Binance co-founder CZ proposes dark pool DEXs to combat crypto trading exploitation

Dark pool DEXs are now front and center in the crypto conversation, thanks to Binance co-founder Changpeng “CZ” Zhao. CZ has proposed the launch of a dark pool perpetual decentralized exchange (DEX) to protect large traders from manipulation tactics like front-running and maximum extractable value (MEV) attacks.

In a June 1 post on X, CZ questioned why decentralized exchanges make user orders public in real time, especially in derivatives markets. “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,” he wrote.

His idea? Use dark pool DEXs to cloak large orders and restore fairness in crypto trading, particularly after a controversial Bitcoin liquidation incident involving nearly $100 million in long positions.

Dark pool DEXs: The TradFi solution crypto never adopted

Dark pool DEXs aim to replicate what already exists in traditional finance. In TradFi, dark pools are private exchanges where institutional players trade massive volumes without exposing order details until after execution. CZ noted that these dark pools are often “10 times larger” than public pools.

“Trade privacy is a fundamental right,” said CZ. “In crypto, exposing liquidation points invites attacks—even coordinated ones.”

The key benefits of dark pool DEXs are clear: reduced slippage, fewer MEV exploits, and protection against predatory trading strategies. And yet, until now, DeFi had no equivalent.

The timing of CZ’s proposal is no coincidence. His comments followed the high-profile liquidation of $100 million in Bitcoin long positions on the Hyperliquid platform, reportedly held by trader James Wynn.

The liquidation occurred after BTC dropped below $105,000, and X users alleged that others coordinated to trigger the event.

Some even claimed that Tron’s Justin Sun was interested in participating, though these claims remain unverified. The shocking nature of the liquidation sent shockwaves through the trading community and raised urgent questions about on-chain visibility.

“Dark pool DEXs could have prevented this,” wrote one DeFi analyst on X.

“When your liquidation level is visible to the public, it becomes a target.”

Why dark pool DEXs matter most for derivatives

Dark pool DEXs aren’t just about hiding large trades. They’re especially critical in the derivatives space, where positions are highly leveraged and exposure is significant. CZ emphasized that public liquidation data can become an attack vector in and of itself.

“If others can see your liquidation point, they could try to push the market to liquidate you, even if you’ve got a billion dollars,” he warned.

In derivatives, where one large move can cause cascading liquidations, dark pool DEXs offer a safety net by shielding key data from public view.

The tech behind dark pool DEXs: ZK-proofs and delayed settlement

Creating effective dark pool DEXs isn’t simple. It would require sophisticated tools like zero-knowledge proofs (ZK-proofs) and delayed settlement mechanisms. These technologies can hide trade information without sacrificing on-chain verification or decentralization.

“It’s a complex build, but not impossible,” said Justin Bons, founder of Cyber Capital. “ZK-tech has come a long way, and we’re at the edge of making private DeFi a reality.”

Transparency vs. privacy: A philosophical divide

CZ also acknowledged the counterargument: that transparent markets allow liquidity providers and market makers to better absorb large trades.

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

This suggests dark pool DEXs may not replace traditional DEXs but coexist alongside them, catering to a different class of traders, particularly institutions and whales.

Rather than promising to build it himself, CZ has called on the developer community to act.

“Would be great to see someone launch an on-chain dark pool DEX with perpetuals,” he said, suggesting ways like hiding order books or delaying visibility of deposits.

In a space increasingly plagued by MEV bots and coordinated manipulation, CZ’s vision of dark pool DEXs could become one of the most disruptive ideas in DeFi this year.