ZAMA Explained: Privacy Without Compromising Decentralization
Public blockchains have transformed how we verify ownership and coordinate value, but they were never built for privacy. Transparency enables anyone to verify system integrity, yet it also exposes every transaction and piece of user data. This creates a core dilemma: the features that make blockchains secure also make them unsuitable for sensitive activities such as finance, identity, or governance.
The industry has long been stuck between two flawed options—fully public systems with no confidentiality, or offchain and permissioned solutions that reintroduce trust and weaken decentralization. Without a way to combine verifiability and privacy, blockchains cannot achieve mainstream adoption, especially in use cases where confidentiality is essential.
This is the gap the Zama Protocol addresses. Using advanced Fully Homomorphic Encryption (FHE), MPC, and lightweight zero-knowledge proofs, Zama provides a universal confidentiality layer on top of existing blockchains. It enables assets and applications to remain publicly verifiable while fully encrypted end-to-end, offering a new way to build confidential dapps without sacrificing composability or decentralization.
The token is now available for trading on XT Exchange Pre-market for ZAMA, giving users early access before the token’s official listing.
TL; DR for Busy Readers
- Zama enables fully confidential smart contracts using FHE, offering privacy without sacrificing decentralization or composability.
- The Zama Protocol runs as a cross-chain confidentiality layer, allowing encrypted computation on public blockchains like Ethereum and Solana.
- $ZAMA powers fees and staking under a burn-and-mint model, with rewards for network operators and volume-based fee discounts.
- Key use cases span confidential payments, RWA tokenization, sealed-bid auctions, onchain identity, and private governance—now accessible early via XT Pre-market.
What is ZAMA?
Zama is a company and protocol that enables confidential smart contracts using Fully Homomorphic Encryption (FHE).
Zama builds the Zama Protocol (a confidentiality layer for existing blockchains) and the FHEVM library so developers can run computations directly on encrypted data. The protocol uses coprocessors, a Gateway, and a threshold KMS (MPC) to verify, execute, and decrypt encrypted computations while keeping data private and publicly verifiable.
It was founded in 2020 by Dr Rand Hindi (CEO) and Dr Pascal Paillier (CTO), with other prominent researchers leading the company, such as Prof Nigel Smart (Chief Academic Officer) and Dr Marc Joye (Chief Scientist).
How ZAMA Works: Core Mechanisms Explained
The Zama Confidential Blockchain Protocol (or simply the Zama Protocol) enables issuing, managing and trading assets confidentially on existing public blockchains. It positions itself as the most advanced confidentiality protocol to date, offering:
- End-to-end encryption of transaction inputs and state: no-one can see the data, not even node operators.
- Composability between confidential contracts, as well as with non-confidential ones. Developers can build on top of other contracts, tokens and dapps.
- Programmable confidentiality: smart contracts define who can decrypt what, meaning developers have full control over confidentiality rules in their applications.
The Zama Protocol is not a new L1 or L2, but rather a cross-chain confidentiality layer sitting on top of existing chains. As such, users don’t need to bridge to a new chain and can interact with confidential dapps from wherever they choose.
It leverages Zama’s state-of-the-art Fully Homomorphic Encryption (FHE) technology, which enables computing directly on encrypted data. FHE has long been considered the “holy grail” of cryptography, as it allows end-to-end encryption for any application, onchain or offchain.
Zama now has a highly efficient FHE technology that can support any type of application, using common programming languages such as Solidity and Python, while being over 100x faster than 5 years ago. Importantly, Zama’s FHE technology is already post-quantum, meaning there is no known quantum algorithms that can break it.
While FHE is the core technology used in the Zama Protocol, Zama also leverages Multi-Party Computation (MPC) and Zero-Knowledge Proofs (ZK) to address the shortcomings of other confidentiality solutions:
- FHE enables confidentiality while being fully publicly verifiable (anyone can recompute the FHE operations and verify them).
- MPC enables decentralizing the global network key, ensuring no single party can access it. Using MPC only to generate keys and decrypt data for users minimizes latency and communication, thereby making it far more scalable and decentralized than using it for private computation.
