Binance Co-founder CZ Proposes Dark Pool DEXs to Combat Market Manipulation

Binance co-founder Changpeng “CZ” Zhao has proposed the development of a dark pool perpetual swap decentralized exchange (DEX) aimed at shielding large traders from front-running and MEV (maximum extractable value) attacks.

In a June 1 post on X, Zhao expressed his long-standing concern over the transparency of DEX order books.

“I’ve always been puzzled by the fact that everyone can see your orders in real-time on a DEX,” he wrote.

“The problem is even worse on perpetual DEXs where liquidations are involved. If you’re looking to purchase $1 billion worth of a coin, you generally wouldn’t want others to notice your order until it’s completed.”

Zhao argues that the visible nature of DEX orders opens the door to front-running bots, MEV attacks, increased slippage, and worse execution prices — all of which drive up costs for large-scale traders.

What Sparked This?

CZ’s remarks come shortly after a $100 million Bitcoin long liquidation on Hyperliquid, reportedly belonging to a trader named James Wynn. The event, triggered when Bitcoin fell below $105,000, sparked claims that some users coordinated to force Wynn’s liquidation.

Rumors swirled online, with some alleging that Tron co-founder Justin Sun expressed interest in participating (though this remains unconfirmed), and even an invite was extended to Eric Trump, son of U.S. President Donald Trump.

Source: CBB

What Are Dark Pools?

In traditional finance, dark pools are private trading venues that hide large orders from public view until they are executed, minimizing market impact and reducing the risk of front-running.

Zhao noted that large institutional traders frequently use dark pools, sometimes 10 times larger than standard, transparent markets. He believes bringing a similar mechanism to decentralized finance could provide much-needed privacy and protection for derivatives traders, especially those dealing in large sums.

However, implementing decentralized dark pools comes with significant challenges. Zero-knowledge proofs (ZK-proofs) or delayed settlement systems would likely be necessary to maintain both privacy and verifiability on-chain.

Technical and Regulatory Hurdles

Maria Carola, CEO of instant exchange StealthEX, highlighted the technical complexity of building a dark pool-style perpetual DEX. She pointed to technologies like zk-SNARKs and zk-STARKs as promising tools to validate trade execution without revealing sensitive details.

“The core challenge is balancing privacy with verifiability,” Carola explained.

“Opacity reduces front-running but can also hide manipulation attempts, especially in leveraged environments.”

She emphasized that an effective dark pool DEX would require adaptive risk engines and behavioral anomaly detection, ideally backed by cryptographic accountability.

On top of the technical barriers, regulatory concerns loom large. Launching an on-chain dark pool, particularly one handling perpetual swaps, would navigate a complex legal landscape.

Why Privacy Matters in Derivatives

According to Zhao, trade privacy is even more critical in derivatives markets. The public visibility of liquidation levels exposes large traders to targeted attacks that could force premature liquidations.

“If others can see your liquidation point, they can gang up and push the market against you — even if you have a billion dollars,” Zhao warned.

While some argue that transparency allows market makers to better absorb large orders, Zhao acknowledged this perspective but refrained from debating which approach is “right” or “wrong.”

“Different traders may prefer different types of markets,” he said.

A Call to Action

Zhao concluded by encouraging developers to explore building on-chain dark pool DEXs for perpetual swaps. He suggested that this could be achieved by hiding order books, or even better, concealing deposits into smart contracts until later stages.

Such innovations, if successfully implemented, could mark a transformative step in decentralized derivatives trading, offering large players the privacy they need while potentially reshaping the competitive landscape of DeFi.