion a day in OTC, most of it off-chain. Equities do about $250 billion a day, and the entire global OTC market is around $20 trillion a day. What is the prerequisite for some of that volume to move onchain?
Igor Igamberdiev: Compliance. What I like about Zama is that the transaction graph is still there: if you want to analyze it, you can. At the same time, decoy transactions mean you can show the world that you maybe bought an asset, or maybe not. Desks can still make sure nobody knows what is really going on: maybe the client only had a long position and the short does not exist, or vice versa. That confidentiality layer, available on demand, could help capture part of this volume.
Rand Hindi: And capturing 10% of that market is already a great business. There is a misconception about why privacy matters and for whom. For individuals, it is personal data. Institutions have no personal data to hide. They want to stop competitors from learning their strategy and stop being front-run, because that costs them money. For that, you do not need end-to-end secrecy. You need enough uncertainty that the edge someone gets from front-running is erased. If a bot is 60% sure you are going long, but not 95%, the risk eats its expected return. The minimum amount of noise required is not very high.
Kyle O'Brien: What is your optimistic one-year view for confidential vaults, and what does the pace look like from here?
Igor Igamberdiev: When the first vault went live, I could not have expected such numbers in such a short time. Optimistically, hundreds of millions should be possible in the next 12 months. We are just early. That is also why we decided to offer our full product line of vaults to Zama users, so they can decide whether they want our credibility or a specific strategy from someone else.
Rand Hindi: Morpho vaults on Ethereum hold about $5 billion in deposits. We are above $50 million, so 1% of all that TVL is already shielded, and it has only been a few days. I am very confident that at least 50% of the TVL can be shielded within the next 12 months. We intend to keep the pace exponential, without degrading the quality of the experience. It is easy to list a million assets in a million vaults. The hard part is a deep confidential swap ecosystem around them, so you can move between positions in size, and a system of curation that helps people filter. If Armitage wants to launch a thousand vaults on Zama, great. If a thousand random curators who have no idea what they are doing want to launch on Zama, that is not what we are looking for.
The 16 confidential vaults and the Zama Confidential Swap Protocol are live today.
Confidential DeFi is now a category.
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