The dark side of public DEXs and the ongoing fight between privacy and transparency

As part of a recent tweet, Binance co-founder Changpeng “CZ” Zhao spotlighted a core weakness that many of today’s popular decentralized exchanges (DEXs) seem to be suffering from, i.e. extreme transparency. To elaborate, the crypto veteran confessed he was “puzzled” that on most DEXs everyone could see other users’ orders in real-time, noting that this visibility was especially dangerous for perpetual futures platforms, where even liquidation prices were public. Furthermore, on public order books, he opined that whales could become “sitting ducks,” because if they tried to buy $1 billion worth of a coin, their order would be public knowledge from the get go (something they would want others to notice until its completion). CZ 🔶 BNB @cz_binance · Follow 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 12:08 am · 2 Jun 2025 0 Reply Copy link Read more on Twitter In real world terms, the issue could potentially result in front-running bots and opportunistic traders intercepting big trades or even ganging up on large positions, something that has been highlighted recently. For instance, recently roughly $100 million in Bitcoin long positions (reportedly held by one trader) were liquidated on Hyperliquid, leading observers on social media to speculate that others had tracked and “hunted” that exposed position. The problem at hand From the outside looking in, today’s DEXs seem to have embraced transparency as a core virtue, with all of their native bids, asks and trades being recorded on-chain or broadcast in the mempool, giving anyone a live window into their market flow. While this openness has definitely been an aid for price discovery in normal markets, it has ushered in major conflicts in terms of how large traders usually operate. For example, in traditional finance (trad-fi), large orders typically go through dark pools with private trading venues hiding details of big trades until after execution. In fact, large traders in trad-fi use dark pools, often 10 times bigger than public markets, so that big orders are “hidden from public view until after they are executed,” eliminating slippage and front-running. By contrast, crypto DEXs lack a similar shield with on-chain DEXs broadcasting every order, even tiny test orders, which means whales and funds lose the secrecy they rely on. This transparency conflict has been blamed for inflated slippage and hefty MEV (miner-/maximal-extractable value) losses on sizable trades. Some market makers argue that open liquidity lets them absorb large orders more easily, but for mega-traders the risk of having their strategy leaked often outweighs that benefit. As CZ pointed out recently, if others can see not only one’s buy order but also their liquidation threshold, they may “push the market to liquidate the position” – a vulnerability that simply doesn’t exist on true dark-pool platforms. Dark pools are coming to DeFi CZ’s call has sparked talk of bringing dark-pool mechanics into DeFi. In principle, a “dark pool DEX” can conceal orders (and even initial deposits) from public view until trades settle, blocking front-running and price hunting by hiding every trader’s intent. In this pursuit, zero-knowledge proofs (ZKPs) can allow an exchange to verify order matching without ever revealing the orders themselves. To put it into real world terms, this means submitting encrypted orders on-chain and then using a ZK proof to show the matched result without leaking the raw data. Similarly, secure enclaves or trusted execution environments (TEEs) — isolated, encrypted compute areas (like Intel SGX or Apple’s Secure Enclave) — can host the order book off-chain. Inside these enclaves, encrypted trades can be matched privately, with only the net results being posted on-chain. In effect, neither order size nor the identity of the trader (beyond a wallet address) would be visible until after settlement. Such confidential computation approaches are being explored as a way to mask trade intentions and deposits on public blockchains, giving DeFi the protective layer that TradFi dark pools provide by default. A concrete example of such an encrypted DEX is EnclaveX , a platform that has been billed as “the first permissionless Fully Encrypted Exchange (FEX)” offering cross-chain perpetual futures capabilities built using secure enclave. Any trader with a non-sanctioned wallet can use it for fully encrypted trading, which in practice, means orders are submitted and matched inside decentralized secure enclaves, rather than broadcast transparently. Enclave Markets @enclavemarkets · Follow The TL;DR:– Enclave launched a permissionless platform– New platform here: enclave.trade – Legacy platform still works, but points no longer accrue– Claim final rewards on legacy platform now– Legacy platform here: trade.enclave.market – New platform will have 9:13 pm · 16 Apr 2025 107 Reply Copy link Read 79 replies Furthermore, the exchange supports USDC trading across multiple blockchains (Avalanche, Solana, Ethereum) without requiring users to bridge manually and once in the enclave, the architecture ensures that order details and wallet activities remain confidential, while still delivering the low-latency, high-throughput performance needed for professional trading. To put it in other terms, EnclaveX’s design closely mirrors many of the features CZ had outlined in his aforementioned tweet. For instance, it is explicitly permissionless, meaning anyone can join with a standard wallet (except those on sanctions lists) yet it uses a network of independent “attestors” so that no single party controls the exchange. One notable upcoming feature associated with the platform is Alpha Strats which turns EnclaveX into a kind of vault platform where traders can allocate USDC to pre-built “alpha” strategies run by professional quants and funds. Each Alpha Strat is essentially a USDC vault managed algorithmically by experts, letting users tap into hedge-fund-like strategies with one click. Carving a unique path forward for private DeFi CZ’s proposal and EnclaveX’s launch come at a time when the DeFi industry as a whole seems to be rethinking the balance between transparency and utility. Proponents of encrypted exchanges continue to argue that adding a dark-pool layer stands to draw new capital by letting big players execute large trades without fear of predatory tactics. They point out that on-chain auditability can be preserved even with hidden order details, using cryptographic receipts and delayed proof. Critics, meanwhile, caution that these systems could introduce new complexities, especially when it comes to ensuring that an enclave or ZK program is honest or how disputes are arbitrated. For now, EnclaveX provides a real-world testing ground where there is no front-running and no slippage (by matching inside the enclave). The post The dark side of public DEXs and the ongoing fight between privacy and transparency appeared first on Invezz

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