Editor's Note: This article reviews the current state, technological paths, and practical challenges of "dark pools" - a seemingly traditional but increasingly critical trading mechanism in the crypto field. From Renegade to Penumbra, from CZ's vision to the game of privacy and verifiability, dark pools serve as both a shield against on-chain "hunting games" and a redefinition of crypto's spiritual boundaries. In an era of increasingly PvP public chains and continuous institutional capital inflow, we may have to face a question: Does true decentralization also require a bit of "invisibility"?

Last week, James Wynn, a well-known crypto "degen" player, was liquidated on Hyperliquid, suffering a loss of up to $100 million.

This loss included 949 Bitcoins (approximately $99.3 million) and 982.5 million kPEPE (approximately $11.6 million), caused by Bitcoin falling below $105,000, triggering his long position established with 40x leverage. Interestingly, Wynn does not believe this was just bad luck. He firmly claims he was specifically targeted.

"One thing is certain, and that is I exposed the corruption level of this market," Wynn wrote, stating that someone deliberately created a so-called "liquidation hunt", specifically targeting his large on-chain positions, temporarily suppressing prices to trigger liquidation, and then quickly raising them back.

Regardless of whether this accusation is true, the incident reveals a major vulnerability in decentralized trading: everyone's positions are public. It's like playing poker with everyone's cards face-up on the table.

After the incident, Binance founder CZ proposed a solution on June 1st: establishing a "dark pool perpetual contract DEX".

His logic is simple - if no one can see others' positions, no one can conduct a "hunt". By hiding the order book through zero-knowledge proofs, decentralization can be maintained while protecting large traders from targeted attacks.

Below, we will quickly review the origin, pros and cons, and current or developing dark pool projects in the crypto field.

The Origin of Dark Pools

The term "dark pool" sounds mysterious, but it's not actually a new thing, nor is it naturally equivalent to a "black box".

As early as the 1980s, dark pools appeared in traditional finance, aimed at solving a very practical problem: how can institutions complete large stock trades without affecting market prices?

Imagine: You're a pension fund that needs to sell 10 million Apple company stocks. If you directly list a sell order in the open market, the price might plummet before you've sold half. The market seeing this massive sell order would panic sell or even front-run, ultimately causing you to trade at a price far lower than expected.

The U.S. Securities and Exchange Commission (SEC) noticed this issue and formally approved the legal status of "Alternative Trading Systems" (ATS) in 1979. These private exchanges allowed institutional investors to match large trades without disclosing orders, only revealing results to the market after completion.

By spring 2017, dark pools accounted for nearly 40% of trading in the U.S. stock market, a significant increase from 16% in 2010.

The basic mechanisms of dark pools include:

Hidden order books, trades matched privately

Trading prices are negotiated or set at the midpoint of buy and sell prices

Trade results disclosed only after completion

Limited to institutional investors

These mechanisms ensure the privacy and market stability of large trades. However, in the cryptocurrency realm, replicating this model requires overcoming on-chain transparency challenges while finding a balance between "decentralization" and "trade protection".

Why the Crypto World Needs "Dark Pool Trading" More

If dark pools are already crucial in traditional financial markets, their importance in the cryptocurrency market will only increase. Blockchain's extreme transparency can become a burden in certain scenarios - when every address and transaction is exposed under the sun, and the market increasingly presents a "player versus player" (PvP) competition, transparency means vulnerability.

In traditional finance, at least your broker won't publicize your positions; in DeFi, your wallet address is your "asset history", completely open and transparent. This openness has spawned various "predatory" behaviors:

MEV (Maximum Extractable Value): One of the core issues in current on-chain transactions. Robots listen to pending transactions, gaining profits by "front-running" what should belong to ordinary users. It's like someone secretly sees your cards and then places precise bets.

Copy Trading: Why research strategies when you can directly copy high-performing wallet addresses? Such "parasitic" trading behaviors compress high-level traders' profit margins, though more experts are learning to reverse-utilize followers as their "exit liquidity".

Liquidation Hunting: As the Wynn case shows, on-chain visible leveraged positions easily become prey. Traders can precisely calculate liquidation prices and collectively create fluctuations to break them.

Quote Fading: When market makers discover a large order about to enter the market, they often withdraw listings and widen bid-ask spreads, causing traders to bear higher costs at the most unfavorable moment.

