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Based on the document here: Create an app package with the MakeAppx.exe tool, it says 'MakeAppx.exe creates both app packages (.msix or .appx) and app package bundles (.msixbundle or .appxbundle). MakeAppx.exe also extracts files from an app package or bundle and encrypts or decrypts app packages and bundles. '. Generally, the sideload package is a msixbundel file that generated from VS 2019 now. It is the supported type for MakeAppx. You could use the following
to encrypt the package:
MakeAppx.exe encrypt /p MyPackage.msix /ep MyEncryptedPackage.emsix /kt
This is the screenshoot that I encrypted a sideload package successfully.
For more information about how to encrypt the package, please refer to this document: Encrypt or decrypt a package or bundle.