Binance Co-Founder Proposes Decentralized Dark Pool Exchange to Protect Large Traders

Binance co-founder Changpeng “CZ” Zhao has proposed the creation of a decentralized perpetual exchange (perp DEX) designed as a dark pool to protect large traders from front-running, slippage, and MEV (maximum extractable value) attacks. This proposal comes as a response to the challenges faced by large traders in the crypto market, particularly those dealing with perpetual contracts where liquidation risk is high.

On June 1, Zhao posted on X, expressing his long-standing curiosity about the total transparency of decentralized exchanges. He highlighted that displaying large orders in real-time can lead to front-running and bot abuse, making it difficult for traders to execute large orders without affecting the market. “If you want to buy $1 billion of a coin, you really don’t want other people to see your order until it’s complete,” he stated.

Zhao's suggestion was prompted by a recent incident involving the liquidation of a $100 million Bitcoin long position at Hyperliquid. The incident raised suspicions of collusion and price manipulation, as players allegedly forced the price below certain levels to trigger the liquidation. This event underscored the need for a more private and secure trading environment.

Dark pools, which are common in traditional finance, represent proprietary trading venues where order data are hidden until trades settle. Zhao proposes extending similar protections to crypto derivatives trading, which would require technologies like zero-knowledge proofs (ZK-proofs), encrypted order matching, and possibly delayed settlement. These technologies would enable large traders to avoid market slippage and price manipulation, issues that have plagued open and transparent DeFi platforms.

However, the implementation of dark pool DEXs in the crypto market faces both technical and regulatory challenges. StealthEX instant exchange CEO Maria Carola pointed out that achieving both privacy and verifiability is a significant hurdle. While ZK-proofs and encrypted methods show promise, the regulatory complexity of adopting dark pool DEXs onchain cannot be overlooked. Carola also warned that opacity, while reducing front-running, might hide manipulative behavior unless adequately regulated. She recommended the adoption of adaptive risk engines and behavioral anomaly detection, complemented by cryptographic tools, to address these concerns.

Zhao acknowledges that different traders prefer varying market structures, and transparent order books facilitate market makers to take up big trades. Nevertheless, he insists that privacy is vital in safeguarding traders against coordinated liquidation attacks and predatorial activities. He invited developers to experiment with models concealing order books or even delay deposit visibility, creating a new generation of dark pool perp DEXs that balance privacy, security, and accountability within DeFi.