Privacy & Confidential Execution

Why Privacy Matters for Portfolio Managers

DeFi today is transparent by default - which is powerful, but often limiting.

In particular, vault curation of public, blockchain-based DeFi products is one of the most promising business models for the next generation of finance. However, its scalability and long-term sustainability are limited by a fundamental issue: the need for portfolio managers to protect their alpha.

In today's DeFi environment, vault tokenization standards expose real-time portfolio compositions and trading behaviors. Copycats and freeloaders can easily monitor, reverse-engineer, and replicate strategies without bearing the associated research and execution costs.

Without privacy, managers interested in avoiding liquidity fragmentation are forced into an impossible trade-off between:

• Sharing all their moves and risking the loss of their edge, or
• Operating off-chain, undermining the auditability and composability of DeFi.

If DeFi is to scale professional asset management, confidentiality must become a first-class primitive - just as composability, security, and permissionlessness already are.

Our Commitment to Onchain Privacy

Through innovations like confidential smart contracts, Orion enables:

• Protection of proprietary strategies without sacrificing onchain composability;
• Private portfolio management with verifiable, encrypted performance;
• Auditability for users and LPs without exposing sensitive manager behavior: vault strategies remain private, with holdings and trades encrypted, while performance remains auditable.
• MEV protection, safeguarding trade execution against frontrunning and sandwich attacks;
• Users to deposit into vaults without revealing their positions or allocations.

By integrating confidential computing natively into our architecture, Orion brings institutional-grade privacy to the permissionless world of DeFi - unlocking a new era of scalable, professionalized, and competitive onchain asset management.

Confidential Smart Contracts: A Key Enabler

Orion integrates advancements in cryptography^{1 2} to power private vault strategies and encrypted performance tracking. This integration enables the execution of confidential smart contracts on encrypted data - ensuring both data privacy and composability within blockchain environments.

Transaction inputs and on-chain states are encrypted, ensuring that sensitive information remains confidential, while fully onchain, non-custodial and verifiable by anyone.

Technical Overview

Let:

• $N$ be the number of active privacy-preserving portfolios.
• $M$ be the number of distinct assets (tokens) active in the netted portfolio.
• $a_{i,j}$ denote the (encrypted) amount of asset $j$ held by portfolio $i$, where $i \in \{1, \dots, N\}$ and $j \in \{1, \dots, M\}$.

Each portfolio $i$ is defined as a vector:

$$a_i = [a_{i,1}, \dots, a_{i,M}] \quad\forall \medspace i \in \{1, \dots, N\}$$

where entries are encrypted amounts associated with a whitelisted investment universe shared by every portfolio (i.e., the union of unique symbols across all portfolios).

Let:

• $A_j$ denote the total (observable) amount of asset $j$ across all portfolios.

$$A_j = \sum_{i=1}^{N} \text{Decrypt}(a_{i,j}) \quad \forall \medspace j \in \{1, \dots, M\}$$

These totals $A_j$ are used to compute the single, batched portfolio finally executed on-chain.

Note that we can decrypt the sum, not sum decrypted entries, using homomorphic encryption, to further minimize trust:

$$A_j = \text{Decrypt} \left( \sum_{i=1}^{N} a_{i,j}\right) \quad \forall \medspace j \in \{1, \dots, M\}$$

Let:

• $R_j$ be the plaintext price of asset $j$ as returned by an on-chain oracle.

The Profit and Loss of each portfolio $i$ is computed as the inner product of its holdings with the public assets return:

$$P\&L_i = \sum_{j=1}^{M} \text{Decrypt}(a_{i,j}) \cdot R_j$$

As above, using FHE:

$$P\&L_i = \text{Decrypt}\left( \sum_{j=1}^{M} a_{i,j} \cdot R_j \right)$$

Proof

For an outside observer, the number of unknowns is $N \cdot M$ (portfolio states).

The number of equations is $M + N$ (one for each asset and one for each portfolio):

$$\begin{cases} \sum_{i=1}^{N} \text{Decrypt}(a_{i,j}) = A_j \quad \forall \medspace j \in \{1, \dots, M\} \\ \sum_{j=1}^{M} \text{Decrypt}(a_{i,j}) \cdot R_j = P\&L_i \quad \forall \medspace i \in \{1, \dots, N\} \end{cases}$$

Thus, the system is underdetermined and has infinitely many solutions if and only if:

$$N \cdot M > M + N$$

Which is easily satisfied for $N, M \geq 2$.

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Footnotes

1. Zama - Welcome to fhEVM ↩

2. TenSEAL - A library for doing homomorphic encryption operations on tensors ↩