Binance co-founder proposes dark pool DEX to combat market manipulation

Binance co-founder Changpeng “CZ” Zhao has proposed the creation of a dark pool perpetual swap decentralized exchange (DEX) to combat market manipulation. In a June 1 post, Zhao expressed his puzzlement over the real-time visibility of orders on DEXs, a problem exacerbated in perpetual DEXs due to liquidations. He highlighted that large traders, such as those looking to purchase $1 billion worth of a coin, would prefer their orders to remain hidden until completion to avoid front-running and maximum extractable value (MEV) bot attacks, which can lead to increased slippage, worse prices, and higher costs.

Zhao's comments follow the liquidation of nearly $100 million in Bitcoin long positions on Hyperliquid, reportedly held by a trader known as James Wynn. The event, which occurred after Bitcoin fell below $105,000, sparked claims that some users had coordinated to “hunt” Wynn’s liquidation. One user claimed that Tron co-founder Justin Sun showed interest in participating, but the claim remains unconfirmed. He also went so far as to invite Eric Trump, the son of the United States’ President Donald Trump, to the group.

Zhao explained that large traders in traditional finance (TradFi) often use dark pools, which 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 concealing order size, price, and intent. However, implementing decentralized dark pools requires complex systems, such as zero-knowledge proofs (ZK-proofs) or delayed settlement mechanisms.

Zhao argued that privacy is particularly important in derivatives markets. He said public visibility of liquidation levels exposes large traders to coordinated attacks that could force premature liquidation. He admitted that there are counter-arguments to such designs, with the added transparency potentially allowing market makers to absorb large orders. He said that this is “possibly true.”

“I won’t get into an argument on which is right or wrong. Different traders may prefer different types of markets,” he said. Zhao concluded by encouraging developers to launch an onchain dark pool decentralized exchange with perpetual swaps. He said that this could be achieved “either by not showing the orderbook, or even better not showing deposits into smart contracts at all, or until much later.”

CZ's proposal is a call to action for builders and innovators in the cryptocurrency space. He invites those interested in developing such a project to reach out, emphasizing that while he may not guarantee investment or a response, he is open to exploring the idea further. This proposal underscores the ongoing evolution of the cryptocurrency market, where privacy and security are becoming increasingly important for large traders.