Privacy & Confidential Execution

Why Privacy Matters for Portfolio Managers

DeFi is transparent by default, which supports auditability but can limit how portfolio managers protect proprietary allocation logic. See Zama's discussion of built-in confidentiality for broader context on encrypted onchain state.

Vault management on public blockchains is a viable business model, but its long-term viability can be constrained when real-time portfolio composition and trading behavior are visible to anyone. Vault tokenization standards commonly expose holdings and rebalance activity. Observers can monitor, reverse-engineer, and replicate strategies without bearing the associated research and execution costs.

Without confidentiality options, managers who wish to avoid liquidity fragmentation face a trade-off between:

• Sharing allocation moves and risking loss of edge, or
• Operating off-chain, which reduces onchain auditability and composability.

For professional portfolio management to scale onchain, confidentiality is treated as a first-class primitive alongside composability and security.

Our Commitment to Onchain Privacy

Through confidential smart contracts, Orion supports:

• 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, reducing exposure to frontrunning and sandwich attacks during trade execution.

Confidential computing is integrated into the architecture so managers can operate strategies onchain with encrypted intents, while performance remains verifiable.

Confidential Smart Contracts: A Key Enabler

Orion integrates advancements in cryptography¹ to power private vault strategies and encrypted performance tracking. This integration enables the execution of confidential smart contracts on encrypted data, supporting both data privacy and composability within blockchain environments.

Transaction inputs and onchain states are encrypted, so sensitive information remains confidential, while execution remains 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 onchain.

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 onchain 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 $N, M \geq 2$.

---

Footnotes

1. Zama Confidential Blockchain Protocol ↩