- ZK ensures the encrypted inputs provided by users were actually encrypted correctly. Using ZK only for this specific purpose makes the ZK proofs lightweight and cheap to generate in a browser or mobile app.
ZAMA Token Overview
The $ZAMA token is the native token of the Zama Protocol. It is used for protocol fees and staking. It follows a burn and mint model, where 100% of the fees are burnt and tokens are minted to reward operators.
Fee model
Deploying a confidential app on a supported chain is free and permissionless. Furthermore, the Zama Protocol does not charge for the FHE computation, instead charging for:
Verifying ZKPoKs. Each time a user includes encrypted inputs in a transaction, they need to pay a fee to the Zama Protocol to verify it.
Decrypting ciphertexts. When a user wants to decrypt a ciphertext, they need to pay a fee to the Zama Protocol.
Bridging ciphertexts. When a user wants to bridge an encrypted value from one chain to another, it needs to request it from the Zama Protocol and pay a fee.
The protocol fees can be paid by the end user, the frontend app or a relayer. As such, developers can create applications without their users ever needing to hold $ZAMA tokens directly. A price oracle regularly updates the $ZAMA/USD price on the Gateway, which updates the number of $ZAMA tokens paid for each protocol functionality.
This has several advantages:
- it ensures protocol fees are proportional to usage and not dependent on speculation
- it creates predictability for users, developers and relayers, which can model their costs in USD rather than potentially volatile tokens.
Additionally, the Zama Protocol uses a volume-based fee model: the more someone uses the protocol, the less fees they pay per operation. The smart contracts on the Gateway keep track of the number of bits each address has verified/decrypted/bridged over the last 30 days, and applies a discount based on volume.
Staking rewards
Operators need to stake $ZAMA tokens to participate in running the protocol and receive the associated staking rewards. Tokens distributed as staking rewards are minted according to an inflation rate (5% initially), which can be changed via governance.
When rewards are distributed, they are first split by role (sequencer, coprocessors, KMS nodes), then distributed pro-rata of the square root of the stake of each operator within that group.
Distributing rewards this way ensures that each operator gets rewarded according to the job they did, while avoiding concentration of rewards into a few operators only.
Use Cases and Ecosystem Applications
Confidential smart contracts enable a new design space for blockchain applications, in particular when applied to finance, identity and governance.
Here are some example use cases:
Finance
- Confidential payments. Stablecoins are one the most successful use case for blockchain, with trillions in yearly volume. Everything from credit card payments to salaries, remittances and banking rails is now moving onchain. One of the absolute key requirement however is confidentiality and compliance. Thanks to FHE and the Zama Protocol, this is now possible: balances and transfer amounts are kept encrypted end-to-end, while payment providers can embed compliance features into the token contract directly.
- Tokenization & RWAs. The tokenization of financial assets is one of the main adoption drivers of blockchain for large institutions. From fund shares to stocks, bonds or derivatives, there is up to $100T of assets that could potentially move onchain. Due to confidentiality and compliance issues however, TradFi institutions have had to rely on private blockchains, making it difficult to ensure interoperability between institutions. With the Zama Protocol, they can now use existing public blockchain such as Ethereum or Solana to tokenize and trade their assets, while keeping their activity and investor identity confidential. They can also ensure KYC/AML checks are done in the smart contracts directly, without revealing sensitive information to others.
- Confidential DeFi. DeFi has redefined finance by allowing anyone to participate and earn yield, but it suffers from two major issues: people don’t like sharing how much they own, and bots front-running transactions makes it expensive for end users to swap assets onchain. FHE can solve both issues by enabling end-to-end encrypted swaps, where the amount and possibly asset is kept private at all times.
Tokens
- Sealed-bid auctions. Sell assets such as NFTs or tokens in an onchain sealed-bid auction. Each participant places an encrypted bid onchain. When the auction ends, the highest bidder(s) win the item(s), without revealing any of the bids. Not only does this enable better price discovery, it also prevents bots from stealing the auction by monitoring the mempool. This is a particularly effective method for public token sales.
