Recapping the “major upgrades” of four DeFi protocols: from trading privacy to asset compliance—what key capabilities is DeFi filling in?

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Author: Jae, PANews

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

From privacy-preserving transactions to compliant RWA, from fixed-rate lending to improved on-chain trading experience, multiple leading protocols are exploring key components for the development of on-chain finance—trying to solve the core issues that have long constrained DeFi’s scalable growth.

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

This article reviews the latest progress of four major DeFi protocols: Zama, Uniswap, Morpho, and Jito, and delves into the industry significance behind their product innovations and potential challenges.

Zama Confidential RFQ: FHE explores “dark pools” for on-chain large-block trades

Transparency is one of blockchain’s most commendable traits, but it’s also a double-edged sword. Publicly verifiable ledgers guarantee trust, yet they also leave no hiding place for large transactions. The moment a large order is posted on a public chain, it is targeted by MEV (maximum extractable value) bots—front-running and sandwich attacks follow in quick succession—causing slippage to eat up most of the transaction profits, and even exposing trading strategies.

Traditional financial markets use dark pools to solve these problems, but on-chain, there has long been a lack of truly trustless privacy-preserving transaction solutions.

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 for large-block trades similar to dark pools in traditional finance.

The protocol uses the ERC-7984 encrypted token standard, allowing institutions and professional market makers to conduct on-chain large-block trades through “Sealed-bid Auction.” Throughout the entire inquiry and matching process, the transaction size, buy/sell direction, asset type, and even slippage settings remain in ciphertext. Before submitting quotes, neither network nodes nor counterparties can know the complete parameters of the order.

Its secret lies in FHE (Fully Homomorphic Encryption). This technology enables mathematical computation on ciphertext without the need for decryption, to verify the validity of the transaction. This means that in the future, on-chain transactions may be able to simultaneously achieve privacy protection and verifiability—so that institutional large orders can be safely settled on-chain.

However, FHE still has two major hurdles before large-scale adoption.

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

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

Therefore, how to find a balance between on-chain privacy protection and regulatory transparency requirements will remain an ongoing issue that must be continuously addressed during large-scale privacy computing adoption.

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 U.S. Treasuries, U.S. equities, and institutional funds have long been stuck on-chain in an awkward “have assets, low liquidity” situation. 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 trading tokenized U.S. Treasuries, U.S. equities, funds, and other RWAs on AMMs, while also balancing DeFi composability with TradFi compliance and safety.

Hook is the most important innovation in Uniswap V4. It allows developers to insert custom logic at various stages during trade execution. The essence of permissioned pools is to embed whitelist-checking logic into the underlying contract: the asset issuer controls the whitelist. When a user initiates a trade or provides liquidity, the Hook will automatically verify whether the wallet address is compliant. Addresses that fail authentication cannot interact on-chain.

This means compliance rules shift from “front-end prompts” to “code constraints.” Previously, compliance often depended on front-end web pages setting KYC gates, but any technically savvy hacker could bypass the front end and directly call the underlying smart contracts. With this bypass eliminated, regulatory legal risk introduced by front-end circumvention would be prevented, and traditional financial assets would gain a compliant channel into an on-chain composable ecosystem.

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

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

Centralized risk: Whitelist control rests with 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, the liquidity of funds in the pool will be directly affected.

As RWA moves toward large-scale adoption, every participant will need to make trade-offs and find balance between compliance and decentralization.

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

In traditional financial markets, fixed-rate bonds are among the largest categories of underlying assets. In DeFi, however, dynamic interest-rate models based on utilization curves have long dominated. For institutional investors, treasury managers, and arbitrage traders who need precise calculation of funding costs, the unpredictability of interest rates is always a major barrier to entry. While it increases the difficulty of managing funds, 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. As a complement to its floating-rate pool, Morpho Blue, Midnight is designed specifically for credit markets with fixed terms and fixed interest rates—attempting to fill the key missing piece that has long been absent in DeFi’s credit market.

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

This design also solves a common problem in fixed-rate protocols: capital inefficiency. Previous products of the same type often required funds to be locked in advance while waiting for matching, and any unfilled funds would sit idle. Midnight uses a maker-posts-order model: funds posted by lenders remain in the floating-rate pool and continue earning yield until they are matched—effectively “earning interest on demand while waiting for fixed-rate execution,” significantly improving capital efficiency. At the same time, deployment on the Base network—where Gas consumption is lower—further reduces the cost of secondary transfers of lending units. Users do not need to hold positions until maturity; they can close or rebalance anytime based on market conditions.

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

Liquidity fragmentation: Markets separated by different maturity dates and different collateral types isolate from each other. During the protocol’s cold-start phase, if the order-book depth in each sub-market is insufficient, the bid-ask spread can widen—raising trading costs instead.

High cognitive barrier: The product’s understanding threshold is higher than that of traditional lending pools. Users must grasp the logic of bond discounts/premiums, calculate implied annualized yield, and understand secondary-market settlement rules—requiring a higher level of financial literacy.

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

Jito JTX: Bringing CEX into a self-custody wallet

In recent years, Jito built its influential standing in the Solana ecosystem through its largest LSD (liquid staking) protocol and MEV infrastructure. Now, it is choosing to extend downstream and turn its attention to the battlefield of trading terminals.

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

The real competitive advantage is hidden in the underlying technology. Jito injects into the trading front end the technical capabilities it has accumulated in Solana block construction (Block Engine) and MEV pipelines. This means orders placed on JTX can receive better trade ordering, lower failure rates, and significantly reduce common issues on typical DEXs such as sandwich attacks, excessive slippage, and being “sandwiched” into execution. If this model succeeds, on-chain trading could 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 providing deflationary support—strengthening the protocol token’s value-capture capability.

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

Red-sea battle: On Solana, Jupiter has captured the vast majority of traffic thanks to its aggregator advantage. Products like Photon and Axiom each have their own user bases, and pump.fun along with various Telegram trading bots have also split a large share of retail users. From crossing over from infrastructure to front-end products, JTX faces severe tests in user acquisition and retention.

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

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

Conclusion

As can be seen, a series of recent developments in the DeFi space are covering multiple key areas in the evolution of on-chain finance. This implies that in the future, DeFi’s competitive focus will not be just higher yields, larger liquidity scale, or shorter-term market incentives, but will instead revolve around the capabilities of financial infrastructure.

Privacy protection determines whether capital is willing to enter the on-chain environment; compliance capability determines whether traditional assets can achieve scalable liquidity; interest-rate certainty affects the efficiency of institutional capital allocation; and trading experience determines whether users will 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 cannot be denied that DeFi is gradually shedding its early identity as a financial experiment and is continuously evolving toward more mature, complete on-chain financial infrastructure.