Hi.
Yes it does, but at some point the file has to be local for encryption.
So if all your files in our dropbox account are bigger than your free local space you have the following options:
- transfer some files in your vault, sync the encrypted vault files with dropbox, and then tell the sync client to free up all files so that they are not using disc space anymore. Then continue with the next batch of files.
- use cyberduck to create/access your vault directly on Dropbox. See here: How do I use Cryptomator without local sync?