- Changpeng Zhao's proposal sparks debate.
- He wants to change central tenet of crypto trading.
- Transparency may not always be an advantage.
Changpeng Zhao, the founder and ex-CEO of Binance, proposed on Sunday a new type of decentralised exchange. The hook: it hides trades and market positions from the public.
Zhao’s pitch may fly in the face of DeFi’s embrace of transparency. But his idea came following the $100 million liquidation of the trader known as James Wynn on May 29.
Some traders said the fact his trades were visible onchain may have helped drive down the price of Bitcoin and liquidate his position.
“Given recent events, I think now might be a good time for someone to launch a dark pool perp DEX,” Zhao, who goes by CZ, said on Sunday.
“I have always been puzzled with the fact that everyone can see your orders in real-time on a DEX.”
Dark pools
A “dark pool perp DEX” is a decentralised exchange that allows users to trade with leveraged derivatives while their positions are kept hidden.
This prevents market manipulation by avoiding front-running and maximal extractable value (MEV) attacks.
CZ’s post on X sparked a debate on whether transparency in DeFi is always beneficial to the trader, specifically those trading leveraged derivatives.
In the current DeFi market, onchain positions are fully transparent and publicly traceable, meaning that anyone can see where one’s stop losses are or liquidations could occur.
While this structure has been long praised for its openness, Zhao and others are questioning whether changes are needed to ensure privacy.
This is important for traders using leverage because showing their positions in public reveals their liquidation point and makes them vulnerable to an organised attack.
Liquidation point
“It is important to not let others know/see your orders. 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. This was possibly what we have seen recently,” Zhao said.
Zhao acknowledges that there are differing opinions on the matter, and traders will have preferences on which type of exchange they use.
After pleading guilty to violating US banking law in 2022 and resigining as Binance CEO , Zhao focused on his venture capital firm, YZi Labs, which backs crypto and AI startups.
Zachary Rampone is a DeFi correspondent at DL News. Have a tip? Contact him at zrampone@dlnews.com
