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A DB2 tutorial explains DATA_ENCRYPT authentication as follows:

This implies that encryption of the data takes place on the server, but I thought the point of encryption was to protect the data while being transferred from the client to the server. Can anyone elaborate on this?

My understand to this is that the data and the userid/password will be geting encrypted by client and sent over wire to server where they are decrypted and finally verified .
I may be wrong though

DATA_ENCRYPT Specifies that the server accepts encrypted SERVER authentication schemes and the encryption of user data.

The following user data is also encrypted when using this authentication type:
SQL and XQuery* statements
SQL program variable data
Output data from the server processing of an SQL or XQuery* statement and including a description of the data
Some or all of the answer set data resulting from a query
Large object (LOB) data streaming
SQLDA descriptors

( i know this is a very old post but as I was serching the same what u were searching may be this information will be helpful for a new person for db2 )