Binance Co-Founder CZ Urges Dark Pool DEXs to Combat Market Manipulation

Binance co-founder Changpeng “CZ” Zhao has sparked discussion in the crypto community with his proposal for a dark pool decentralized exchange (DEX) designed specifically for perpetual swap trading.

Dark pools are private trading venues where details of large orders are hidden until after execution, a feature commonly used in traditional finance to reduce the risk of front-running and market manipulation.

With crypto, existing DEXs often make every order visible in real time, exposing large traders to strategies like front-running and maximum extractable value (MEV) attacks. Zhao’s idea aims to bring the privacy advantages of traditional dark pools into the DeFi space, addressing a growing need as digital assets markets mature.

The proposal comes on the heels of significant liquidations on platforms like Hyperliquid. In late May, a trader known as James Wynn reportedly saw nearly $100 million in Bitcoin long positions liquidated after BTC prices dipped below $105,000.

This event led to rumors and accusations on social media, with some suggesting coordinated actions by other traders to force the liquidation, highlighting market vulnerabilities when large trades or liquidation levels are exposed. Unverified reports even suggested participation interest from high-profile individuals like Tron’s Justin Sun in discussions about such high-stakes activity.

Currently, dark pools in traditional finance can handle volumes up to ten times larger than regular exchanges, providing much-needed anonymity for institutional actors. Implementing similar privacy protections on-chain brings technical hurdles, though advances like zero-knowledge proofs (ZK-proofs), including zk-SNARKs and zk-STARKs, show promise for keeping trade details private while maintaining trust in execution.

Maria Carola, CEO of StealthEX, commented that privacy and transparency must be balanced carefully, as regulators examine whether on-chain dark pools can meet compliance requirements, especially with the complexity of perpetual contracts.

Zhao emphasized that derivatives markets are particularly vulnerable. If liquidation points are openly visible, other actors could intentionally move markets against large traders, making forced liquidation more likely—a risk even for players with billion-dollar positions.

While some argue transparency helps market makers absorb bigger trades more smoothly, Zhao believes the extra visibility is a bigger threat in practice for those dealing with high leverage. Carola highlighted that while more privacy can reduce front-running, it could also hide manipulative tactics unless the exchange adopts robust risk management and behavioral analytics, ideally with cryptographic accountability.

For crypto projects and developers, Zhao’s message is a call to build new DEX solutions where order books and deposits remain hidden until trades are complete. Such systems would complicate or even neutralize the front-running strategies that advanced traders and bots currently exploit.

As of June 2024, Bitcoin has been trading near $69,000, with the broader derivatives sector continuing to grow, underlining the need for new trading models. The discussion on balancing privacy, security, and fairness remains active as both institutional and retail users seek safer, more reliable decentralized exchanges, especially after events such as significant liquidations on platforms like Hyperliquid.

Market Impact	Neutral
Impact Score	4/10
Reason	While regulatory relief is positive, the market had already priced in expectations of a more crypto-friendly stance under the current administration. Similar regulatory dismissals in July 2024 led to a brief 2% increase in Bitcoin’s price, but the effect was short-lived.
Terms Explained for Beginner	Regulator: A government agency responsible for overseeing financial markets and ensuring compliance with laws. Binance: One of the world’s largest cryptocurrency exchanges, facilitating the buying and selling of various digital assets. Lawsuit Dismissal: A legal case being closed without further action, often indicating that the charges were dropped or found to be without merit.