Development and Future Prospects of Blockchain Dark Pool Technology

Around 2008, some people hoped to put an end to the "conspiracy" of American exchanges. Exchanges would give big clients preferential order information, which was slightly faster than regular users, while ordinary users were unaware that their orders contributed to the profits of professional teams. However, the trading data visualization tools created by these individuals were ultimately absorbed by quantitative trading; although the information was transparent, there were always some people's information that was slightly more transparent than others.

As a long-term observer of FHE, I am pleased to see discussions about "Dark Pool" as it represents a potential application scenario for true cryptographic technologies such as ZK, MPC, and FHE. However, the understanding of dark pools and the practice of blockchain-based dark pools do not seem to be completely aligned.

In discussions about dark pools, the focus is on concealing large order information to evade potential targeted attacks. The founder of a trading platform has a different view on dark pools compared to the expectations of James Wynn, a party involved in a recent incident. James chose Hyperliquid over a large trading platform for his large transactions mainly because he can gain more and face fewer restrictions.

The KYC-free, no fund review, and on-chain trading features of Hyperliquid have attracted whale users. However, the incident with Hyperliquid, strictly speaking, is not about the mechanism design, but rather the on-chain transparency that allows the "attacker" to see James's position and liquidation price.

The on-chain privacy trading track has been explored to the extreme, but real privacy protection tools have not been adopted by the mainstream market. People prefer convenience, and paying for privacy ultimately remains a choice for a very small number of people.

The emergence of dark pools in traditional financial markets is due to the excessive competition in high-frequency quantitative trading. Large transactions can go through OTC channels, and the core of high-frequency trading is to compete for price advantages over ordinary users. This is essentially not closely related to privacy protection, but the transparency of on-chain transactions means that there is currently no real good solution other than "centralization."

If MEV can be completely eliminated, then even seeing the orders cannot manipulate the market. There are two routes to achieve this goal: eliminating MEV and enhancing privacy. It is important to note that dark pools do not mean "hiding trading intentions," but rather "hiding trading prices," which is closer to the execution process of MEV.

The emergence of Risc-V provides new possibilities for solving these problems. It can be improved through hardware-software collaboration, rather than just software optimization. Risc-V has the necessary conditions for building dark pools, but the MEV issue still exists. Currently, the combination of ZK and TEE is the mainstream choice.

FHE may be a better technological route, as its encrypted computing characteristics can achieve subject anonymity and transaction anonymity. The only problem is the high cost and slow speed, but with the expectation of Risc-V custom hardware, there is a possibility of supporting spot DEX.

The deep integration of Risc-V and ZK technology can provide a usable Perp DEX dark pool mechanism. The fusion of FHE-specific Risc-V acceleration chips and Ethereum can achieve the ideal version of a TradFi dark pool on the Blockchain—anonymous, high-frequency, and large amount all in one.

The implementation of dark pools is a capital and technology-intensive track. Currently, there are favorable factors such as opportunities from historical events, increasing regulatory relaxation, and clear market demand. The evolutionary direction of DEX is finally no longer limited to speculation; professional traders need such tools. Whether transparent dark pools can truly appear in the world remains to be seen.