Privacy Meets Compliance in Web3’s First Institutional Dark Pool

Webisoft and the Midnight Foundation have announced a partnership to develop a privacy-centric dark pool decentralized exchange (DEX) designed specifically for institutional investors. The collaboration aims to address a critical challenge in decentralized finance (DeFi), where the transparency of public blockchains conflicts with the confidentiality requirements of institutional trading. The platform, built on the Midnight network, will utilize zero-knowledge (ZK) proof technology and the Zswap protocol to enable secure, anonymous trades. This marks a significant step toward bridging the gap between traditional finance and the Web3 ecosystem by offering institutional-grade privacy features [1].

In conventional decentralized exchanges, all buy and sell orders are publicly visible, creating a major inefficiency for institutions executing large trades. Large buy or sell orders can signal market movements, prompting other traders to react and shift prices before trades are finalized. This dynamic increases costs and reduces execution efficiency, posing a major obstacle to institutional participation in DeFi. The new dark pool platform will mitigate this issue by concealing trade intentions until execution is complete. A private matching engine will find counterparties without revealing order details, and trades will settle at market-driven prices derived from public data. This model preserves confidentiality and minimizes market disruption [2].

The technical framework of the platform includes a secure matching engine, multi-party computation (MPC) infrastructure, and custom wallet support via MetaMask Snap. These tools will allow participants to manage encrypted balances and confidential order books in a user-friendly manner. The project also introduces a concept known as "rational privacy," which seeks to balance confidentiality with regulatory requirements through programmable and selective disclosure. ZK proofs will be used to verify trade information without exposing underlying data, enabling secure counterparty matching while maintaining privacy. This approach aligns with institutional demands for both compliance and discretion [3].

A key aspect of the collaboration is the project's open-source nature. The development roadmap includes a series of privacy-preserving components that developers can integrate into their own applications. The initial phase will focus on system architecture and privacy specifications, followed by confidential asset and order management tools. A standalone private matching engine using MPC will be developed to enable sophisticated trading applications without exposing user data. An atomic settlement layer, built on Zswap, will provide a trustless, private on-chain settlement mechanism. Each component will be accompanied by comprehensive security audits and performance testing reports, ensuring reliability and transparency. All tools will be released under an Apache 2.0 license, promoting broad adoption across the ecosystem [1].

The platform is expected to expand the toolkit for private finance by demonstrating that blockchains can support both public and private data flows. Midnight's use of a TypeScript-based language called Compact is intended to simplify the development of privacy-preserving applications by abstracting away cryptographic complexity. This approach is expected to attract more developers to build advanced financial applications on the Midnight network. The project also reinforces the idea that privacy can be programmable and rational, rather than an all-or-nothing proposition. By providing open-source tooling for wallets, MPC, and smart contracts, the collaboration aims to lower barriers for developers and promote the growth of privacy-focused DeFi solutions [3].

Source:

[1] Webisoft partners with Midnight Foundation to build a ... (https://midnight.network/blog/webisoft-partners-with-midnight-foundation-to-build-a-private-dark-pool-trading-platform)

[2] Webisoft Joins Forces With Midnight To Build Private Dark ... (https://blockchainreporter.net/webisoft-joins-forces-with-midnight-to-build-private-dark-pool-for-institutional-defi/)

[3] Midnight and Webisoft to Build Privacy-Focused Dark Pool ... (https://www.cryptotimes.io/2025/09/06/midnight-and-webisoft-to-build-privacy-focused-dark-pool-dex/)