Fhenix and Monaco Research Explore Bringing Confidential Trading to DeFi

One of DeFi's greatest strengths may also be one of its biggest limitations.

Every transaction, trade, position, and strategy is visible on public blockchains. While transparency has helped build trustless financial systems, it has also created new challenges for traders, institutions, and market makers operating onchain.

Now, Fhenix and Monaco Research are exploring whether decentralized markets can offer greater privacy without sacrificing the transparency and security that make blockchain-based finance possible.

The two teams announced a research collaboration focused on the intersection of confidential computing and high-performance trading infrastructure. The effort will explore how fully homomorphic encryption (FHE) could be used to support encrypted order flow, private execution, dark pools, and confidential request-for-quote (RFQ) systems on public blockchains.

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The Privacy Problem in DeFi

Traditional financial markets rely heavily on information asymmetry and confidentiality. Large institutions rarely reveal their trading intentions before execution, helping prevent market manipulation, front-running, and information leakage.

In contrast, most blockchain networks expose every transaction to the public before it is finalized.

This transparency creates opportunities for market participants to monitor pending orders, identify trading strategies, and exploit execution through mechanisms such as maximal extractable value (MEV).

As decentralized finance continues to mature, many believe privacy infrastructure will become increasingly important for attracting institutional capital and enabling more sophisticated trading activity.

The question is whether confidentiality can be introduced without compromising the trust assumptions that make public blockchains valuable.

Exploring Encrypted Markets

The collaboration brings together two teams approaching the challenge from different directions.

Monaco Research focuses on the infrastructure behind high-performance decentralized trading systems, including offchain order matching and onchain settlement mechanisms designed to support institutional-grade trading experiences.

Fhenix, meanwhile, has been developing confidential computing infrastructure powered by fully homomorphic encryption, a technology that allows computations to be performed directly on encrypted data without ever revealing the underlying information.

Together, the teams are investigating whether encrypted order books, confidential RFQ systems, and private matching engines can coexist with public liquidity and verifiable settlement.

According to the companies, the goal is not simply to hide information, but to design systems that preserve fairness, liquidity, and auditability while reducing information leakage.

The Role of Confidential Tokens

As part of the research effort, the teams are also evaluating potential integrations with Fhenix's FHERC-20 confidential token standard.

The standard allows balances and transfers to remain encrypted while maintaining compatibility with existing EVM-based infrastructure.

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If successful, confidential tokens could open the door to private settlement systems, hidden trading positions, and new forms of financial applications where sensitive information remains protected without sacrificing composability.

While the research remains in its early stages, it reflects growing interest across the industry in balancing transparency with privacy as blockchain markets continue to evolve.

A Long-Term Infrastructure Challenge

For Fhenix CEO Guy Itzhaki, the challenge extends beyond trading itself.

“Financial markets run on information. The challenge is deciding who should have access to it, when, and under what conditions,” Itzhaki said.

“This collaboration with Monaco Research explores a fundamental question: Can we bring meaningful confidentiality to onchain trading without compromising fairness, verifiability, or liquidity? It's a difficult problem, which is exactly why it's worth working on.”

As institutional participation in digital asset markets continues to expand, the debate around privacy, transparency, and market structure is likely to become increasingly important.