As decentralized finance (DeFi) continues to gain momentum, privacy has become a critical issue. Encrypted on-chain markets are now finally feasible, bringing a new level of security and confidentiality to DeFi and setting a stronger foundation for scaling DeFi for institutions and enterprises. These markets ensure that sensitive data remains hidden from the public, preventing front-running, price manipulation, and other forms of exploitation. Orca and Arcium are interested in encrypted DeFi and how DeFi can evolve with encryption at its foundation.

In this article, we will explore:

Building with Arcium: How Arcium’s MPC infrastructure simplifies the development of encrypted on-chain markets.

Encrypted On-Chain Markets: What they are and why they are essential for the future of DeFi.

What do we mean by 'Encrypted On-Chain Markets?'

Encrypted on-chain markets comprise different decentralized trading systems. In these systems, the details of trades—such as order size, price, and counterparties—are kept confidential through encryption techniques like Multi-Party Computation (MPC), Homomorphic Encryption, and Zero-Knowledge Proofs (ZKPs). This contrasts with most current DeFi systems, where all transaction data is publicly available on the blockchain, exposing traders to risks like front-running and price manipulation. Traders can place orders or execute trades without revealing sensitive details to other market participants or bots monitoring the blockchain.

There are multiple use cases within DeFi where encryption is highly beneficial including:

• Private Lending and Borrowing
• Confidential Order Books
• Real Predictions/Oracles
• Blind Auctions

Why are encrypted on-chain markets important?

In traditional financial markets, institutional investors often use "dark pools" or off-exchange trading venues to execute large orders without revealing their intentions to the broader market. This minimizes the risk of price slippage and front-running. However, DeFi's open and transparent nature makes it difficult to replicate this level of privacy, which is critical for large traders or institutional participants.

Encrypted on-chain markets solve several critical challenges, including:

Confidentiality for Users: These markets protect users' trading strategies, portfolios, and positions from being exploited by ensuring privacy over their Profit and Loss (PnL) and on-chain activity. This prevents adversaries from capitalizing on visible trading data.

Protection for Large Trades: Large trades in public DeFi markets can cause significant price movements, resulting in slippage and inefficient execution. Encrypted markets allow institutions and high-net-worth individuals to trade without revealing their positions, ensuring better price stability.

Front-Running Mitigation: Encrypting trade details prevents malicious actors from seeing pending transactions and exploiting them for profit. This is particularly crucial in the fast-paced DeFi ecosystem, where front-running bots are prevalent.

Building Encrypted Markets with Arcium

Developing encrypted on-chain markets is complex due to the cryptographic infrastructure that balances privacy, efficiency, and scalability. However, Arcium’s Multi-Party Computation (MPC) infrastructure simplifies this process, providing the tools to build scalable and efficient encrypted markets in a decentralized environment.

Key Features of Arcium

Institutional-Grade Security: By leveraging Arcium’s MPC infrastructure, developers can build encrypted markets that meet the privacy and security requirements of institutional traders. This allows large-scale institutional participation in DeFi, further driving the ecosystem’s growth.

Performant Execution via arxOS: Arcium's MXEs are executed via arxOS, a distributed operating system that runs on a network of nodes. Computations are executed in parallel, ensuring high throughput and making encrypted markets ready for widespread adoption without compromising performance.

Customizable Privacy Settings: Developers can choose which aspects of a trade or market to encrypt. This flexibility allows for the use of case-specific customization—such as encrypting only order size while leaving price discovery transparent. This ensures that each market can be optimized for both privacy and performance.

Scalable Environments with MXEs: Arcium’s Multi-Party Execution Environments (MXEs) allow encrypted on-chain markets to scale effectively, supporting high trading volumes while preserving the system's privacy and efficiency. This is essential for markets that aim to handle large trades and high-frequency trading without performance bottlenecks.

MPC-Powered Encryption: Arcium’s MPC infrastructure ensures that all sensitive trade data—including order size, prices, and counterparty details—is encrypted and remains confidential until the trade is executed. This minimizes the risk of front-running or price manipulation without sacrificing trade efficiency.

Encrypted on-chain markets with Orca

Orca is a leading decentralized exchange on Solana, providing users with multiple products to buy, sell, and swap various Assets. Currently, all activity occurs publicly, which presents opportunities for improvement in privacy and protection against front-running and price manipulation.

Arcium and Orca are interested in the possibilities surrounding encrypted on-chain markets and other encrypted DeFi products, which would catalyze a new paradigm for DeFi's expansion and evolution. Blockchains like Solana are well-positioned to bring bigger applications and institutions on-chain. Encryption will help make using blockchains more appealing, ensuring a foundational level of security and data protection.

The Future of Encrypted On-Chain Markets

Encrypted on-chain markets represent a significant leap forward in privacy and security for decentralized trading. By leveraging cryptographic technologies like MPC, these markets protect users from front-running, price manipulation, and other adversarial tactics while preserving the core principles of DeFi—trustlessness, transparency, and decentralization.

As tools like Arcium’s MPC infrastructure evolve, the development of encrypted markets will become more accessible. This will enable developers to create efficient and scalable trading environments catering to retail and institutional participants.

We are excited to explore this new design space, bringing encrypted markets on-chain, and providing a privacy-preserving solution for the future of decentralized finance. Follow Arcium and Orca on X to stay updated on developments. Join the Arcium Citadel to contribute to the future of encrypted on-chain markets.