Binance co-founder Changpeng Zhao (CZ) proposed the creation of a dark pool perpetual swap decentralized exchange (DEX) to prevent market manipulation.
In a post on X on June 1, CZ stated, "I have always been puzzled by the fact that everyone can see your orders in real-time on a DEX."
He added, "The problem is even worse on perpetual DEXs because of liquidation."
CZ further pointed out, "If you want to buy a certain token worth $1 billion, you typically do not want others to notice your order before it is completed." This is to prevent front-running and maximum extractable value (MEV) bot attacks, which can lead to greater slippage, worse prices, and higher costs.
His comments came after a liquidation event involving nearly $100 million in Bitcoin long positions on Hyperliquid, reportedly held by a trader named James Wynn. This event occurred after Bitcoin's price fell below $105,000, prompting some users on X to claim they coordinated to "hunt" Wynn's liquidation.
An X user claimed that Tron co-founder Justin Sun expressed interest in participating, but this claim has not been confirmed. He even invited Eric Trump, the son of former U.S. President Donald Trump, to join the group.
CZ stated, "Large traders in traditional finance (TradFi) use dark pools, which are usually 10 times larger than traditional transparent pools." Dark pools are private trading venues where large orders are hidden from the public before execution.
This can prevent front-running, slippage, and MEV attacks, as the order size, price, and intent are concealed. However, implementing a decentralized dark pool requires complex systems, such as zero-knowledge proofs (ZK-proofs) or delayed settlement mechanisms.
Philipp Zentner, founder and CEO of decentralized exchange Li.Fi, told Cointelegraph that decentralized dark pools "replace human brokers with cryptographic technology." He mentioned several protocols that already use such systems.
According to Zentner, the Arbitrum-based protocol Renegade encrypts each order through multi-party computation (MPC) and then publishes zero-knowledge proofs so that Ethereum can verify settlements without seeing the original ledger. Similarly, Penumbra, operating in the Cosmos ecosystem, conducts sealed-bid batch auctions; only the net flow is made public, while ZK circuits prove fairness.
Maria Carola, CEO of instant exchange StealthEX, told Cointelegraph, "The fundamental challenge of building a dark pool-style perpetual DEX is achieving privacy and verifiability simultaneously." She noted that zero-knowledge proofs and cryptographic order matching are promising directions for development. She added:
"I think a concrete approach is to use zk-SNARKs or zk-STARKs to verify trade execution and settlement without revealing transaction details."
0xAw, the chief developer of the decentralized exchange Alien Base, told Cointelegraph that implementing a dark pool is not technically challenging, but doing it well is not easy:
"There are likely many complexities that make it difficult to truly hide this data and not have it inferred from certain queries, etc. For example, it is well known that as long as you can query its price at any time, a private automated market maker (AMM) cannot exist."
Moreover, the obstacles are not just technical. Carola emphasized, "Launching an on-chain dark pool, especially for perpetual contracts, enters a complex regulatory environment."
CZ believes that privacy is particularly important in the derivatives market. He said that the public visibility of liquidation levels makes large traders vulnerable to coordinated attacks, potentially forcing early liquidations:
"If others can see your liquidation point, they may try to push the market to liquidate you. Even if you have $1 billion, others can band together against you."
The Binance co-founder acknowledged that there are opposing views on this design, as increased transparency may allow market makers to absorb large orders. He said this "could be true."
"I won't argue which is right or wrong. Different traders may prefer different types of markets," he said.
Carola from StealthEX added, "Opacity is a double-edged sword," noting that it reduces front-running but "also obscures manipulation attempts in a leveraged environment." "To address this issue, a 'dark' perpetual DEX must implement adaptive risk engines and behavioral anomaly detection, ideally with built-in cryptographic accountability," she said.
CZ finally encouraged developers to launch an on-chain dark pool decentralized exchange with perpetual swaps. He said this could be achieved by "not displaying the order book, or better yet, not displaying the deposits of the smart contracts at all, or showing them only much later."
Related: Robinhood acquires cryptocurrency exchange Bitstamp for $200 million
Original article: “Binance co-founder Changpeng Zhao (CZ) proposes launching a dark pool perpetual DEX to address manipulation issues”
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