A “dark pool” is a privacy-preserving exchange that allows traders to swap assets without revealing details about their orders before or after the trade. Dark pools are popular in traditional finance where they’re used to settle large trades without price impact, spread, or the risk of arbitrage.
Renegade is the first on-chain dark pool, leveraging ZK-MPC privacy tech to fully obfuscate order details and provide optimal pricing for crypto trades.
How dark pools work
Dark pools use a crossing network model to match buy and sell orders without exposing order details to the public market. This prevents traders from taking advantage of order information, especially for large orders which may sit on an order book open for a long time or be predictably sold off through strategies like VWAP.
The closed nature of dark pools also means that orders match only with counter-flow. This prevents price impact and spread, which would normally be incurred on a traditional “lit” order book or through an OTC venue.
In traditional finance, dark pools account for 30%-50% of equities volume. Most dark pools are run by by large firms like Morgan Stanley and Goldman Sachs, but there are also independent dark pool brokers.
An important feature of dark pools is that they use a midpoint-peg pricing strategy. Rather than doing their own price discovery, dark pools derive prices from existing public exchanges. This guarantees that traders get optimal prices for their trades regardless of their trade size.
Dark pools in crypto
Blockchain exchanges show the current order state, but they also preserve all past state in public, queryable blockchain data. Even future state can sometimes be probabilistically predicted through the mempool.
Blockchain traders encounter the same challenges found in traditional finance including price impact, quote spread, and quote fading, but they also face some additional disadvantages:
- MEV: Known as DeFi’s “hidden tax,” MEV is a form of price exploitation caused by block producers reordering transactions within a block. This allows for front running similar to that of high-frequency traders in traditional finance, but full state leakage prior to block production enables even more severe price exploitation.
- Counterparty Discrimination: Since blockchain trades are public, sophisticated traders can deduce the identities of traders in many cases and make strategic trades against them based on more than purely economic factors.
- Statistical Arbitrage: A public ledger of trades allows sophisticated traders to tune in to patterns and statistically arbitrage large traders by, for example, front-running fixed-interval trades.
While many attempts have been made to mitigate price exploitation on public blockchains, entirely obfuscated trades were not possible before Renegade.
Renegade: Crypto’s first dark pool
Renegade is the first on-chain dark pool.
Thanks to ZK-MPC technology, all trades on the platform are kept private throughout their entire life cycle from order creation to liquidity matching and settlement. Orders are settled using zero-knowledge proofs so no information about individual trades, balances, or wallets is available on-chain even post-trade.
Renegade brings the privacy guarantees of TradFi dark pools to DeFi and it’s open to all crypto traders, not just whales and institutions.