The advantageist investment (Front Running) contributes to the liquidations in the futures market.
The Dark Pools could not fit against the principle of transparency of Bitcoin technologies.
“Given the recent events, I think it could now be a good time for someone to throw a decentralized exchange of perpetuals with a Dark Pool.” These were the words of Changpen Zhao, the old CEO of Binance.
According to CZ, the Dark Poolswhich would generate “hidden” orders books, solve the problem of Front running or advantages during cryptocurrency trade or its derivatives. This advantage happens when, informing in public accounting, traders make purchase or sale decisions with the express purpose of passing otherswhich is especially delicate in the perpetual trading of futures.
It has always intrigued me that anyone can see your orders in real time in a DEX (Decentralized Exchange). The problem is even greater in a DEX to trade perpetual contracts, where there are liquidations ”, Cz commented.
Even with an orders of centralized exchanges (CEX), where orders are not linked to a specific person, if you are looking to buy a currency worth one billion dollars, you will usually not want others to notice it until it is completed. Otherwise, they could try to buy before you, anticipating you. In the case of a DEX, this can cause attacks of maximum removable value (MEV). This translates into a greater Slippage (slip), worse prices and higher costs for you.
CZ, former CEO of Binance.
Explaining the words of Changpeng Zhao
Perpetual contracts are financial derivatives without expiration date that allow to trade an asset with leverage. They maintain the open position indefinitely by adjustable financing rates. In these markets, the famous liquidations occur when the margin of a trader falls below the minimum requirement, which causes the forced closure of its position.
This process is affected by the sliding (Slippage), which is the difference between the expected price of an order and the real price of execution. The sliding is caused by lack of liquidity or abrupt changes in the market.
In the DEX, where all orders are public, large traders can anticipate movements and adjust their positions, worsening the final price for other users. This is what CZ denounces, a fact that is aggravated by the practices of maximum removable value (MEV), which occur when validators or miners rearrange or insert transactions into blocks to maximize profits at the expense of other participants.
While most of the perpetual contracts do not directly execute trading ON-CHAINthe collaterals of these positions yes; which gives way to the practice of the MEV.
In the perpetual trade, “it is even more important to prevent others from knowing or seeing your orders. If others see their liquidation point, they could try to press the market to liquidate you. Even if you had one billion dollars, others could attack you in a group. This is possibly what we have seen recently,” CZ rounded.
In this context, CZ warns how the extreme transparency of DEX can expose tractics to tractics and Proposes the “Dark Pools” as a solution, which already exist in the world of traditional finances. And in the defi in Ethereum too.
Dark pools: an unpopular solution that already exists
This could be a good opportunity for someone to throw a DARK of the Dark pool in the Dex + Perpetual Contracts chain, either hiding the book of orders or, better yet, not showing the deposits in intelligent contracts, or even much later. This should be possible with similar zk or encryptions.
CZ, former CEO of Binance.
A Dark Pool is a confidential market exchange market, generally for institutional investors. The objective of the Dark Pools is that its participants operate without revealing details, such as price, size of the position or liquidation price, to the rest of the market.
CZ recommends using zero knowledge encryptions (ZK-Proofs), to create these Dark Pools and prevent public information from leading to advantages. As Cryptonotics reported, such a solution already exists on the Ethereum Network. This is Renegade, a market that operates on the second arbitr -layer network.
Renegade implements the use of zero knowledge technology so that the validators do not know the details of the operations, and promotes anonymity in trading on decentralized platforms.
The implementation of Dark Pools in decentralized finances is not exempt from controversies and contradictions. In the base of the philosophy of decentralized finances there is the demand and promotion of total transparency, and trading with encrypted information attempts against this principle. That is the opinion of some defenders of the public essence of accounting in cryptocurrency networks.
“I understand why people hate liquidations and Front-Running. It is an annoyance, there is no debate. But come on, CZ: Dark pools in cryptocurrencies? That is precisely what we came to avoid. As soon as you hid the orders book, the insiders game recreates (…). Do you want decentralization? Good. Keep it open. Transparency is a mess, but at least everyone plays in the same land. If we begin to import the dark tracos of tradfi just because it is easier, we have lost all the course ”, A user commented In the social network X.
