Yes, Codex compaction is in the latent space (as confirmed in the article):
> the Responses API has evolved to support a special /responses/compact endpoint [...] it returns an opaque encrypted_content item that preserves the model’s latent understanding of the original conversation
> the Responses API has evolved to support a special /responses/compact endpoint [...] it returns an opaque encrypted_content item that preserves the model’s latent understanding of the original conversation