Binance founder Changpeng Zhao, higher referred to as CZ, has floated the concept of a decentralized trade (DEX) the place order books and person positions are hidden to mitigate front-running and liquidation dangers.

The decision comes amid renewed consideration to Maximal Extractable Worth (MEV), the apply of manipulating transaction ordering for revenue.

The Darkish Pool Argument

In a June 1 publish on X, CZ questioned why DEXs proceed to reveal person orders in real-time, noting that such transparency typically invitations predatory techniques like front-running and liquidation concentrating on, notably within the perpetual futures markets.

“For perps (or futures), it’s much more necessary to not let others know/see your orders,” CZ wrote. “If others can see your liquidation level, they may attempt to push the market to liquidate you. Even for those who bought a billion {dollars}, others can gang up on you.”

The previous crypto government drew a direct parallel to conventional finance (TradFi), the place massive institutional merchants routinely use so-called “darkish swimming pools,” non-public exchanges that conceal order books. He claimed such companies are sometimes “10 occasions larger” than regular order books.

To that finish, Zhao proposed that on-chain platforms may use zero-knowledge (ZK) cryptography or related encryption applied sciences to obscure commerce knowledge, together with orders and deposits, till they’re executed. In his opinion, this is able to create a buying and selling expertise that shields contributors, particularly whales, from MEV assaults and coordinated manipulation.

CZ’s suggestion comes after a sequence of dramatic bets by crypto dealer James Wynn, who staked over $1 billion on BTC earlier than being liquidated throughout 4 completely different positions, totaling greater than $100 million. Following the occasion, Wynn tweeted that his expertise had uncovered the corruption within the crypto market, and he suggested merchants to purchase and maintain BTC as an alternative of utilizing it for top leverage.

Rising Options

A number of tasks jumped on CZ’s publish to announce they had been actively working within the privateness house. Sam, from Tristero, revealed that for the final two years, his crew has been creating an idea much like what the ex-Binance CEO had outlined.

Others like 0x0 and SKALE are additionally tackling the problem. 0x0 teased its upcoming Spectre platform, which allows privacy-preserving spot and leverage buying and selling, whereas SKALE just lately launched its BITE Protocol, a consensus-layer encryption software designed to remove MEV totally by stopping transaction visibility earlier than block finalization. “Moderately than making use of band-aids, BITE addresses MEV at its root,” mentioned SKALE CEO Jack O’Holleran.

Nonetheless, not everyone seems to be singing from the identical hymn guide. X Person Cedric Beau countered CZ’s proposal, arguing that darkish swimming pools essentially contradict the ethos of crypto:

“Darkish swimming pools in crypto? That’s precisely the stuff we got here right here to keep away from,” said the decentralization fanatic. “The second you conceal the order guide, you recreate insider video games.”

He additional warned that importing TradFi’s “shadowy tips” dangers dropping DeFi’s core worth proposition of openness. “Transparency’s messy, however a minimum of everybody performs on the identical area.”