Zama launched confidential access to 16 vaults on Morpho and integrated Merkl as an incentive engine compatible with encrypted assets, resolving one of the deepest structural tensions in the confidential DeFi sector.
The problem was that if a user deposited into a vault with encrypted privacy but claimed rewards in public tokens, anyone could trace the claim amount and reconstruct the original position. Confidentiality broke down exactly where it mattered most.
The solution developed by Zama alongside Merkl distributes rewards in confidential tokens under the ERC7984 standard, the protocol’s own encrypted token format. Balances are computed over encrypted balances and transfers at the moment of claiming also occur privately.
Position, reward and strategy remain hidden. Incentive campaigns are already active and display a visible APR in the Merkl interface like any other campaign, but with no public leaderboard, no exposed amounts and no way to associate an address with what it deposits or earns.
To make the system work, Merkl implemented a balance delegation mechanism by position: the depositor authorizes Merkl to read their encrypted balance exclusively to calculate rewards in the standard time-weighted cycle. Without that delegation, the position does not accumulate the additional yield. Per-address data is never publicly exposed under any circumstance.
Source: https://www.zama.org/post/confidential-incentives-for-defi-with-zama-and-merkl
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