gm Bankless Nation, Is crypto too transparent? Today, we dig into the drama around James Wynn and why crypto leaders are calling for innovations that integrate dark pools.
gm Bankless Nation, Is crypto too transparent? Today, we dig into the drama around James Wynn and why crypto leaders are calling for innovations that integrate dark pools.
Today's Issue ⬇️
☀️ Need to Know: EF Restructuring The Ethereum Foundation shakes things up.
🚧 Ethereum Foundation Restructures Protocol R&D Team. The restructure of the 'Protocol' team involved some staff layoffs.
🐙 Kraken Launches Prime Brokerage Services for Institutional Clients. 'Kraken Prime' will compete with Coinbase Prime and FalconX.
💵 Robinhood Completes its $200M Bitstamp Acquisition. The much-hyped deal was first announced back in June 2024.
📸
Daily Market Snapshot: Crypto's total market cap surged Tuesday as ETH continued to outpace the market as Wall Street saw another consecutive day of gains.
Last week, degen James Wynn lost $100 million in liquidations on Hyperliquid.
The losses — 949 BTC ($99.3M) and 982.5M kPEPE ($11.6M) — came as Bitcoin dropped below $105K, triggering his 40x leveraged positions. But here's where it gets interesting: Wynn claims he wasn't just unlucky. He believes he was hunted.
“One thing for sure is that I have exposed just how corrupt these markets are,” Wynn posted, claiming that market participants orchestrated a “liquidation hunt” to blow out his visible positions, pushing prices just low enough to trigger his liquidations before letting them recover.
Whether these allegations are true or not, they do highlight a glaring vulnerability in decentralized trading: everyone can see everyone else's positions. It's like playing poker with your cards face-up.
The incident prompted Binance founder CZ to propose a solution on June 1: a “dark pool perpetual DEX.”
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.
His argument was simple — if traders can't see each other's positions, they can't hunt them. Using zero-knowledge proofs to hide order books could protect large traders from targeted attacks while maintaining decentralization.
Let’s take a quick run-through of dark pools, their history, their pros (and cons), and the projects currently operating dark pools or building toward them in crypto. 👇
The Start of Dark Pools
Dark pools aren't new, and they aren't inherently nefarious despite the name.
They emerged in traditional finance during the 1980s as a solution to a simple problem: how do you trade large blocks of stock without moving the market?
Imagine you're a pension fund needing to sell 10 million shares of Apple. Dump that on the open market, and the price crashes before you're halfway done. Everyone sees the massive sell order, panics, and front-runs your trade. You end up with far less than you hoped.
The SEC recognized this problem and formally approved Alternative Trading Systems (ATS) in 1979. These private exchanges allowed institutions to trade large blocks anonymously, matching buyers and sellers without revealing orders until after execution. In spring of 2017, dark pools accounted for ~40% of US stock trading, growing from ~16% in 2010.
The mechanics are straightforward:
Hidden order books where trades are matched privately
If dark pools matter in traditional markets, they're arguably even more critical in crypto. The blockchain's radical transparency becomes a liability when everyone can see your every move and the arena is growing increasingly PvP.
In traditional finance, at least your broker doesn't broadcast your positions to the world. In DeFi, your wallet is an open book. This transparency enables several predatory behaviors:
MEV (Maximum Extractable Value): One of the most central problems, bots monitor pending transactions and front-run trades, extracting value that should go to users. It's like having someone peek at your cards and bet accordingly.
Copy Trading: Why develop your own strategy when you can just mirror successful wallets? This parasitic behavior reduces profits for skilled traders, though these traders have grown increasingly clever in finding ways to use people tailing them as exit liquidity.
Liquidation Hunting: As Wynn's case illustrates, visible leveraged positions become targets. Traders can calculate and find exact liquidation prices to potentially coordinate to trigger them.
Quote Fading: Market makers pull liquidity when they see large orders coming, widening spreads at the worst possible moment.
Crypto dark pools address these vulnerabilities using privacy-preserving technologies like:
Zero-knowledge proofs (ZKPs) which let you prove a trade is valid without revealing its details.
Multi-party computation (MPC) enables order matching without any single party seeing all orders.
