CZ proposes dark pool DEX to prevent crypto manipulation

Binance co-founder Changpeng “CZ” Zhao has proposed a dark pool-style perpetual decentralised exchange (DEX) to counter market manipulation risks such as front-running and maximum extractable value (MEV) attacks.

“I have always been puzzled with the fact that everyone can see your orders in real-time on a DEX,”  Zhao stated, questioning the full transparency of order books on decentralised platforms.

He said the visibility of orders is particularly problematic on perpetual DEXs where liquidations occur.

“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 noted, pointing out that transparency can lead to increased slippage and worse trade execution due to automated trading bots.

The post followed a recent $100 million liquidation in long Bitcoin (CRYPTO:BTC) positions on the Hyperliquid (CRYPTO:HYPE) exchange, prompting speculation of coordinated trading activity to force the liquidation.

Zhao compared the situation to traditional finance, where large institutions often trade through dark pools—private venues that conceal order size and pricing until after execution.

“Large traders in TradFi use dark pools, often 10 times bigger” than transparent markets, he said.

To apply this model in decentralised markets, Zhao suggested privacy-focused approaches such as zero-knowledge proofs or delayed settlement systems.

These technologies would enable private, verifiable trading without disclosing order details to the public.

Philipp Zentner, CEO of DEX aggregator Li.Fi, said decentralised dark pools “replace the human broker with cryptography,” referencing protocols like Renegade and Penumbra that encrypt order data and use zero-knowledge proofs for trustless settlement.

Maria Carola, CEO of StealthEX, identified privacy and verifiability as core challenges.

She pointed to zk-SNARKs and zk-STARKs as possible tools to address this issue but warned of legal hurdles, especially when applying these methods to perpetual contracts, which are regulated differently across jurisdictions.

Zhao also noted that transparency can be beneficial for market makers but warned that in derivatives trading, visible liquidation points expose traders to targeted manipulation.

“If others can see your liquidation point, they could try to push the market to liquidate you,” he said.

Carola added that while opacity reduces front-running, it could also shield market manipulation, suggesting cryptographic accountability and adaptive risk controls as potential safeguards in dark perp DEXs.