CZ Calls for Dark Pool DEX to Protect Traders from Exploits

• CZ calls for private order book DEX following James Wynns massive $100M liquidation on HYPE.
• Public liquidation points let traders coordinate attacks to force large DEX liquidations.
• CZ suggests that Zero-knowledge encryption could hide orders and smart contract deposits.

Binance founder Changpeng Zhao (CZ) has called for the development of a dark pool perpetual decentralized exchange (DEX) following recent events that led to massive trader losses. His comments came after James Wynn had suffered approximately $100 million in liquidations on Hyperliquid (HYPE). This incident is believed to have occurred with traders potentially copying Wynns positions or actively working against him to trigger liquidations.

CZ highlighted fundamental problems with the current DEX architecture, where all orders are visible in real-time, creating vulnerabilities for large traders. In his X post, CZ stated that he had always been puzzled by the fact that everyone can see the orders in real-time on a DEX and emphasized how the transparency could lead to front-running and MEV attacks.

The issue becomes more pronounced on perpetual DEXs where liquidation events occur. When large traders attempt to purchase substantial amounts, public order visibility allows others to buy ahead of them. This effectively front-runs their trades and causes increased slippage and worse execution prices.

Liquidation vulnerabilities expose large positions

For perpetual contracts, CZ emphasized that hiding orders becomes even more critical. When liquidation points are visible, other traders can coordinate to push markets toward those levels. This potentially forces liquidations regardless of the traders capital size.

“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,” CZ explained. This coordinated attack strategy may have contributed to recent high-profile liquidation events.

In traditional finance, this issue is addressed through dark pools, which are private trading spots where large orders are executed without being noticed publicly. These platforms often handle volumes up to ten times larger than visible “lit pools” or normal order books. Institutions can carry out sizable orders through these secret trading venues without disclosing their plans to the public.

CZ Backs Zero-Knowledge Proofs for Private DEX

According to CZ, on-chain dark pool functionality may be made possible by encryption technologies such as zero-knowledge proofs. These systems could hide order books entirely or conceal smart contract deposits until after execution.