CZ’s Radical Fix for Crypto’s $100M Front-Running Problem: A Dark Pool DEX

Binance’s founder drops a bombshell solution after traders get rekt by predatory bots—because what’s finance without a little blood in the water?

Dark pools meet DeFi: The proposal would hide orders until execution, slashing front-running opportunities. Finally, a use case for blockchain that doesn’t involve aping into memecoins.

Will it work? Who knows—but at least it’s not another ’institutional adoption’ press release.

TLDR

• Binance founder CZ proposed a “dark pool” DEX that hides trades and liquidation points to prevent front-running and market manipulation
• The proposal comes after crypto trader James Wynn lost $100 million to liquidations, highlighting DEX transparency issues
• Current DEXs expose real-time orders and wallet data, enabling MEV attacks and coordinated liquidation efforts
• CZ suggested using zero-knowledge proofs and atomic swaps to create trustless, private trading infrastructure
• Industry experts say this could unlock institutional-grade DeFi but requires complex technical implementation

Binance founder Changpeng “CZ” Zhao has called for the development of a new type of decentralized exchange that conceals trading activity from public view. The proposal comes after recent high-profile losses exposed vulnerabilities in current DEX systems.

On Sunday, Zhao posted on X platform suggesting the creation of a “dark pool perp DEX.” This type of exchange WOULD hide trades, positions, and deposits from public visibility to protect users from exploitation.

Given recent events, I think now might be a good time for someone to launch a dark pool perp DEX.

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

Even with a CEX…

— CZ 🔶 BNB (@cz_binance) June 1, 2025

The Privacy Problem in DeFi

Current DEXs expose all trading activity in real-time, creating what Zhao describes as fundamental security risks. Users can see wallet-linked orders and liquidation points, enabling front-running attacks where bots exploit pending transactions for profit.

“If others can see your liquidation point, they could try to push the market to liquidate you,” Zhao wrote. “Even if you got a billion dollars, others can gang up on you.”

The transparency issue becomes more severe on perpetual futures DEXs, where traders use high leverage. These platforms allow users to place Leveraged bets on asset prices without expiration dates, making liquidation risks more acute.

Zhao’s proposal follows the recent case of crypto trader James Wynn, who lost $100 million over one week through liquidations. Wynn claimed his losses exposed corruption in crypto markets and highlighted the risks of transparent trading systems.

Technical Solutions and Industry Response

Zhao suggested using zero-knowledge proofs or similar encryption methods to hide trading activity until settlement stages. He also mentioned atomic swaps using Hash Time Lock Contracts as potential technical solutions.

These smart contract mechanisms enable cross-chain asset trading only when specific conditions are met within time limits. If conditions aren’t met, transactions automatically cancel and parties recover their funds.

Kadan Stadelmann, CTO of Komodo Platform, told Decrypt that such a solution must be “trustless, non-custodial, cross-chain, and secure.” The technical requirements include full decentralization and cross-chain interoperability.

Market Manipulation Concerns

The James Wynn liquidation case has renewed focus on internal market-making operations at crypto exchanges. Many leading platforms operate internal desks that provide liquidity by taking opposite positions to user trades.

These arrangements create potential conflicts of interest during volatile market conditions. Internal desks often serve as counterparties to user trades, raising questions about fair market practices.

Annu Shekhawat, Global Ecosystem Lead at Avail, said current DEXs expose “real-time order visibility, wallet-linked order books, and predictable liquidation points.” This transparency benefits MEV bots but harms serious traders.

The maximal extractable value (MEV) attacks occur when automated systems detect and exploit pending transactions before they complete. This results in increased slippage, worse prices, and higher costs for regular users.

Development Interest

Zhao invited developers to contact him through ReachMe.io, a paid messaging platform he launched in March. The service helps filter high-volume requests by charging fees for communication access.

Some developers on solana are already working on private DEX solutions. Recent data shows most Jupiter-routed trades now happen through private decentralized exchanges within Solana’s DeFi ecosystem.

Industry experts believe the first platform to successfully implement dark pool functionality could set new standards for institutional-grade DeFi trading. However, building such systems requires solving complex technical challenges around privacy, security, and decentralization.

Zhao stepped down as Binance CEO in 2023 but remains active in proposing solutions for crypto infrastructure problems.