Written by: Xiaobing

ZAMA has risen about 42% in the past 24 hours, priced at $0.085, reaching an all-time high. The market capitalization has surpassed $210 million, with a 24-hour trading volume of $112 million.

The catalyst is the combination of two product actions: On September 15, Zama expanded Morpho's Confidential Vaults from 5 to 21 on Ethereum. On September 17, Zama collaborated with Merkl to launch "Confidential Incentives," allowing cTokens (confidential tokens) to seamlessly connect 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, the Shielded TVL has surpassed $75 million. DefiLlama currently reports about $78.28 million.

From a TGE issuance price of $0.05 in February, dropping to a low of $0.017, and now at a new high of $0.085, ZAMA has painted a complete V-shaped reversal in seven and a half months.

The question is: How much of the right side of this V is supported by real demand?

What Zama did: Turning DeFi into a "sealed envelope"?

First, understand what problem Zama is solving.

All data on public blockchains is transparent. Your balance, your transactions, your DeFi positions can be seen by anyone on Etherscan. This is irrelevant for most retail investors, but it is fatal for institutions; no asset management company wants its competitors to see its holdings and trading strategies in real-time.

Zama solves this problem with Fully Homomorphic Encryption (FHE). FHE allows smart contracts to perform computations while the data is fully encrypted; the inputs are encrypted, the computation process is encrypted, and the outputs are also encrypted. No one can see the underlying data at any stage.

For example: Traditional DeFi is counting money in an open square, while Zama's FHE completes all calculations inside a sealed envelope; when you open the envelope, you can only see the result, not the process.

Zama is a cross-chain confidentiality layer that sits on top of L1/L2 like Ethereum through the fhEVM co-processor. Developers can deploy confidential applications without permission or fees; Zama charges on the encryption and decryption operations themselves, with each on-chain encryption operation costing about $0.13.

Token Economics: A 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 fees, decryption fees) are burned. Every time someone uses Zama's FHE functionality, some ZAMA is permanently removed from circulation.

Minting side: Staking rewards are paid through the issuance of new tokens, at an annualized rate of about 5%. These minting rewards are distributed to operators running FHE co-processor nodes and staking ZAMA.

The core issue becomes a simple arithmetic question: Can the amount of ZAMA burned annually exceed the amount minted annually?

If it can, ZAMA is deflationary, with circulation continuously decreasing as usage grows, creating a supply squeeze on the token. If it cannot, ZAMA is inflationary, with the rate of new staking rewards exceeding the rate at which usage fees are burned, diluting the value for token holders.

Current data does not support an optimistic conclusion. With a total supply of 11 billion tokens, and about 2.56 billion currently in circulation, a 5% annual minting rate means about 550 million new tokens are minted each year. To have destruction cover minting, based on $0.13 per encryption operation, approximately 4.2 billion encryption operations are needed annually.

Given the current Shielded TVL (around $78.28 million) and usage frequency, this number is far from being reached. ZAMA is currently still in the "minting far exceeds destruction" phase.

The Quality of $78.28 Million TVL

The growth rate of Shielded TVL is indeed astonishing; the first vault went live in June and achieved $40 million within 7 weeks. After expanding to 21 vaults on September 15, the TVL broke $75 million and reached $78.28 million two days later.

However, this growth needs to be broken down into three layers:

First layer: Deposit driven by subsidies. The "Confidential Incentives" mechanism launched by Zama in collaboration with Merkl allows protocol parties to provide liquidity incentives for confidential vaults. This means that part of the TVL is "hot money" attracted by subsidized rates, completely analogous to the "mining subsidies" logic of traditional DeFi. When the subsidies stop, this part of the TVL will leave.

Second layer: Redundant calculations of wrapped assets. Out of the 21 vaults, 12 are "hybrid vaults," meaning an additional layer of confidential wrapping on existing Morpho strategies. Users deposit USDC, which is first wrapped as cUSDC (confidential USDC), and then deposited into the vault. If DefiLlama accounts for both the underlying Morpho vault's TVL and the outer layer of confidential vault's TVL while calculating TVL, there may be double counting.

Third layer: Real paid privacy demand. Only 4 vaults are "standalone," with no corresponding public version. The TVL corresponding to these vaults is more likely to reflect genuine privacy demand, as users choose these over standard Morpho because they indeed need privacy.

Currently, there is no public data that can accurately split the ratios of these three layers. However, one benchmark is: after the subsidy activities end, how much TVL can be maintained. If it stays above 50%, it indicates genuine demand exists; if it falls significantly, it suggests the current TVL is mainly driven by incentives.

Competitive Landscape: How Significant is Zama's First-Mover Advantage?

The FHE sector is not only being pursued by Zama; there are several main competitors:

Fhenix: Supported by Offchain Labs (the developer of Arbitrum), focused on the privacy layer of CoFHE co-processors and L2 rollups. It has launched on Base and Arbitrum Sepolia. The distinction from Zama is that Fhenix is more L2-specific, while Zama is a cross-chain universal solution.

Inco Network: A modular confidential L1, with data from March 2026 showing a 25% monthly active growth. Seed round financing of $4.5 million. It has secured about $4.7 billion in 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+ in funding, a $1 billion valuation in Series B, the largest FHE deployment on Ethereum mainnet (21 vaults, $78 million TVL), and authority over the FHE token standard as the proposer of the ERC-7984 standard.

However, the overall FHE sector is still in its very early stages; $78 million in TVL is almost invisible in the larger DeFi context (Aave around $12 billion, Morpho around $2 billion). Zama's first-mover advantage is more in the technology stack and ecosystem partnerships rather than market size.

Valuation Anchors

Current data: ZAMA price $0.085, circulating amount 2.56 billion tokens, circulating market cap around $21.7 million. Total supply of 11 billion tokens, FDV approximately $935 million.

Based on $78.28 million in TVL, FDV/TVL is about 12 times. In comparison, Morpho's FDV/TVL is about 3 to 4 times, Aave about 2 times. This multiple reflects the market's expectations for the "FHE privacy premium," but also means that if TVL growth stagnates, the current valuation lacks support.

The more core valuation variable is fee income. At $0.13 per encryption operation, even assuming that the Shielded TVL is all active (generating 0.01 encryption operations per day per dollar of TVL), annual fee income is about $285,000. FDV/annual fees is about 3280 times.

This is a typical asset priced on a narrative rather than cash flow; buying ZAMA is akin to buying an assumption: FHE privacy will become the infrastructure layer of DeFi, with hundreds of billions of dollars in on-chain assets needing encryption protection in the future, and Zama will be the main capture of this demand.