Review the “major upgrade” of four DeFi protocols: from transaction privacy to asset compliance—what key capabilities is DeFi filling in?

Author: Jae, PANews

Over the past month, the DeFi space has seen a batch of new products and infrastructure upgrades worth paying attention to.

From privacy transactions to RWA compliance, from fixed-rate lending to improved on-chain trading experiences, multiple leading protocols are exploring key links in the evolution of on-chain finance, trying to solve the core problems that have long constrained DeFi’s scaling.

All these developments point to a single trend: the focus of competition in DeFi is shifting from early growth models centered on liquidity and yield, to long-term building around financial infrastructure capabilities.

This article reviews the latest progress of four major DeFi protocols—Zama, Uniswap, Morpho, and Jito—and analyzes in depth the industry significance behind their product innovations and potential challenges.

Zama Confidential RFQ: FHE explores an “impenetrable pool” for large on-chain trades

Transparency is one of blockchain’s most commendable features, but it is also a double-edged sword. Publicly verifiable ledgers ensure trust, yet they also leave large transactions with nowhere to hide. As soon as a large order is posted on a public chain, MEV (maximum extractable value) bots will lock on—racing to front-run and staging sandwich attacks one after another—causing slippage to consume most of the trading profits, and even exposing trading strategies.

Traditional financial markets have dark pools to address these issues, but on-chain systems have long lacked a truly trustless privacy-preserving transaction solution.

On July 24, privacy computing protocol Zama announced the launch of Confidential RFQ (a confidential request-for-quote protocol) based on Fully Homomorphic Encryption (FHE), providing an on-chain solution similar to dark pools in traditional finance for large-value trades.

The protocol uses the ERC-7984 ciphertext token standard, enabling institutions and professional market makers to conduct large-value on-chain transactions via “Sealed-bid Auctions.” Throughout the quoting and matching process, the trade size, buy/sell direction, asset type, and even slippage settings are all kept in ciphertext. Before the quotes are submitted, neither network nodes nor counterparties can know the full parameters of the order.

The secret lies in FHE (fully homomorphic encryption). This technology allows mathematical computations on ciphertext without requiring decryption, to verify the validity of transactions. This means that on-chain trading in the future may be able to balance privacy protection with verifiability, allowing institutions’ large orders to settle securely on-chain.

However, FHE still needs to clear two major hurdles before large-scale adoption.

• Performance bottlenecks: The ciphertext computation overhead of FHE is far higher than plaintext trading. Even though the algorithms have been optimized over many years, computation latency and Gas consumption on Ethereum mainnet remain significantly higher than ordinary transactions. Whether it can support large-scale high-frequency RFQs is still unknown.

• Regulatory game: Dark pools in traditional finance are already under close regulatory scrutiny. The emergence of on-chain dark pools may trigger reviews by financial regulators in different countries regarding anti-money laundering and market manipulation.

Therefore, how to strike a balance between on-chain privacy protection and regulatory transparency requirements will remain a continuously solvable issue in the process of scaling up privacy computing applications.

Uniswap V4 permissioned pools: exploring a compliant path for RWA to enter AMMs

Tokenization of real-world assets (RWA) is widely seen as the next high-growth market for the crypto industry, but compliant assets such as US Treasuries, U.S. equities, and institutional funds have long been stuck in an awkward on-chain situation of “assets present, liquidity low.” One important reason is that traditional financial assets must meet KYC/AML compliance requirements, while DeFi AMMs (automated market makers) naturally emphasize “permissionless, anonymity.”

On July 23, decentralized exchange Uniswap, together with institutions including Securitize, Superstate, and Dowgo, launched a new Hook standard on Uniswap V4: Permissioned Pools. The goal is to pave the way for tokenized RWA such as Treasuries, equities, and funds to trade on AMMs, while also maintaining both DeFi composability and TradFi compliance and safety.

Hook is the most important innovation in Uniswap V4—it allows developers to insert custom logic at various nodes of trade execution. The essence of permissioned pools is to embed whitelist verification logic into the underlying contract layer: the asset issuer controls the whitelist. When users initiate trades or provide liquidity, the Hook will automatically verify whether the wallet address is eligible for compliance. If an address fails authentication, it cannot interact on-chain.

This means that compliance rules shift from “front-end hints” to “code constraints.” In the past, compliance often relied on front-end web pages setting KYC thresholds, but any technically savvy hacker could bypass the front end and directly call the underlying smart contracts. Now, the regulatory legal risks caused by bypassing the front end will be eliminated. As a result, traditional financial assets gain a compliant channel to enter the on-chain composable ecosystem.

The other side of the coin is a concession to liquidity depth and DeFi-native values.

• Liquidity fragmentation: Permissioned pools are completely isolated from public permissionless pools. Funds cannot share liquidity depth across pools, which will form new liquidity islands.

• Centralization risk: Whitelist control is held by the issuer or a third-party compliance service provider, creating an effective single point of control. If compliance nodes are attacked or frozen by regulators, liquidity inside the pool will be directly affected.

In the process of RWAs moving toward large-scale deployment, every participant needs to make trade-offs and find a balance between compliance and decentralization.