To address these issues, crypto dark pools are creating "invisible" trading systems through privacy protection technologies, such as:

Zero-Knowledge Proofs (ZKPs): Allowing users to prove a transaction is legal and valid without revealing specific transaction details.

Multi-Party Computation (MPC): Enabling trade matching without any party fully understanding the transaction requests, thus guaranteeing privacy.

Trusted Execution Environments (TEEs): Creating a secure "black box" for transaction execution. For example, Uniswap's L2 network Unichain uses TEE to build blocks, preventing MEV robots from obtaining transaction information. Its "Rollup-Boost" system locks transactions in an encrypted memory pool, providing near-dark pool privacy protection for entire DeFi applications.

The ultimate result is: Transactions are both private and verifiable, both anonymous and auditable - providing real privacy protection for traders while maintaining the blockchain's "trustless" characteristics.

Dark Pool Trading Practices on the Chain

Currently, multiple projects are practicing dark pool concepts in the crypto field:

Renegade: An MPC dark pool DEX built on Arbitrum, focusing on privacy protection and zero-slippage trading. The platform supports token trading through peer-matching mechanisms at Binance's midpoint price, eliminating front-running and price manipulation. This means large trades can be completed privately without affecting market prices.

Silhouette: A privacy trading solution built on Hyperliquid, integrating a hidden order matching system with Hyperliquid's deep liquidity and high-performance infrastructure. Currently under development with no launch timeline, its main advantage is not requiring a dedicated wallet, significantly lowering usage barriers and making private trading more accessible.

Penumbra: A privacy-focused new blockchain project in the Cosmos ecosystem, providing dark pool trading functions for spot markets. It uses zero-knowledge proofs to hide all transactions, balances, staking activities, and even governance processes. Its DEX uses a batch auction mechanism to prevent front-running and achieves comprehensive privacy protection through cryptographic means.

sFOX: A U.S.-based crypto trading service for institutional investors, with dark pool services regulated by FinCEN and Wyoming state. By accessing liquidity from over 30 exchanges, sFOX provides hidden order functionality, helping institutional users complete large trades discreetly.

Why Dark Pools Are Not Yet Widespread

Although dark pools help counter MEV, liquidation hunting, and front-running, they remain scarce in the crypto world, mainly for three reasons:

1. The Contradiction Between Privacy and Verifiability

Ensuring fair transactions without revealing specific details is technically challenging. Although Although technologies like ZKP, MPC, and TEE provide a direction, actual implementation is far more imagined. merely "hiding data" is not enough; it's also necessary to prevent indirect derivation of transaction information. For example, if anyone can query an AMM's price at any time, it is not a truly "private market".

2. Liquidity Dilemma: Chicken or Egg?

Dark pools must have sufficient trading volume to be effective. However, without initial liquidity, traders won't enter. This "cold start" problem is especially severe in perpetperpetual contract markets, which have higher requirements for capital depth and real-time trading.

3. Trust Paradox and Price Discovery Mechanism Risk

The privacy nature of dark pools brings inherent opacity, which can easily trigger a trust crisis. In the crypto industry, "trust, but verify" is a fundamental creed. If transaction details cannot be seen, how can confirm price fairness be?? Moreover, dark pools might distort the price discovery mechanism of open markets.. Institutions can obtain better prices through dark pools, while ordinary users can only trade in markets with popoorer liquidity and higher volatility, forming a de facto "dual-track market".

Traditional finance has already had precedents. For example, Barclays was fined $70 million for falsely stating its dark pool operation method, and multiple institutions like Credit Suisse have faced penalties for unfair operations in dark pools.

4. Regulatory Obstacles Are Especially Complex

Launching a dark perpetual contracts-chain is not only technically high difficult, but compliance compliance difficulty is even higher. The superposition of derivative trading, privacy protection technology, and cross-border flow that project parties must face almost pathless compliance maze.

Reflection on the Wynn Incident: Transparency is the Basis of Trust, But Can Also Be a Weapon

Regardless of whether the Wynn liquidation event was truly "hunted", it reveals a core contradiction: we have built extremely transparent systems to achieve "trustless" operations, but this itself might be maliciously explo.<><>Dark pools provide path, but they walk on a thin line - protecting privacy while not destroying verand fairness. Projects like Renegproveate show that spot market dark pools are feasible. Through encryption methods, they achieve "prove honesty" without revealing any details.

However, CZ's conceived "perpetdark pool DEX" has not yet been truly realized, with only current Silhouette currently in this direction><.

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