- Confidential distributions. Distributing tokens currently requires disclosing publicly how much each address receives. Whether it’s for airdrops, grants, investors or developers, keeping the distributed amounts private is paramount to privacy and security onchain. With FHE, protocols can distribute their token confidentially, run vesting on those encrypted tokens, enable confidential staking and more.
Identity and Governance
- Composable onchain identity. Offchain, we use our identities all the time, from buying products online to booking plane tickets. Doing so onchain however would leak sensitive information such as your name, address, social security number and more. With FHE however, you can have a complete Decentralized ID (DID) + Verifiable Credentials (VC) system onchain, where your identity is encrypted while being fully composable with decentralized applications.
- Confidential governance. The idea of onchain voting, whether for DAOs, companies or governments, has been explored for as long as blockchains exist. But having the votes cast publicly onchain can lead to biases, blackmailing, or bribing. With FHE, votes (and numbers of tokens staked) can be kept private, ensuring only the final tally is revealed, and not the individual votes.
How to Buy $ZAMA｜Ways to Participate
The token is now available on XT Exchange through Pre-Market trading for $ZAMA, giving interested users early access before the token’s official listing. For users looking to position themselves early in the Zama Protocol ecosystem, XT provides a convenient and reliable entry point.
Beyond direct purchases, users can also earn $ZAMA through various opportunities across the Zama ecosystem. These include node operation, community contributions, testnet participation, developer programs, and upcoming incentive campaigns. As Zama expands across supported chains, more activities will open up—allowing participants to accumulate $ZAMA naturally through real usage of the protocol and benefit from the long-term growth of the FHE-powered confidential computing network.
ZAMA Token’s Competitive Edge
Zama’s key advantage is its ability to offer end-to-end confidentiality while preserving public verifiability and full composability, something no other privacy solution achieves. With FHE, all inputs and states remain encrypted, yet anyone can still verify correctness—removing the trade-offs seen in zk systems, TEEs, and private chains. Developers can build confidential dapps using familiar tools like Solidity and EVM, and interact seamlessly with existing public contracts.
Zama also excels in scalability and decentralization. Its optimized FHE is over 100× faster than before and can scale further through GPUs and hardware accelerators. MPC ensures no single party controls the global key, while lightweight ZK proofs keep input verification efficient for users. Combined with predictable USD-based fees and a burn-and-mint token model, Zama is uniquely positioned to support large-scale financial applications, confidential payments, RWAs, identity systems, and next-generation DeFi—without requiring users to switch chains.
Key Risks and Challenges of the ZAMA Token
One key risk for ZAMA is the early adoption of FHE-based applications. Even with Zama’s advanced technology, developers and enterprises still need time to adjust to new cryptographic tooling and security models. If adoption progresses more slowly than expected—or if teams prefer familiar privacy solutions like zk or TEEs—protocol usage and fee generation may grow at a slower pace. This adoption friction is common for cutting-edge technologies but remains a near-term challenge for ZAMA.
Another challenge is the protocol’s reliance on infrastructure performance and operator decentralization. Scaling FHE to high throughput still depends on GPUs, emerging hardware accelerators, and a broad, distributed operator set. If costs limit participation or hardware demands increase, operator concentration and network resilience could be affected. ZAMA’s burn-and-mint model also requires steady onchain activity; lower usage or weak market conditions may impact fee burns and long-term staking incentives.
ZAMA’s Outlook
The Zama Protocol leverages years of research and development work done at Zama. The testnet is already live, with the mainnet on Ethereum launching by end of 2025. The timeline is as follows:
- Public Testnet (already live). This will allow anyone to deploy and test their confidential dapps, as well as enabling operators to coordinate and get used to the operations.
- Ethereum Mainnet (Q4 2025). This will be the first official mainnet bringing confidentiality to Ethereum.
- Other EVM chains (H1 2026). Zama will add more EVM chains to the Zama protocol to enable cross-chain confidential assets and applications.
- Solana support (H2 2026). After an initial phase of EVM-only support, Zama will deploy the Zama Protocol on Solana, enabling confidential SVM applications.
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