Changpeng Zhao, co-founder of Binance and a key figure in the global crypto industry, has proposed a solution to the persistent problem affecting decentralised exchanges (DEXs) such as market manipulation.
On Sunday, in a post on social media platform X, Zhao suggested launching an on-chain dark pool swap DEX that would protect trader activity from public oversight, especially in markets prone to liquidations and front-running.
Trader privacy a key concern for Binance executive
Zhao expressed concern about the current structure of decentralized exchanges, where order books are entirely transparent.
According to him, “I have always been puzzled with the fact that everyone can see your orders in real-time on a DEX.” The issue, he noted, becomes more severe on perpetual DEXs, where open positions can be tracked and targeted for liquidation.
Drawing a comparison with traditional finance (TradFi), he noted the effectiveness of dark pools—private trading environments where orders remain hidden until they are executed.
“Large traders in TradFi use dark pools, often 10 times bigger than the ‘lit pools’ (ie, normal orderbooks),” he said.
In his post, Zhao further explained the challenge traders face when placing large orders in open environments. “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 noted.
If exposed, such trades could be intercepted by front-runners, who might drive up the price or manipulate the market to their advantage. “This results in increased slippage, worse prices, and higher costs for you.”
The executive argued that the stakes are even higher in the derivatives market. “If others can see your liquidation point, they could try to push the market to liquidate you. Even if you got a billion dollars, others can gang up on you,” he warned.
The visibility of liquidation thresholds in public DEXs opens up avenues for malicious actors to exploit large positions, a situation that can undermine the credibility of on-chain financial products.
While acknowledging that some market participants may prefer transparency, Zhao emphasised the need for choice. “The counter argument I have seen is that being more transparent allows market makers to absorb your large orders. This is possibly true. I won’t get into an argument on which is right or wrong. Different traders may prefer different types of markets,” he said.
He went on to propose the development of a DEX that could mask order books or delay the visibility of smart contract deposits, thereby reducing exposure to potential manipulation.
“Now might be a good opportunity for someone to launch an on-chain dark pool style DEX + perps, either by not showing the orderbook, or even better not showing deposits into smart contracts at all, or until much later,” Zhao suggested.
He concluded, noting that such a project could leverage zero-knowledge proofs or other encryption tools to protect user activity.
Growing interest in non-custodial solutions
The discussion led to further commentary, including from users (Abdul Rafay Gadit @ARafayGadit), who questioned the necessity of such a DEX when centralized options like Binance are available.
Zhao responded by noting the limitations of centralized custody and access.
“Some people may not want to custody with a 3rd party, or they may be in a region Binance is not available, which include many countries. Many possible reasons. Who knows… ”