I'm not crazy and the title is not sensational, let me explain all this.
Around 2008, Josh Levine (@bigjoshlevine) and others wanted to end the "conspiracy" of US exchanges, which gave large customers superior order information, just a little faster than ordinary users. Ordinary users did not know that their orders would contribute profits to professional teams.
Unfortunately, the trading data display tool created by Levine was eventually absorbed by quantitative trading. Information is certainly transparent, but some people's information is always more transparent than others.
As a long-term follower of FHE, I am very happy to see people, especially CZ, discussing the "Dark Pool". This is also a potential application scenario for true encryption technologies such as ZK, MPC, and FHE. However, I have to say that CZ's understanding of dark pools and the practice of dark pools based on blockchain do not seem to be completely consistent.
In the narrative about dark pools, CZ aimed to hide large order information in order to avoid potential targeted attacks. In the eyes of James Wynn, the victim of this incident, this is definitely the technology he wants. Hyperliquid's on-chain mechanism plus the function of hiding information, a freer world is beckoning us.
Image description: CZ comments on dark pool, Image source: https://x.com/cz_binance/status/1929246168833229243
It cannot be said to be wrong, but at least CZ's idea is not the same as James's experience this time. Let's answer the first question first. Why did James choose Hyperliquid instead of Binance for large transactions? Fundamentally, he can get more and be subject to fewer restrictions.
- No KYC, no fund review
- On-chain transactions, beware of pin-spiking
Although Hyperliquid is not very centralized, and its leverage and liquidity cannot be compared with Binance, Hyperliquid's on-chain features have successfully attracted its own whale users, which is consistent with the premise of Curve War that Curve is the only on-chain DEX used by professional traders.
However, strictly speaking, the Hyperliquid incident was not about mechanism design. It can even be said that the on-chain transparency feature is the reason why the "attacker" can see James' position and liquidation price, so CZ said that a dark pool DEX is needed.
No, this is not the same thing. The on-chain privacy transaction track has been explored to the extreme. Not to mention Arcium's FHE dark pool route, "real" privacy protection tools such as Bitcoin, Zcash, Tornado Cash, etc. have not been adopted by the mainstream market. Instead, ERC-7702 has many problems. But the reality is that more convenient functions are gaining ground.
People like convenience, and only a very small number of people are willing to pay for privacy.
Back to CZ’s dark pool theory, I can say frankly that what he actually said was “Hyperliquid after solving MEV”. CZ comes from the traditional trading market and should understand that the emergence of TradFi dark pool is the excessive internal circulation of high-frequency quantitative trading. Large transactions can go through the OTC channel, and the core of high-frequency trading is to compete for price advantages over ordinary users.
- Preempt or wait for ordinary users to trade
- Predict or attack large transaction orders
- A little faster than high-frequency peers
The answer is obvious. TradFi's dark pool and blockchain's MEV have the same effect. In essence, this has nothing to do with privacy protection, but the transparency of transactions on the chain means that there is no real good solution other than "centralization" at this stage. If you remember, BNB Chain directly "commanded" nodes not to clamp, and only then could it barely control MEV.
If Hyperliquid completely eliminates MEV, then you can't see James' orders manipulating the market either. The only question is how do we achieve this:
- Eliminating the MEV route
- Improving privacy route
Remember: dark pools do not "hide transaction intentions" but "hide transaction prices", which is closer to the execution process of MEV. The dark pools of blockchain that everyone imagines are more like the ZK/FHE-optimized Hyperliquid of MEV. The reason why it cannot be CEX is that centralization is the biggest MEV process.
The imagination space opened by Risc-V
The traditions of all dead ancestors haunt the minds of the living like a nightmare.
Let me emphasize again that the privacy route looks very similar to MEV, but there is no direct relationship between the two. The source of the blockchain privacy technology route is Bitcoin, PoW+P2P+ small amount+ one-time address, and the source of blockchain MEV and prevention technology is Ethereum. The decentralized blockchain consensus formation mechanism will inevitably lead to incoordination and noise.
After Ethereum embraces Risc-V, the MEV problem will still exist. Increasing the number of staked nodes to 2048 will even increase the voice of super nodes, but Risc-V will have new development opportunities in terms of software and hardware integration, especially the dark pool of FHE.
The current EVM underlying layer is not compatible with overly complex opcodes. The new VM mechanism will fundamentally change all of this. This is not an alternative to SVM and Move VM, but a real innovation. In short:
- OP Code and EVM: The new opcode will support complex technologies from a lower level, with one iteration and comprehensive improvement.
- New VM, new compatibility: Risc-V VM will be improved from the perspective of hardware-software collaboration, not just software optimization.
Let me briefly mention the significance of Risc-V here. Architectures such as RAM are chip hardware, on which OS such as Windows, macOS or Hongmeng can be built, but they are essentially products of commercial companies. Risc-V is an open source chip instruction set. Ethereum can completely customize its own system and get rid of its complete dependence on existing commercial hardware. Customization will bring new potential.
Back to the dark pool, we divide it into three levels: subject anonymity, transaction anonymity, and interaction anonymity:
- The blockchain itself is an anonymous system. Unlike TradFi, anonymity is the essence of the blockchain. James's self-exposure or the address association of the data analysis platform are all probabilistic matches. Without the private key, it is impossible to truly determine the ownership of the funds.
- Transaction anonymity can be divided into price protection and order anonymity. Price protection means that the price cannot be changed after it is determined. Order anonymity can include price protection, but it can also only hide the on-chain address of the transaction order without forcing the transaction price.
- Interactive anonymity is a stage characteristic of blockchain. For example, in the most classic problem of deposits and withdrawals, if USDT is used, there is always the possibility of being tracked and frozen. This is why hackers let Bybit's USDT wallet go.
From the perspective of privacy, Risc-V has the necessary conditions for building a dark pool, but the MEV problem will still exist. In current practice, the combination of ZK and TEE is the mainstream choice. TEE can isolate private keys, especially the multi-private key management system. ZK can hide order details, but whether MEV can be completely eliminated depends on subsequent developments.
At this point, FHE may be a better technical route. Its post-encryption computing feature can achieve subject anonymity and transaction anonymity. The only problem is that it is expensive and slow. With the expectation of Risc-V customized hardware, it may be possible to support spot DEX, but there is a question mark for Perp DEX.
To sum up, the deep integration of Risc-V and ZK technologies can provide a usable Perp DEX dark pool mechanism. The integration of FHE-specific Risc-V acceleration chip and Ethereum can achieve CZ’s ideal blockchain version of the TradFi dark pool - anonymity, high frequency, and large amount three-in-one.
Conclusion
Whether the dark pool will become a reality is not discussed for the time being, but this is obviously a capital and technology intensive track. Now there are only:
Opportunities from historical events - CZ wanted to run a dark pool and knew that CEX was not suitable for this;
The increasing relaxation of regulation - Tornado Cash and DeFi are decriminalized, transparent dark pools are not ridiculous, everyone just wants to trade safely, not launder money
Clear market demand - the evolutionary direction of DEX is finally not to fight Meme. Professional traders need such tools. Curve and Hyperliquid are both role models.
Satoshi Nakamoto believed in Bitcoin, so Bitcoin was born. This time, can a transparent dark pool appear in the world?
