ZAMA Rallies 42% as Privacy DeFi Demand Faces Valuation Test
ZAMA rose about 42% in 24 hours to $0.085, reaching a record high. Its market capitalisation exceeded $210 million, while daily trading volume reached $112 million. The rally followed several product launches by Zama, including the expansion of Morpho Confidential Vaults on Ethereum from five to 21 vaults, the launch of Confidential Incentives with Merkl, and the rollout of Zama Swap Protocol.
Zama says Shielded TVL has exceeded $75 million, while DefiLlama reports approximately $78.28 million. The project uses fully homomorphic encryption (FHE) to enable smart-contract execution on encrypted data, targeting privacy-focused DeFi and institutional users.
However, ZAMA’s token economics remain a concern. Protocol fees are fully burned, but staking rewards create new tokens at an annual rate of about 5%. With 11 billion total tokens and roughly 2.56 billion in circulation, annual issuance could reach 550 million ZAMA. At a fee of about $0.13 per encryption operation, the network would need roughly 4.2 billion annual operations for burns to offset new issuance. Current activity appears far below that level.
The quality of Shielded TVL is also uncertain. Some deposits may be driven by Merkl incentives, while hybrid vaults could create potential double-counting of underlying assets. Only four vaults are standalone products that more clearly indicate organic privacy demand.
At $0.085, ZAMA has an estimated fully diluted valuation of $935 million, or about 12 times Shielded TVL. This is well above comparable DeFi valuation multiples. Traders should monitor post-incentive TVL retention, FHE usage, token burns and supply growth. ZAMA’s rally reflects strong privacy infrastructure expectations, but its current valuation remains largely narrative-driven rather than supported by fee revenue.
Neutral
The news is neutral for traders because it combines strong short-term catalysts with significant valuation and token-supply risks. ZAMA’s 42% rally, new Ethereum vaults, Merkl incentives and Zama Swap launch can attract momentum traders and support further speculative buying in the near term. Rising Shielded TVL also strengthens the project’s market narrative around institutional DeFi privacy.
However, the rally resembles earlier DeFi incentive-driven surges, where rapid TVL growth and token appreciation weakened after rewards declined. A meaningful portion of Zama’s TVL may be subsidy-dependent, and hybrid vaults may overstate organic capital growth. The token’s estimated fully diluted valuation is about 12 times TVL, while fee revenue remains extremely small relative to valuation. A 5% annual issuance rate could also create sustained selling pressure unless FHE usage expands sharply.
Short term, traders may continue to price in momentum, exchange liquidity and additional ecosystem announcements. This creates upside potential but also raises the risk of a rapid reversal if TVL falls after incentives end or if trading volume cools. Long term, ZAMA could benefit if encrypted DeFi becomes a major infrastructure market and real transaction demand generates enough burns to offset issuance. Until usage, fee revenue and post-incentive retention improve, the risk-reward profile is balanced rather than decisively bullish.