On the second layer (L2) network Arbitrum, a company launched the first Ethereum (ETH) dark pool. It is an application for trading crypto assets privately, created by the company Renegade.
Although the entity claims that its new decentralized platform (dapp) on Arbitrum is the first dark pool on Ethereum, it would be valid to detail that on Ethereum’s L2 there are some applications that apply a similar operation, such as DeversiFi, although they are not strictly a dark pool.
What is a dark pool and how does it work?
A dark pool is a confidential asset exchange market for institutional investors. This tool emerged within traditional finance as a protection mechanism for these large investors.
The goal of dark pools is to allow participants to trade without revealing details such as price or transaction size to the general market, thereby preventing their actions from being known in advance and influencing prices.
There, transactions are made outside the public order book until they are executed. Only then are they recorded on the network and visible to the rest. By hiding their movements, they would avoid possible market manipulation if their operations were known in advance before being settled on a transparent order book.
The curious thing about this launch is that dark pools seem to be in contradiction with the vision of DeFi characteristic of a certain sector of the industry. While some DeFi platforms promote transparency as a fundamental axis, this application allows transactions very private and anonymous betting on a tool (the dark pool) characteristic of traditional finance.
Renegade claims to be launching the first dark pool on Ethereum. Source: X.
What technology does the DeFi platform Renegade work with?
According to the platform itself, this dapp aims to suffer “zero attacks from MEV bots” (Miner Extractable Value). These are automated programs that operate on blockchains with the purpose of taking advantage of any technical error to manipulate transactions and keep the funds, without having to violate a protocol.
MEVs represent one of the biggest threats within the decentralized ecosystem. In order to resist them, Renegade implements the use of ZK (Zero Knowledge) technology so that validators do not know the details of the operationsand promote privacy and anonymity on the network. In this way, it would prevent (or mitigate) leaks of information or data that could be exploited by attackers.
If MEV bots cannot see the details of transactions before they are executed, they would not be able to commit their attacks (front running for example) since they would not have access to the critical information they need to stay ahead of other users’ transactions.
Added to this, Renegade will use the MPC cryptographic technique (Multi-Party Computing). An MPC-based dark pool manages operations in a distributed manner among multiple parties, which would improve the decentralization and security of the process.
This tool allows users to perform calculations on their data, without any of them having to reveal their own data to the others. Each party contributes encrypted or fragmented information and, through complex algorithms, a common result is reached without exposing individual data.
Are DeFi platforms safe?
Here it would be prudent to highlight that in the DeFi ecosystem there is a latent risk of being a victim of some type of fraud, such as rug pulls or hacker attacks. For example, as already mentioned, reported CryptoNews, during August 2024 were hacked five DeFi platforms, where losses of $15 million were reported.
Three of those five attacks occurred on the network Ethereum and the remaining two, in BNB-chain-ex-Binance-smart-chain/” target=”_blank” rel=”noreferrer noopener”>BNB Chain.
The vulnerability of these DeFi platforms could be anchored in the absence of legal authorities that regulate the activity within them, the behavior of their developers or the security of the smart contracts that manage investors’ funds.
In this way, whenever operations are carried out within this type of platforms, it is advisable to know them in depth and Bitcoin-criptomonedas/” target=”_blank” rel=”noreferrer noopener”>understand which are usually risky.
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