CZ has proposed the concept of dark pools to enhance the privacy of DEX users

What’s new? The founder and former CEO of Binance, the largest centralized crypto exchange (CEX), Changpeng Zhao, also known by the nickname CZ, proposed the idea of creating a closed pool of perpetual futures for decentralized trading.

Source: X.com

What else is known? He noted that at the moment, decentralized crypto exchanges (DEX) allow anyone to view users’ orders in real-time. This problem is exacerbated in open-ended futures exchanges where liquidations can occur.

As the entrepreneur pointed out, most users would prefer to hide their orders from the general public until they are executed, especially if large trades are involved. Otherwise, other market participants may try to outperform the trade through frontrunning, sandwich attacks, or MEV bots, resulting in increased slippage, worse prices, and higher costs for the order creator.

Zhao explained that this is the reason traders in the traditional finance (TradFi) sector use closed pools/dark pools, with trading volumes often exceeding publicly available ones by dozens of times.

When trading open-ended futures, the ability to hide an order plays a much bigger role than in the spot market, Zhao says:

“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.”

CZ added that there is an opposing viewpoint on this in the crypto community. For example, greater transparency in pools allows market makers to absorb large orders. He admitted that it can also be true, but different traders prefer different types of markets.

The Binance founder believes there is currently a good opportunity to launch a dark pool for decentralized trading of open-ended futures with a hidden order book and hidden deposit history in smart contracts. In his opinion, such a project could be realized using zero-knowledge proof (ZK) technology.

Zhao urged developers of such projects to write to his email to get funding.

Last May, the MetaMask crypto wallet team launched Smart Transactions technology, which hides user transactions until they are confirmed on the network in order to combat frontrunning.