DeFi Traders Protection Advocated by CZ: Push for a Decentralized Exchange to Discourage Preemptive Trading in the Decentralized Finance Sector
Floating a Secure, Hidden Decentralized Exchange Idea
Binance founder Changpeng Zhao, famously known as CZ, has suggested a revolutionary concept for a decentralized exchange (DEX): one where order books and user positions would be hidden to foil front-running and liquidation risks.
The proposal comes at a time when Maximal Extractable Value (MEV), a practice involves manipulating transaction ordering for profit, has gained renewed attention.
The Dark Pool Comparison
In a June 1 discussion on X, CZ questioned the continued practice of DEXs exposing user orders in real-time. He pointed out that this transparency often attracts predatory tactics like front-running and liquidation targeting, particularly in the perpetual futures markets.
"In perps, it's vital to keep others from seeing your orders," CZ wrote. "If they can see your liquidation point, they could attempt to manipulate the market to liquidate you. Even if you've got a billion dollars, others can gang up on you."
CZ drew a parallel between traditional finance (TradFi) and DEXs, where large institutional traders often use "dark pools"—private exchanges that conceal order books. He claimed these services are generally "10 times bigger" than normal order books.
To address this issue, Zhao proposed that on-chain platforms could employ zero-knowledge (ZK) cryptography or similar encryption technologies to mask trade data, such as orders and deposits, until they are executed. In his view, this would create a trading experience that safeguards participants, especially whales, from MEV attacks and coordinated manipulation.
CZ's idea follows a series of dramatic bets by crypto trader James Wynn, who wagered over $1 billion on BTC and experienced liquidations across four different positions, amounting to over $100 million in losses. In response, Wynn criticized the corruption in the crypto market and advised traders to hold onto BTC instead of using it for high-leverage trading.
Emerging Privacy-Focused Solutions
Several projects have步步
- Changpeng Zhao, the founder of Binance, suggests a new concept for a decentralized exchange (DEX) that employs hidden order books and user positions to prevent front-running and liquidation risks, which aligns with the current focus on security and privacy in DeFi.
- Building upon the concept of dark pools in traditional finance, CZ proposes utilizing zero-knowledge (ZK) cryptography or similar encryption technologies to mask trade data on on-chain platforms.
- This shift towards privacy-focused solutions could potentially reduce the exposure of whales and other participants to Maximal Extractable Value (MEV) attacks and coordinated manipulation in the crypto trading space.
- With the rising popularity of Web3 and decentralized finance (DeFi), the implementation of advanced technologies like blockchain and cryptography could pave the way for a more secure and equitable future in crypto investing and finance.
