Changpeng “CZ” Zhao, a co-founder of Binance, suggested creating a dark pool permanent DEX to shield big traders from MEV and front-running attacks.
Changpeng “CZ” Zhao, a co-founder of Binance, suggested setting up a dark pool perpetual swap decentralized exchange (DEX) to stop market manipulation.
Zhao stated that he had “always been puzzled that everyone can see your orders in real-time on a DEX” in an X post from June 1.
“On a perp DEX where there are liquidations, the issue is worse,” he stated.
“You generally wouldn’t want others to notice your order until it’s completed if you’re looking to purchase $1 billion worth of a coin,” Zhao continued. This aims to stop front-running and maximum extractable value (MEV) bot assaults, which can lead to worse pricing, more slippage, and more expenses.
His remarks come after Hyperliquid liquidated roughly $100 million in long Bitcoin holdings purportedly owned by trader James Wynn. After Bitcoin dropped below $105,000, the incident led to X users allegedly banding together to “hunt” Wynn’s liquidation.
One X user, Justin Sun, a co-founder of Tron, reportedly expressed interest in participating, though the report remains unverified. Additionally, he invited the group to meet Eric Trump, the son of US President Donald Trump.
Dark pools: what are they?
Compared to conventional, visible pools, Zhao stated that “large traders in TradFi use dark pools, often 10 times bigger.” Private trading platforms known as “dark pools” keep large orders out of the public eye until completed.
By hiding order size, price, and intent, this technique eliminates front-running, slippage, and MEV attacks. Still, implementing decentralized dark pools would require complicated systems such as zero-knowledge proofs (ZK-proofs) or delayed settlement procedures.
Maria Carola, CEO of instant exchange StealthEX, told Cointelegraph that “the fundamental challenge in building a dark pool-style perp DEX is achieving both privacy and verifiability.” She said ZK-proofs and encrypted order matching are attractive directions for future research. She also said:
“I think one concrete approach is leveraging zk-SNARKs or zk-STARKs to validate trade execution and settlement without revealing trade details.“
The challenges are not merely technological. Carola emphasized that launching an on-chain dark pool involves navigating a complex regulatory landscape, particularly concerning perpetual contracts.
For derivatives, trade privacy is essential.
Zhao maintained that in derivatives markets, privacy is especially crucial. According to him, when liquidation levels are made public, big traders are vulnerable to coordinated operations that can compel an early liquidation:
“If others can see your liquidation point, they could try to push the market to liquidate you. Even if you got a billion dollars, others can gang up on you.“
There are arguments against such designs, the Binance co-founder acknowledged, with the extra openness possibly enabling market makers to take on big orders. This is “possibly true,” he stated.
“I will not argue over who is right or wrong. According to him, various traders might favor different kinds of markets.
“Opacity is a double-edged sword,” Carola of StealthEX continued, adding that while it lessens front-running, it “also obscures manipulation attempts, especially in a leveraged environment. ” “Adaptive risk engines and behavioral anomaly detection—ideally with cryptographic accountability built in—must be implemented by a ‘dark’ perp DEX to address this,” she stated.
In closing remarks, Zhao urged developers to establish an on-chain dark pool decentralized exchange with eternal swaps. “Either by not showing the order book, or even better, not showing deposits into smart contracts at all, or until much later,” he claimed, this might be accomplished.
