Sign Up on MEXCBinance’s Changpeng Zhao (CZ) Proposes “Dark Pool” DEX For Crypto Futures, Here’s Why
Highlights
- Changpeng Zhao highlighted vulnerabilities in traditional DEXs, including front-running, MEV attacks, and market manipulation.
- He emphasized that transparency in order visibility can expose traders to exploitation, leading to higher costs and risks.
- This suggestion follows the recent $100 million loss by crypto trader James Wynn.
- Zhao proposed key features for a dark pool DEX, including concealed order books, delayed visibility of deposits, and advanced cryptographic techniques.
Binance found that Changpeng Zhao (CZ) has demanded the formation of a dark pool perpetual decentralized exchange (DEX) for trading crypto futures. CZ calls it the need for greater privacy for traders using DEXs. Interestingly, this call comes after the recent James Wynn liquidation saga, wherein he said that he’s exposed the corrupt system after losing $100 million over the past week.
Changpeng Zhao Proposes On-Chain Dark Pool DEX Amid MEV Attacks
In a message on the X platform, Binance founder Zhao suggested the creation of an on-chain dark pool decentralized exchange (DEX) with perpetual contracts. While addressing concerns around transparency and its impact on large-scale trades, CZ also outlines the challenges faced by traders on existing DEXs. Thus, he proposed having a dark pool mechanism for DEXs. Interestingly, this proposal comes soon after crypto trader James Wynn faced liquidations on his massive high-leverage Bitcoin bets, losing $100 million in the process.
The Existing Challenges of the DEX Ecosystem
The Binance founder highlighted some critical drawbacks in the traditional DEX system i.e., the visibility of trades in real-time. Changpen Zhao noted that this creates two major challenges and vulnerabilities:
- Front-running and MEV Attacks: CZ said that observers can exploit visible orders to execute trades ahead of large buyers, increasing slippage and trading costs.
- Market Manipulation on Perps: The Binance founder also added that public visibility of liquidation points can lead to coordinated efforts to trigger liquidations, exposing traders to significant risks.
CZ said that, particularly for these reasons, large traders in traditional finance (TradFi) often prefer dark pools. Such private trading venues provide secrecy around order details. While emphasizing the unique risks in perpetual futures trading, the Binance founder said that absolute transparency with further increased vulnerabilities.
Developers on Solana already seem to be working on this as private decentralized exchanges (DEXs) increasingly dominate trading activity within its DeFi ecosystem. Recent data reveals that the majority of Jupiter-routed trades happen through private DEXs.
Changpeng Zhao: Key Things A Dark Pool DEX Should Have
While sharing his vision of a dark pool decentralized exchange (DEX), Changpeng Zhao proposed a model that prioritized privacy by:
- Concealing order books or delaying the visibility of deposits into smart contracts.
- Leveraging advanced cryptographic techniques, such as zero-knowledge (ZK) proofs, to ensure secure and private transactions.
CZ believes such a dark pool DEX will address privacy and security for traders. Changpeng Zhao added that developers should seize this opportunity to build an on-chain dark pool DEX, while catering to large-scale traders.
James Wynn Exposes A Corrupt System
Following massive Bitcoin liquidations and a $100 million loss last week, James Wynn wrote: ” One thing for sure is that I have exposed just how corrupt these markets are. Guess it’s better to just buy and hold $BTC on spot / cold storage it”. However, the crypto traders has been on a roll again, betting on Moonpig.
This episode brings back the spotlight to the internal market-making desks operated by many leading cryptocurrency exchanges. Internal market-making desks provide liquidity by taking the opposite position of a user’s trade. Interestingly, these desks often serve as counterparties to user trades, thereby creating potential conflicts of interest in highly volatile markets.
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