CZ proposes dark pool perp DEX to combat manipulation.

Changpeng Zhao, the former CEO of Binance, stated on Sunday that the creation of a dark pool-style decentralized exchange (DEX) for perpetual contracts is warranted now, given the growing concerns about front-running, slippage, and targeted liquidations in current market structures.

In a post on social media platform X, Zhao, widely known as CZ, questioned the industry’s persistent reliance on fully transparent order books in decentralized trading systems.

“I have always been puzzled with the fact that everyone can see your orders in real-time on a DEX,” he wrote. “The problem is worse on a perp DEX where there are liquidations.”

Dark pools — private trading venues that hide order information — are commonplace in traditional finance (TradFi), often processing trades ten times the size of public “lit” pools. 

According to Zhao, crypto markets lack this protective layer, exposing large players to opportunistic behavior such as miner-extractable value (MEV) attacks and coordinated liquidation attempts.

Zhao explained that even on centralized exchanges (CEXs), where order books don’t link activity to specific traders, institutions buying $1 billion worth of assets usually prefer to stay anonymous to prevent market manipulation. “Otherwise, people might try to buy before you, effectively front-running you,” he noted. On-chain transparency, he added, makes this problem worse and increases trading costs.

He suggested the vulnerability becomes more severe in perpetual futures markets, where visible liquidation thresholds can invite targeted action. “If others can see your liquidation point, they could try to push the market to liquidate you,” he said. “Even if you got a billion dollars, others can gang up on you. This was possibly what we have seen recently.”

While some argue that full transparency allows market makers to better absorb large orders, Zhao declined to take a side in the debate. “Different traders may prefer different types of markets,” he said.

Still, Zhao floated a specific vision: an on-chain dark pool perp DEX that hides both the order book and initial deposits to smart contracts — potentially using zero-knowledge (ZK) cryptography or similar technologies to obscure activity until much later in the process.

He concluded that recent events — without naming any — show that existing DEX mechanisms may be inadequate for large players. “Now might be a good opportunity for someone to launch” a stealthier system, he said. Zhao, who stepped down from Binance in late 2023 after pleading guilty to U.S. federal charges, remains influential in shaping discourse around trading infrastructure in crypto.

Without naming anyone, CZ said that recent events show that existing DEX mechanisms may be inadequate for large players. CZ was referring to the crypto trader James Wynn, who was liquidated of $100 million in what appeared to be a coordinated attack on his trading position.

“Now might be a good opportunity for someone to launch” a stealthier system, he said. Zhao, who stepped down from Binance in late 2023 after pleading guilty to U.S. federal charges, remains influential in shaping discourse around trading infrastructure in crypto. The former CEO recently requested a presidential pardon from Trump for his money laundering conviction.