Week 3: Confidential DeFi

Time estimate: ~8-10 hours (including homework) | Difficulty: Intermediate-Advanced | Prerequisites: Week 1 and Week 2 completed

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What You'll Learn

This week you graduate from single-user vaults to multi-party confidential finance. You'll build a full ERC20-compatible token where balances, transfer amounts, and allowances are all encrypted on-chain. Along the way, you'll master the patterns that power every confidential DeFi protocol:

• Encrypted ERC20 balances with mapping(address => euint64) — the same per-user pattern from Week 2, now in a token context
• Trivial encryption with FHE.asEuint64() — converting plaintext values into encrypted handles for mixed-mode operations
• The silent-zero pattern for transfers — never revert on insufficient balance, silently transfer zero instead
• Encrypted approve / transferFrom — multi-party allowance management with encrypted values
• Double protection — layered allowance check + balance check, both operating entirely on ciphertext
• The permission dance — why every balance-mutating operation must call both FHE.allowThis and FHE.allow

What You'll Build

ConfidentialERC20.sol — A fully functional ERC20-compatible token with encrypted balances, encrypted transfers, encrypted approvals, and encrypted transferFrom. From the outside it looks like a normal token — but every number is hidden.

This contract combines everything you've learned into a production-relevant pattern:

Trivial encryption → Encrypted transfers → Silent-zero guard → Encrypted approvals → Double protection

Weekly Milestones

Use this checklist to track your progress:

• [ ] Lesson 1 — Understand the ConfidentialERC20 contract structure, trivial encryption with FHE.asEuint64(), the mint function, the silent-zero transfer pattern, and the _transfer internal function with its permission dance
• [ ] Lesson 2 — Master encrypted approvals with multi-party permissions, transferFrom with double protection (allowance + balance), nested encrypted mappings, gas considerations, and run the full 8-test suite
• [ ] Homework — Extend ConfidentialERC20.sol with new features and pass all provided tests

Lessons

Lesson 1: Building a Confidential ERC20 Token ~75 min

Build a confidential token from the ground up. Learn why encrypted tokens matter, how FHE.asEuint64() bridges plaintext and ciphertext, how the silent-zero pattern prevents information leakage on transfers, and why the "permission dance" (allowThis + allow) must follow every balance update.

Lesson 2: Advanced Patterns — Approvals, Double Protection & Testing ~60 min

Dive into encrypted approve with dual-party permissions, transferFrom with double protection (two layered silent-zero checks), nested encrypted mappings for allowances, gas considerations for FHE operations, and a full walkthrough of the 8-test suite.

Homework: Extended ConfidentialERC20 ~4-5 hours

Extend the ConfidentialERC20 with additional features — encrypted total supply tracking, burn functionality, and more — then pass a comprehensive test suite.

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Key Concepts This Week

Concept	Description
FHE.asEuint64(value)	Trivial encryption — convert a plaintext value into an encrypted handle for mixed-mode arithmetic
Silent-zero transfer	If balance < amount, silently transfer 0 instead of reverting — no information leak
Double protection	Two layered encrypted checks (allowance + balance) in transferFrom — both silent-zero
mapping(a => mapping(b => euint64))	Nested encrypted mappings for per-owner-per-spender allowances
Permission dance	After every balance mutation: FHE.allowThis() (contract reuse) + FHE.allow() (user decrypt)
Encrypted approve	Allowance grant readable by both owner and spender — two FHE.allow calls
Gas cost: ~300-500k	FHE operations cost significantly more gas than plaintext (~50k) — plan accordingly

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Ready? Start with Lesson 1: Building a Confidential ERC20 Token.