Morpho Midnight: put “fixed interest rates” into DeFi lending

In traditional financial markets, fixed-rate bonds are one of the largest base asset categories by volume. In the DeFi market, however, dynamic interest rate models based on utilization curves have long dominated. For institutional investors, treasury managers, and arbitrage traders who need precise cost calculations, the unpredictability of interest rates has always been a major barrier to entry. While it increases the complexity of capital management, it also limits further expansion of DeFi lending products.

On July 21, lending protocol Morpho announced the launch of a fixed-rate lending product, Morpho Midnight, on the Base chain. It serves as a complement to its floating-rate pool, Morpho Blue. Midnight is designed specifically for a credit market with fixed terms and fixed interest rates, attempting to fill a key missing piece that has long been absent in DeFi credit markets.

Midnight does not adopt a dynamic interest rate mechanism, nor does it “hardcode” fixed rates in the front end or liquidity pools. Instead, it builds a matching system based on “Intent” and discounted bonds. Lenders and borrowers complete matching through tradable credit/debt units (Credit/Debt units). In essence, these units are on-chain zero-coupon bonds. At the moment of settlement, both sides lock in the return at maturity and the repayment obligation, providing institutional investors, corporate treasury managers, and arbitrage traders with predictable funding cost and yield expectations.

This design also addresses a common weakness of fixed-rate protocols: inefficient capital utilization. Previous similar products often require funds to be locked in advance to wait for matching. Any funds that are not matched remain idle. Midnight uses an order-posting model: funds posted by lenders can continue earning in the floating-rate pool until they are matched. This is like “earning floating-period yields while waiting for a fixed-rate settlement,” significantly improving capital efficiency. At the same time, deploying on the Base network—which has lower Gas consumption—further reduces the cost of secondary transfers of lending units, allowing users to close positions or reallocate anytime based on market conditions without needing to hold until maturity.

However, fixed-rate lending also faces challenges on the road to becoming mainstream financial infrastructure.

• Liquidity fragmentation: Markets with different maturities and different collateral types are isolated from each other. During the protocol cold-start stage, if the order-book depth in each sub-market is insufficient, the bid-ask spread may widen, increasing trading costs instead.

• Higher cognitive barrier: The product’s learning curve is higher than traditional lending pools. Users need to understand bond discount/premium logic, calculate implied annualized yields, and follow secondary-market settlement rules—requiring a higher level of financial understanding.

This means Midnight is more like a tool for professional players than a simple lending product for everyday users. Over a longer time horizon, it represents an attempt at the evolution of DeFi credit markets toward a more mature financial system.

Jito JTX: put CEX into a self-custody wallet

In the past few years, Jito has established an important position in the Solana ecosystem by building the biggest LSD (liquid staking) protocol and MEV infrastructure. Now, it is extending downstream and setting its sights on the battlefield of trading terminals.

Jito launched a self-custody trading platform, JTX, built for professional traders. Its selling points are: a CEX-level execution experience, and the security of on-chain self-custodied assets.

The real competitive advantage lies in the underlying technology. Jito injects the technical capabilities it has accumulated in Solana block construction (Block Engine) and MEV pipelines into its trading front end. This means that orders on JTX will receive better trade ordering, a lower transaction failure rate, and a significant reduction in pain points commonly seen on regular DEXs—such as sandwich attacks, excessively high slippage, and transactions being “sniped”/sandwiched. If this model succeeds, on-chain trading may further narrow the experience gap with CEXs.

Even more noteworthy is its tokenomics design: 80% of platform trading fees will be used to buy back and burn JTO, creating sustainable cash flow and deflationary support for the token, strengthening the protocol token’s value-capture capability.

However, breaking out in the trading terminal track is not easy for JTX.

• Red ocean battle: On Solana, Jupiter has captured the vast majority of traffic thanks to aggregator advantages. Products like Photon and Axiom each have their own community. pump.fun and various Telegram trading bots also divide up a large share of retail users. From infrastructure crossovers to front-end products, JTX faces tough tests in user acquisition and retention.

• Network stability in question: Solana has historically suffered from network congestion and downtime multiple times. In extreme market conditions, whether JTX’s trading system can maintain execution quality remains to be validated by real events.

Therefore, the significance of JTX may not be limited to launching a new trading entry point, but rather in exploring a new on-chain trading paradigm—whether an infrastructure provider can further evolve toward the user terminal layer.

Conclusion

As we can see, a series of recent developments in DeFi are covering multiple key links in the evolution of on-chain finance. This implies that in the future, the competitive focus in DeFi will no longer be only higher yield, larger liquidity scale, or shorter-term market incentives—but will center on the capabilities of financial infrastructure.

Privacy protection determines whether capital is willing to enter the on-chain environment, compliance capabilities determine whether traditional assets can achieve scalable liquidity, interest rate certainty affects the efficiency of institutional capital allocation, and the trading experience determines whether users will be willing to stay on-chain long-term.

Of course, the evolution of DeFi infrastructure still faces many challenges. Technical performance, regulatory requirements, liquidity fragmentation, and user habits will all become limiting factors for the next stage of development.

Still, it is undeniable that DeFi is gradually moving away from the identity of early financial experiments, and continuously evolving toward a more mature and complete on-chain financial infrastructure.