Trusted Execution Environments (TEEs) create secure enclaves for trade execution. For example, Unichain, Uniswap's new L2, uses TEEs to build blocks and hide transactions from extractive MEV bots without being a dark pool. The Rollup-Boost system locks trades in encrypted mempools, offering privacy benefits to all DeFi apps without explicitly being a dark pool.
The result: trades that are private yet verifiable, anonymous yet auditable — maintaining blockchain's trustless nature while protecting trader privacy.
Several projects are already providing this functionality:
Renegade, an MPC-based onchain dark pool on Arbitrum, ensures privacy and no slippage on trades. The platform matches trades for tokens it supports directly between peers at Binance’s midpoint prices, eliminating front-running and price manipulation. This means large trades can occur privately, with no impact on market prices.
Silhouette is different, adding privacy to trading built on Hyperliquid through hidden trade matching to the exchange’s deep liquidity and fast transactions. While still in development with no concrete timeline for launch, the platform will not need any special wallet to be used, making it easy to adopt while enjoying enhanced privacy.
Penumbra offers dark pool spot market functionality by creating an entirely new privacy-focused blockchain within the Cosmos ecosystem. It uses ZKPs to hide all transactions, balances, staking, and even governance. Its DEX protects trades through batch auctions to prevent front-running and uses encryption to ensure total privacy.
sFOX, a US-based company that helps large, primarily institutional investors access and trade crypto, offers a dark pool service regulated by FinCEN and Wyoming. Through its service, sFOX allows institutions to discreetly execute large trades using hidden orders combined with liquidity from 30+ exchanges.
Why Don't More Dark Pools Exist?
Given all these benefits — protection from MEV, liquidation hunting, and front-running — why aren't dark pools everywhere? Because of the significant technical and practical challenges of building them, especially for perpetuals.
The fundamental challenge is achieving both privacy and verifiability. You need to prove trades are fair without revealing what they are. While yes, all the aforementioned technologies like ZKPs, MPCs, and TEEs offer a path forward, implementing them well proves complex — it's not enough to hide data; you must ensure it can't be deduced through other routes. In other words, a private automated market maker isn’t private if anyone can query its price at any moment.
Dark pools also face the classic chicken-and-egg liquidity problem. They need volume to work well, but traders won't come without existing liquidity. This is especially acute for perpetuals markets where continuous funding and liquidations require deep, active markets.
Then there's the trust paradox. The lack of transparency that makes dark pools valuable also breeds suspicion. How do we know we're getting fair prices when we can't see the trades? This concern amplifies in crypto, where “trust, but verify” is gospel. Dark pools could theoretically fuel market manipulation rather than prevent it. For example, by removing volume from public markets, dark pools might distort price discovery, creating a two-tier system where institutions get better prices in private while retail faces thinner, more volatile public markets.
Traditional finance offers cautionary tales. Barclays paid $70M for lying about its dark pool operations, with Credit Suisse and others facing similar penalties for giving select traders unfair advantages.
Finally, launching an onchain dark pool, especially for perpetuals, faces complex regulatory hurdles. The intersection of derivatives, privacy tech, and cross-border trading creates a regulatory maze that few have successfully navigated.
Overall, the James Wynn incident — whether truly “predatory” or not — exposed a core crypto tension: we built transparent systems for trustlessness, but that transparency can be weaponized.
Dark pools offer a fix, but one that walks a fine line. The challenge is preserving crypto’s ethos of verifiability and fairness while offering the necessary privacy to make certain activities like trading fair. Projects like Renegade prove this is possible for spot markets — using cryptography to prove honesty without revealing details. But CZ’s vision of a perpetual dark pool DEX still stands unrealized, with only Silhouette driving towards it.
As crypto matures and institutional capital floods onchain, infrastructure must evolve to protect large players without sidelining smaller ones. The technical hurdles are real, but solvable. And, yes, dark pools aren’t perfect, but they’re looking increasingly necessary.
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Austin Adams, founder of Whetstone and creator of Doppler, joins to discuss the next evolution in token launches.
We explore why the world needs more tokens—not fewer—and how Doppler enables creators, apps, and DAOs to build highly customized launchpads using modular tooling. We cover token market design, dynamic bonding curves to prevent sniping, and how this infrastructure could unlock more meaningful, value-connected tokens—from meme coins with DAOs to public market IPOs onchain.
Not financial or tax advice. Bankless content is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This newsletter is not tax advice. Talk to your accountant. Do your own research.
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