Binance co-founder Changpeng 'CZ' Zhao proposed creating a decentralized exchange (DEX) for perpetual dark pool swaps to prevent market manipulation.
In a June 1 post on X, Zhao said that 'it has always puzzled me that everyone can see your orders in real time on a DEX.'
'The problem is worse in a perpetual DEX where there are liquidations,' he stated.
Zhao added: 'If you're looking to buy $1 billion in a coin, you generally wouldn't want others to notice your order until it's complete.' This is to prevent front-running and maximum extractable value (MEV) bot attacks, which can result in greater slippage, worse prices, and higher costs.
His comments follow the liquidation of nearly $100 million in long Bitcoin positions on Hyperliquid, allegedly held by a trader known as James Wynn. The event, which occurred after Bitcoin fell below $105,000, triggered claims on X that some users had coordinated to 'hunt' Wynn's liquidation.
What are dark pools?
Zhao said that 'large traders in TradFi use dark pools, often 10 times larger' than traditional and transparent pools. Dark pools are private trading venues where large orders are hidden from public view until after they are executed.
This prevents front-running, slippage, and MEV attacks by hiding the size, price, and intent of the order. However, implementing decentralized dark pools would require complex systems such as zero-knowledge proofs (ZK-proofs) or delayed settlement mechanisms.
María Carola, CEO of the instant exchange StealthEX, told Cointelegraph that 'the fundamental challenge in building a dark pool-style perpetual DEX is achieving both privacy and verifiability.' She noted that ZK-proofs and encrypted order matching are promising avenues for development. She added:
'I think a concrete approach is to leverage zk-SNARKs or zk-STARKs to validate trade execution and settlement without revealing transaction details.'
Obstacles are not just of a technical nature. Carola highlighted that 'launching an on-chain dark pool, especially for perpetuals, enters a complex regulatory landscape.'
Privacy in trading is crucial for derivatives.
Zhao argued that privacy is particularly important in derivatives markets. He said that the public visibility of liquidation levels exposes large traders to coordinated attacks that could force a premature liquidation:
'If others can see your liquidation point, they might try to push the market to liquidate you. Even if you have $1 billion, others may group against you.'
The Binance co-founder admitted that there are counterarguments to such designs, with additional transparency potentially allowing market makers to absorb large orders. He said this is 'possibly true.'
'I won't enter into a discussion about what is right or wrong. Different traders may prefer different types of markets,' he stated.
Carola from StealthEX added that 'opacity is a double-edged sword,' noting that it reduces front-running but 'also hides attempts at manipulation, especially in a leveraged environment.' 'To address this, a 'dark' perpetual DEX must implement adaptive risk engines and behavioral anomaly detection, ideally with built-in cryptographic accountability,' she said.
Zhao concluded by encouraging developers to launch an on-chain decentralized dark pool exchange with perpetual swaps. He said this could be achieved 'either by not showing the order book, or even better, by not showing deposits in smart contracts at all, or until much later.'
Author: Adrian Zmudzinski, cryptocurrency news writer.
