Binance's CZ Advocates for Dark Pool DEX After $100M Hyperliquid Liquidation Incident

Changpeng Zhao, also known as CZ, has proposed the establishment of a dark pool decentralized exchange (DEX) aimed at shielding large trades from front-running and miner-extractable value (MEV) attacks. This suggestion comes in the wake of a significant $100 million liquidation issue on Hyperliquid, which raised concerns about potential market manipulation. CZ pointed out that visibility of orders on traditional DEXs poses a threat to large trades. He stated, "If you're looking to purchase $1 billion worth of a coin, you wouldn't want others to notice until it's completed." This issue is particularly relevant to perpetual DEXs, where the visibility of liquidation levels allows bad actors to trigger mass liquidations. The recent incident involving trader James Wynn, who faced a liquidation of nearly $100 million in BTC positions when the price dropped, exemplifies these vulnerabilities and led to speculation about coordinated attacks among traders on social media. Dark pools, commonly used in traditional finance, allow large trades to take place without being seen on public order books, protecting traders from significant price swings. Translating this model into the DeFi space poses challenges. Maria Carola, CEO of StealthEX, stated: "The fundamental challenge in building a dark pool-style perp DEX is achieving both privacy and verifiability." She noted that advanced technologies like zk-SNARKs or zk-STARKs could help validate trades discreetly. Nonetheless, the concept of opacity in trading also raises concerns about potential manipulation, particularly in highly leveraged environments. Carola warned, "Opacity is a double-edged sword," suggesting that adaptive risk engines and behavioral anomaly detection must be implemented alongside any dark pool solutions to mitigate risks. While CZ acknowledges that this proposal has its limitations and that transparency can offer certain advantages, he is advocating for further exploration of on-chain dark pool designs. This could lead to innovative approaches that enhance security and attract institutional traders seeking a safer trading environment.