CZ Proposes Dark Pool DEXs to Curb Crypto Manipulation
CZ Proposes Dark Pool DEXs to Curb Crypto Manipulation
Binance CEO Changpeng Zhao (CZ) has proposed a novel solution to combat market manipulation in decentralized exchanges (DEXs): dark pool perpetual swap DEXs. His June 1st X post highlighted the inherent transparency issue in current DEXs, where all orders are visible in real-time, exacerbating the problem of liquidations.
CZ argued that the public visibility of orders, especially large ones, makes them vulnerable to front-running and maximum extractable value (MEV) bot attacks. This results in increased slippage and higher trading costs. He used the example of a $1 billion purchase, which would be significantly hindered by this lack of privacy.
This proposal follows a recent incident where a trader, reportedly James Wynn, experienced a nearly $100 million liquidation of Bitcoin long positions on Hyperliquid. Allegations of coordinated attacks to trigger this liquidation fueled the debate surrounding market transparency and manipulation.
What are Dark Pools?
CZ explained that traditional finance (TradFi) utilizes dark pools, often 10 times larger than traditional exchanges, to hide large orders until execution. This prevents front-running and manipulation. Implementing this in a decentralized environment requires advanced technologies like zero-knowledge proofs (ZK-proofs) and delayed settlement mechanisms.
Maria Carola, CEO of StealthEX, noted the challenge of balancing privacy and verifiability in a decentralized dark pool. She suggested using zk-SNARKs or zk-STARKs to validate trades without revealing details. However, regulatory hurdles also pose significant obstacles.
Trade Privacy: Critical for Derivatives
CZ emphasized the importance of privacy in derivatives markets, where visible liquidation levels can lead to coordinated attacks forcing premature liquidations. He acknowledged the counterargument that transparent markets allow market makers to absorb large orders more efficiently but maintained that various trader preferences should be catered to.
Carola added that opacity is a double-edged sword. While it reduces front-running, it can also obscure manipulative behavior. She advocated for implementing adaptive risk engines and anomaly detection mechanisms to mitigate this risk.
CZ concluded by encouraging developers to build on-chain dark pool DEXs with perpetual swaps, suggesting either hiding the order book or delaying the visibility of deposits into smart contracts.
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