Changpeng Zhao (CZ), the founder of Binance, called for the development of a decentralized exchange (DEX) known as the 'dark pool' for trading cryptocurrency futures. This proposal comes in response to growing concerns about privacy and market manipulation in the current DEX exchange ecosystem.
Changpeng Zhao presented his proposal on platform X (formerly known as Twitter), stating: 'Given recent events, I think the time may be right to launch a decentralized exchange called the 'dark pool'.' His proposal follows the recent $100 million loss by cryptocurrency trader James Wynn due to high-leverage Bitcoin liquidations.
The founder of Binance pointed out major flaws in current DEX platforms. He explained that the real-time visibility of trades creates opportunities for front-running and extractable maximum value (MEV) attacks, where observers can exploit visible orders to execute trades ahead of large buyers.
This issue of transparency presents a particular problem in perpetual futures trading. When liquidation points are visible, it may lead to coordinated efforts to raise prices and trigger these liquidations.
CZ wrote: 'If others see your liquidation point, they may try to push the market to liquidate you. Even if you have a billion dollars, others can band together against you.'
■ Key Vulnerabilities in Current Decentralized Exchange Systems
Transparency, once considered a strength of decentralized finance, has become a burden for large traders. CZ highlighted that this transparency leads to increased slippage, price declines, and higher costs for traders.
In traditional finance, large traders often use 'dark pools' - private trading platforms that hide trading order details - to protect their trading strategies. CZ believes a similar approach could benefit cryptocurrency traders.
According to recent data, private decentralized exchanges are already gaining increasing popularity, particularly within the Solana ecosystem. The majority of directed trades through the Jupiter platform are now being conducted via private decentralized platforms, indicating a market shift towards more private trading platforms.
■ Technical Requirements
CZ identified several key features for the proposed decentralized platform 'dark pools'. The platform will need to hide order books or delay the visibility of deposits in smart contracts. It will also need to leverage advanced cryptographic technologies such as zero-knowledge proofs (ZK) to ensure secure and private transactions.
Experts in the field responded positively to CZ's proposal. Kadan Stadelman, the technical director of the Komodo platform, stated to Decrypt that this solution 'needs to be trustless, decentralized, multi-chain, and secure.'
Anu Shekhawat, head of global ecosystem at Avail, described CZ's post as 'a compelling argument for new horizons in decentralized finance infrastructure.' Shekhawat pointed out that current decentralized trading platforms reveal far too much information, which is 'beneficial for MEV bots but detrimental for serious traders.'
Building such a fully decentralized platform requires cross-chain interoperability and trustless execution. Experts suggest using 'atomic swaps' with 'timelock hash contracts' as potential solutions.
These are smart contract mechanisms that enable two parties to trade assets on the blockchain only if specific conditions are met within a specified timeframe. Otherwise, the transaction is canceled and the funds are returned to both parties.
CZ, who stepped down as CEO of Binance in 2023, urged developers to contact him via ReachMe.io, a paid messaging platform he launched last March to filter spam and manage large volumes of incoming messages.
James Wynn, after losing $100 million in Bitcoin liquidations, commented on the state of cryptocurrency markets saying: 'I have certainly exposed how corrupt these markets are. I think it's better to buy Bitcoin and hold it in the spot market/cold storage.'
The first company to create a successful decentralized exchange (DEX) in a dark pool may set a standard for private decentralized finance trading and could open new opportunities for institutional investors in the cryptocurrency space.
