Binance founder CZ has proposed introducing a dark pool DEX that provides additional anonymity to large traders. The proposal follows a massive liquidation on Hyperliquid that lost trader James Wynn an estimated $100 million. The event raised concern over market manipulation facilitated by exposure of current DEX models.
The Need for a Dark Pool DEX
The traders have further bemoaned the inability to see liquidation levels and observe current order activity in real-time on decentralized exchanges. According to a report, full visibility of order books gives other market participants the power to coordinate activities that lead to forced liquidations.
CZ saw that CZ lacks strengths to execute all orders on-chain. He explained, “Sharing a firm’s liquidation points with the public is enough to put its reserves at risk.” It is typically paired with inefficient order execution and substantial staggering slippage, particularly in perpetual DEXs.
Overcoming Front-Running Challenges
The dark pool DEX proposal further seeks to combat front-running since small and large traders imitate one another. This can lead to undesirable situations for large trades. CZ showed that, unlike the old finance where large trades occur in secrecy through dark pools, new decentralized platforms put the traders in unwarranted dangers.
For CZ to survive such attacks, it advises using zero-knowledge proof technology. That would allow for private order matching without breaking blockchain security. Such technologies, can hide liquidation levels and provide global anonymity when trading.
Potential Impact on the Crypto Market
The need for a dark pool DEX is part of a larger shift towards decentralized finance (DeFi) to privacy-focused solutions. After Hyperliquid, traders globally are looking for other solutions to enhance operational security on big trades. Zhao’s vision can reverse the dynamics of the scene for big trades in cryptocurrency.
Having a dark pool mechanism would provide traders with some anonymity that reduces the threat of market manipulation. In Zhao’s words, “Decentralized markets should become more secure in their operations for larger deals.” This could mean more investment in DeFi platforms to the benefit of the entire crypto community.
As manipulation and liquidation risk issues augment, demand for privacy solutions never came closer to a peak. The topic DEX is said to revolutionize the terms of exchange on which large traders will be able to trade with safety and greater confidence.
