The FHE protocol Zama is about to issue coins: Understand the Zama mechanism and ecosystem in one article.

Author: David Christopher, Bankless author; Translation: @Golden Finance xz

After several months of testing and what the team claims is the “largest audit in Web3 history”, the crypto privacy protocol Zama is making final preparations for its mainnet launch.

The project has just announced the release of the testnet v2 version and confirmed that the mainnet test version will be launched at the end of the year, along with the simultaneous introduction of the ZAMA token and a complete production-grade privacy infrastructure. For observers concerned with the wave of privacy-enhancing technologies in the crypto space, this marks an important milestone: the first large-scale production environment deployment of Fully Homomorphic Encryption (FHE) technology.

Since the launch of the public testnet in July, Zama has attracted over 120,000 addresses to complete more than 1.2 million crypto transactions. Now, the testnet v2, as a candidate version for the mainnet release, signifies that the protocol is ready for production-grade deployment across multiple EVM chains.

But the most noteworthy aspect is Zama's technical approach to achieving privacy. It does not build a new blockchain, but rather adds an encryption layer on top of existing chains like Ethereum and the EVM ecosystem. This can be likened to how HTTPS wraps a website in an encryption layer—Zama cloaks smart contracts in encryption, enabling privacy-preserving computations without requiring users to migrate, cross-chain, or switch underlying chains.

In the following, we will analyze the operational mechanism of Zama, its token functions, current progress, and the application ecosystem prepared for integration into the mainnet.

1. Core Functions of Zama

Essentially, Zama is a privacy protocol based on fully homomorphic encryption that allows private smart contracts and encrypted computations to run directly on existing layer 1/layer 2 blockchains without relying on a new protocol layer.

Fully Homomorphic Encryption (FHE) is the key to achieving this functionality. Unlike traditional encryption methods that only protect data at rest or in transit, FHE maintains the encrypted state throughout the entire data processing. You can think of it as a safe with programmable gloves: you place sensitive data inside the safe, preset the operations to be executed, and then send it to the computing unit. The processor follows the instructions to complete the calculations but is never able to see the actual data inside the safe. Unlocking the safe will yield the correct result. This completely eliminates the security risk window that exists when data must be decrypted for processing.

Zama weaves privacy protection capabilities into the existing network ecosystem, rather than forcing developers to migrate to a new chain that requires the accumulation of liquidity, toolchains, and network effects from scratch.

2. The Operating Mechanism of Zama

The architecture of Zama consists of multiple interconnected components that work together to drive its cryptographic processing capabilities:

fhEVM

fhEVM is a set of smart contracts and code libraries from Zama, used to execute confidential smart contracts on EVM chains. It consists of two core components that work together: the fhEVM function library and the fhEVM executor.

The first component provides a toolkit for Solidity developers to write confidential smart contracts, designed to allow developers familiar with Solidity to quickly get started.

The second component, fhEVM executor, is a smart contract deployed on host chains (such as Ethereum, Arbitrum, Polygon, etc.) that is responsible for handling FHE computations. When a confidential contract is triggered, the executor sends a request for encrypted computation to Zama's co-processor network, which takes over the subsequent calculations.

Co-processor

Co-processors are components that handle core computational tasks. They consist of an off-chain network made up of fully homomorphic encryption (FHE) nodes that listen for events emitted by the executor—these nodes perform the encryption operations and return the results to the host chain. By offloading computational tasks to dedicated hardware, Zama avoids congestion on the main chain while maintaining verifiability and security. Multiple co-processors submit computational results to the Zama gateway, which ensures the accuracy of the results through a majority consensus mechanism.

Security System

Zama builds a secure system through multiple closely linked components:

Gateway serves as the core hub, driving the entire protocol process through dedicated smart contracts on the Arbitrum scaling chain. It is responsible for verifying encrypted inputs, processing decryption requests, and transferring encrypted assets across host chains, and can be seen as the traffic command center of the entire system.

The key security component Key Management Service (KMS) holds the keys required for decryption results. Although such operations may pose centralization risks, Zama employs Multi-Party Computation (MPC) technology to mitigate this: the keys are split among multiple operators, each holding only a portion of the key, requiring a majority collaboration to decrypt. Therefore, even in the presence of malicious operators, data cannot be obtained individually.

Ultimately, the Access Control List (ACL) tracks decryption permissions, ensuring that even though computations are executed off-chain, results are accessible only to authorized parties. All operations remain publicly verifiable through the gateway.

The complete workflow is as follows: Users call the confidential smart contract on Ethereum and send encrypted data → fhEVM executor publishes an event containing the data → Zama co-processor receives the event → performs calculations on the encrypted input using FHE → sends the encrypted result back to Ethereum via the gateway → users decrypt using their private keys. The underlying blockchain, co-processor network, or any operator cannot access plaintext information. The split-key system ensures the distributed storage of the decryption key, while the gateway consensus mechanism verifies the correctness of the computation.

3. ZAMA Token

The ZAMA token is about to be launched and will serve as the native functional token of the protocol. It has three core functions within the network: ensuring operational security through staking, paying protocol usage fees, and providing governance rights over protocol parameters.

4. Zama Ecological Builders

In addition to announcing the launch of the testnet v2, Zama founder Rand also specifically introduced the outstanding team developed based on Zama, showcasing several applications that are ready to connect to the mainnet:

The Zaiffer protocol converts standard ERC-20 tokens into confidential ERC-7984 tokens with encrypted balances and transfer amounts. These confidential tokens can be used for private exchanges and other operations in DeFi, and Zama's own token also uses this protocol for privacy protection.

TokenOps provides confidential token distribution solutions for crypto companies and foundations. The platform handles confidential lock-ups and airdrops, and Zama's own token allocation plan is implemented through TokenOps.

The Bron wallet was developed by the founder of the leading custodial service provider Copper and is an MPC self-custody wallet designed specifically for holding and transferring confidential assets such as stablecoins, with native support for confidential ERC-7984 tokens.

Raycash serves as a self-custodial bank utilizing privacy stablecoins, ensuring the security and confidentiality of on-chain funds while enabling users to engage in off-chain staking, exchange, and spending via debit cards and IBAN.

5. Mainnet Launching Soon

We have provided a wealth of information about this new project, but to summarize this article into two main points, please note:

Zama's mission is to bring privacy protection to Ethereum, rather than adapting Ethereum to privacy needs.

Zama's breakthrough in the field of Fully Homomorphic Encryption (FHE) allows this technology to be truly applied in daily operations, which may trigger a chain of innovations in one of the most secure and important areas of cryptography.

Overall, privacy technology is ushering in an exciting moment - years of dedicated engineering practice are about to be realized as a true on-chain encryption environment.