Sadly SteamOS doesn't support full disk encryption, which is inexcusable for an OS used on a portable device, that some also use to remote access their desktop (through Steam Link/Moonlight).
FDE would be nice though.
It’s not in a consumer friendly state yet, but I’ve been using my steamdeck with encryption for a month now with zero issues. I guess technically this is not “full” disk encryption since it’s just the home dir, but I only care about protecting my personal info which is all in the home dir anyway.
I’m not familiar with how the process works, but if you are setting the password somewhere, it’s exposed to being extracted. You want the password to be something you type in on boot.
Also, the password isn't stored anywhere, you get prompted by the BIOS upon every boot to unlock the drive.