Zama, Morpho and Steakhouse Open First Confidential USDC Yield Vault on Ethereum

Privacy-tech firm Zama said Wednesday it is launching the first DeFi yield product for Confidential USDC, opening deposits June 23 through a vault built on Morpho and curated by Steakhouse Financial. The product extends fully homomorphic encryption from simple token transfers into a productive lending strategy, the first time the cryptography has been bolted to a live DeFi yield venue.

The Steakhouse Confidential USDC Prime vault accepts cUSDC, Zama's encrypted wrapper of Circle's stablecoin, and routes the underlying capital into Steakhouse's existing Prime v2 strategy on Morpho. Backing collateral spans cbBTC, WBTC and wstETH, the same blue-chip basket used in the flagship USDC Prime vault. Zama posted the launch on its official X account, with a six-day shielding window opening for depositors first.

How the encryption layer works

Fully homomorphic encryption lets a smart contract perform arithmetic on ciphertext without decrypting it, the primitive Zama has productized. Balances, deposit amounts and transfer values stay encrypted on Ethereum, while the vault's accounting math, including yield accrual and share issuance, runs on the encrypted state. Health checks and risk parameters operate on the same primitives, so the curator can read solvency without reading positions.

Depositors first convert standard USDC into cUSDC inside the Zama application, then deposit the wrapped token into the Confidential Prime vault. The Morpho strategy underneath is unchanged from the public Prime v2 path. What changes is that wallet balances, transaction timing and deposit sizes no longer appear in plaintext on the chain, while aggregate vault statistics stay visible because they are necessary for solvency monitoring.

Why Morpho

Zama has run cUSDC on Ethereum since earlier this year as a privacy wrapper for holding and transferring USDC. Until Wednesday's announcement, the encrypted balance could not generate yield without giving up the privacy that justified the wrapper in the first place. Routing into Morpho's vault infrastructure closes that gap by importing an existing lending venue rather than spinning up a fresh protocol.

Morpho co-founder Merlin Egalite framed institutional confidentiality as the loudest source of demand the team has heard, according to the Zama announcement. The pitch is that allocators can route capital into the same Morpho vaults they already underwrite, without leaking position sizes or entry timing to competitors who would otherwise read every wallet move on the chain.

Steakhouse co-founder Sébastien Derivaux made the auditability case alongside, in remarks that accompanied the launch: confidential deposits remove depositor-level visibility while preserving the curator- and protocol-side telemetry that risk and compliance teams need. The framing is privacy at the wallet layer with full transparency at the vault layer, the split Steakhouse is positioning toward regulated allocators evaluating onchain credit.

Steakhouse as Curator

Steakhouse Financial sits in the curator seat the same way it does on its public Prime v2 vault, setting collateral parameters, allocations and risk caps. The firm extended its lead over the next-largest Morpho curator to roughly $1 billion last month. The confidential vault now plugs into that same credit infrastructure, inheriting the curator's existing market-by-market allocation logic rather than spinning up a parallel risk model.

The Confidential Prime vault inherits Steakhouse's existing supply allocations across Morpho markets rather than reopening parameters. That choice keeps the risk surface familiar to anyone already underwriting the standard Prime vault, while the privacy layer rides on top. Allocations across cbBTC, WBTC and wstETH markets carry over from the public sibling, so depositors take on the same credit exposure they would in the transparent version.

Institutional Pitch

Treasury desks and prop traders have repeatedly pointed to public wallet visibility as a barrier to deploying meaningful size onchain. A large depositor in a transparent vault telegraphs strategy, exposes the firm to front-running on related markets, and lets competitors map allocation patterns over time as positions enter and exit the contract.

Confidential USDC yield is the first product where that visibility is removed at the deposit and balance layer itself, with the encryption baked into the asset rather than added by an intermediary like a privacy-pool mixer or a CEX bridge. Earlier privacy tooling required depositors to trust either a mixer's anonymity set or a centralized custodian to obscure activity.

Morpho already attracts treasury rails from Coinbase, which launched two USDC lending vaults on the protocol earlier this month with Steakhouse as curator. The Confidential Prime vault stacks the same Morpho lending primitive with Zama's FHE layer on top, repurposing the existing venue rather than asking institutional desks to learn a brand-new protocol.

Ahead of the launch, Zama is running a shielding campaign through June 22 that converts USDC into cUSDC, with a $25,000 prize draw distributed across 25 winners. The campaign is the protocol's main mechanism for routing supply into the wrapper before deposits open, and the resulting cUSDC pool sets the addressable base for the vault on day one.

Blacklist

The vault opens roughly three weeks after a US federal court lifted a temporary restraining order that had pushed Circle to blacklist Zama's cUSDC contract, freezing roughly $12.5 million in USDC for three days. The freeze was triggered by an unrelated civil dispute involving a single depositor whose position represented more than 99% of the early contract balance.

The restored contract is the same wrapper now feeding the Morpho vault. Zama said the resolution validated its position that the freeze was unwarranted, and the company has continued building the yield product on the unmodified cUSDC architecture. Whether the legal episode has hardened institutional comfort with the wrapper or made it harder to recruit anchor depositors is the open question hanging over the June 23 open.