Zama ZAMAHow far is ZAMA, the privacy layer of the Ethereum ecosystem, from truly capturing value?
Written by: Xiaobing ZAMA rose about 42% in the past 24 hours, quoted at $0.085, hitting a new all-time high. Market cap surpassed $210 million, with a 24-hour trading volume of $112 million. The catalyst is the combination of two product moves: On September 15, Zama expanded Morpho's Confidential Vaults on Ethereum from 5 to 21. On September 17, Zama partnered with Merkl to launch "Confidential Incentives," allowing cTokens (confidential tokens) seamless access to Merkl's DeFi incentive infrastructure. On the same day, the Zama Swap Protocol went live, supporting exchanges between crypto assets. According to the project team, Shielded TVL (total value locked in shielded assets) has exceeded $75 million. DefiLlama currently reports about $78.28 million. From the TGE issuance price of $0.05 in February, dropping to a low of $0.017, and now reaching a new high of $0.085, ZAMA has completed a full V-shaped reversal in seven and a half months. The question is: how much of the right half of this V is supported by real demand? What Zama has done: turning DeFi into a "sealed envelope"? First, understand the problem Zama solves. All data on public blockchains is transparent. Your balance, your transactions, your DeFi positions—anyone can see them on Etherscan. This is no issue for most retail investors, but fatal for institutions; no asset management company wants competitors to see their holdings and trading strategies in real time. Zama solves this with Fully Homomorphic Encryption (FHE). FHE allows smart contracts to perform computations on fully encrypted data: inputs are encrypted, the computation process is encrypted, and outputs are encrypted. No one can see the underlying data at any stage. To illustrate: traditional DeFi is like counting money in an open square; Zama's FHE completes all calculations inside a sealed envelope, where only the result is visible upon opening, not the process. Zama is a cross-chain confidential layer, sitting atop Ethereum and other L1/L2s via the fhEVM co-processor. Developers can deploy confidential applications without permission or fees; Zama charges only for encryption and decryption operations, about $0.13 per on-chain encryption operation. Tokenomics: the tug-of-war between burning and minting ZAMA's token design revolves around a "burn-and-mint" model: Fee side: 100% of all protocol fees (encryption and decryption fees) are burned. Every time someone uses Zama's FHE features, ZAMA tokens are permanently removed from circulation. Minting side: staking rewards are paid through new token issuance, with an annual rate of about 5%. These minted rewards are distributed to operators running FHE co-processor nodes and delegators staking ZAMA. The core question becomes a simple arithmetic problem: can the amount of ZAMA burned annually exceed the amount minted annually? If yes, ZAMA is deflationary; as usage grows, circulating supply decreases, tightening token supply. If not, ZAMA is inflationary; staking rewards mint faster than fees burn, diluting holders' value. Current data does not support an optimistic conclusion. Total supply is 11 billion tokens, with about 2.56 billion circulating. A 5% annual minting means about 550 million new tokens minted yearly. To cover minting with burning, assuming $0.13 per encryption operation fee, about 4.2 billion encryption operations are needed annually. Based on current Shielded TVL (~$78.28 million) and usage frequency, this number is far from reached. ZAMA is still in a phase where minting far exceeds burning. The quality of the $78.28 million TVL Shielded TVL growth is indeed impressive: the first vault launched in June, reaching $40 million within 7 weeks. After expanding to 21 vaults on September 15, TVL surpassed $75 million, reaching $78.28 million two days later. But this growth needs to be broken down into three layers: First layer: subsidy-driven deposits. Zama and Merkl's "Confidential Incentives" mechanism allows protocols to provide liquidity incentives for confidential vaults. This means part of the TVL is "hot money" attracted by subsidized rates, exactly like traditional DeFi "mining subsidies." When subsidies stop, this TVL will leave. Second layer: double counting of wrapped assets. Among the 21 vaults, 12 are "hybrid vaults," which wrap existing Morpho strategies with a confidential layer. Users deposit USDC, which is wrapped into cUSDC (confidential USDC) before entering the vault. If DefiLlama counts both the underlying Morpho vault TVL and the outer confidential vault TVL, double counting may occur. Third layer: genuine paid privacy demand. Only 4 vaults are "standalone," with no public version counterpart. The TVL in these vaults more likely reflects real privacy demand; users choose these over regular Morpho because they truly need privacy. Currently, no public data precisely splits these three layers. But a benchmark is how much TVL remains after subsidy activities end. If it stays above 50%, real demand exists; if it drops significantly, current TVL is mainly incentive-driven. Competitive landscape: how big is Zama's first-mover advantage? Zama is not the only player in the FHE space; main competitors include: Fhenix: supported by Offchain Labs (Arbitrum developer), focusing on CoFHE co-processor and L2 rollup privacy layers. Already live on Base and Arbitrum Sepolia. The difference is Fhenix leans towards L2-specific solutions, while Zama is a cross-chain universal solution. Inco Network: a modular confidential L1, showing 25% monthly active user growth as of March 2026. Raised $4.5 million seed round. Secured about $4.7 billion re-staked ETH security through Ethos. Mind Network: another FHE infrastructure project focusing on the intersection of AI and data privacy. Zama's advantages include: $150M+ funding, $1 billion valuation Series B, largest FHE deployment on Ethereum mainnet (21 vaults, $78 million TVL), and influence as the proposer of the ERC-7984 standard for FHE token standards. However, the FHE space is still very early stage; $78 million TVL is almost invisible in the DeFi market (Aave about $12 billion, Morpho about $2 billion). Zama's first-mover advantage is more in tech stack and ecosystem partnerships than market size. Valuation anchor Current data: ZAMA price $0.085, circulating supply 2.56 billion tokens, circulating market cap about $217 million. Total supply 11 billion tokens, FDV about $935 million. With $78.28 million TVL, FDV/TVL is about 12x. For comparison, Morpho's FDV/TVL is about 3 to 4x, Aave about 2x. This multiple reflects market expectations for an "FHE privacy premium," but also means if TVL growth stalls, current valuation lacks support. The more core valuation variable is fee revenue. Assuming $0.13 per encryption operation, even if all Shielded TVL is fully active (0.01 encryption operations per dollar TVL per day), annual fee revenue is about $285,000. FDV to annual fees ratio is about 3280x. This is a typical "narrative-priced rather than cash flow-priced" asset. Buying ZAMA is buying into the assumption that FHE privacy will become the infrastructure layer of DeFi, that hundreds of billions of dollars in on-chain assets will require encryption protection, and that Zama will be the main beneficiary of this demand.