Former Binance CEO Changpeng ‘CZ’ Zhao suggests building a pool for decentralized perpetual futures that keeps orders hidden until the transaction is completed to avoid mass liquidations. Recently, high-risk whale James Wynn suffered $100 million losses in liquidated high-leveraged positions.
In a recent post, the head of YZi Labs urged budding on-chain builders and innovators to reach out to him if they are interested in bringing his idea into reality. The Binance founder believes it is “a good time” for the crypto space to have its own “dark pool perp DEX.”
Typically, decentralized exchanges make all on-chain trades and orders visible to everyone. In the case of perpetual DEXs, which let you trade leveraged contracts, this means that every trader can also see all positions and liquidation points happening in real-time.
According to Zhao, this poses a problem because long positions started by traders attempting to purchase large amounts of coin would be visible to other traders.
The position would become a big red target for other traders intent on pushing the market to liquidate it. They could buy more tokens to make the position’s value go down before it closes or they would take advantage of the opportunity to launch MEV bot attacks in the pool.
“This results in increased slippage, worse prices, and higher costs for you,” said CZ.
As a result, CZ believes there should be a pool that keeps orders and trades hidden from other traders to prevent huge losses occurring while the transactions are being processed. He believes it could be achieved by not opening the order book to all traders or by keeping deposits into smarts contracts hidden until after the transaction is completed.
CZ remarked that this sort of solution has already been implemented in traditional finance, where institutional traders are able to make large purchases invisible to other entities using “dark pools.” These pools are essentially private trading venues that do not make trades publicly visible until after they are executed.
“Even with a CEX order book, where orders aren’t linked to a specific individual, if you’re looking to purchase $1 billion worth of a coin, you generally wouldn’t want others to notice your order until it’s completed,” said CZ.
Zhao’s statement follows a chain of long position leverages which have resulted in disastrous losses for the traders involved.
On May 31, prominent high-risk, high-reward crypto trader James Wynn, known for opening high-leverage positions on-chain, suffered substantial losses when the market turned on him.
After Wynn was seen opening a 40x-leveraged Bitcoin (BTC) position valued at $46.4 million, and one on Pepe (PEPE) worth $16 million, the price of BTC fell from a record high of $111,900 to $101,911 when he liquidated. Not only that, PEPE also plummeted from $0.00001625 to $0.000025.
This led to Wynn closing his leveraged Bitcoin trade with a loss of $37 million and his Pepe trade was liquidated with a loss of over $858,580. The recent liquidations, which totaled about $100 million this week, marked a major loss for Wynn.
Another similar incident occurred back in March, when a group of traders banded together to launch a “man-hunt” to liquidate a whale’s BTC short position valued around $450 million on Hyperliquid. Many of the large-scale positions that went viral this year were launched on the Layer 1 DEX Hyperliquid.
