Transparent Dark Pool: The Evolution from Hyperliquid to Risc-V and FHE

Around 2008, some individuals attempted to put an end to the unfair practices of American exchanges. These exchanges would provide large clients with privileged order information, allowing them to be slightly faster than regular users, while regular users were unaware that their orders were actually generating profits for professional teams.

However, the tools developed to display trading data were ultimately utilized by quantitative trading teams. Although the information became transparent, there are always some people who can obtain more comprehensive information than others.

As a long-time observer of FHE (Fully Homomorphic Encryption) technology, it is exciting to see discussions about the "dark pool" concept. This is also a potential application scenario for real encryption technologies like ZK, MPC, and FHE. However, some people's understanding of dark pools and the practices of blockchain-based dark pools do not seem to be completely consistent.

In discussions about dark pools, some emphasize hiding large order information to avoid potential targeted attacks. For certain traders, this is undoubtedly the technology they are looking forward to. The on-chain mechanism of a certain decentralized platform, combined with the functionality of hiding information, seems to herald a more free trading world beckoning to us.

However, this perspective does not fully align with the issues some users have encountered recently. First, we need to understand why some traders choose decentralized platforms over traditional centralized exchanges for large transactions. At its core, they can gain more freedom on these platforms with fewer restrictions.

The main advantages include:

• No KYC required, funds are not subject to review
• On-chain transactions reduce manipulation risks

Although some decentralized platforms are not highly centralized and their leverage and liquidity cannot be compared to large centralized exchanges, their on-chain characteristics have successfully attracted a group of high-value users. This is similar to the situation where certain professional DEXs become the preferred choice for traders.

It is worth noting that the recent events were not strictly due to issues in mechanism design. On the contrary, the transparent nature of the blockchain is what allows "attackers" to see the positions and liquidation prices of certain users. This is also why some have proposed the need for dark pool DEX.

However, this is not the case. The field of on-chain privacy transactions has been deeply explored. Whether it's the FHE dark pool route of certain projects or the "real" privacy protection tools like Bitcoin, Zcash, and Tornado Cash, they have failed to gain mainstream adoption in the market. In contrast, some problematic yet more convenient features are continuously expanding their market.

Most users prefer convenience, and only a minority are willing to pay for privacy.

Returning to the dark pool theory, certain viewpoints actually describe "decentralized trading platforms after solving MEV." Practitioners from traditional trading markets should understand that the emergence of dark pools in TradFi (traditional finance) is the result of excessive competition in high-frequency quantitative trading. Large transactions can be completed through OTC channels, while the core of high-frequency trading lies in competing for price advantages over ordinary users.

The main strategies of high-frequency trading include:

• Grab or wait for regular user transactions
• Predict or attack large transaction orders
• One step faster than other high-frequency traders

The answer is obvious: the dark pools of TradFi and the MEV effects of blockchain are similar. Essentially, this is not directly related to privacy protection. However, the transparency of on-chain transactions has resulted in no truly effective solutions other than "centralization". It is worth mentioning that a certain public chain once directly "ordered" nodes to prohibit sandwich trading in order to barely control the MEV issue.

If a decentralized platform can completely eliminate MEV, then even seeing a user's order would not allow for market manipulation. The key question is, how can we achieve this goal:

• Eliminate MEV Routes
• Enhance privacy protection

It is important to emphasize that a dark pool is not about "hiding trading intentions" but rather about "hiding trading prices", which is closer to the execution process of MEV. The imagined blockchain dark pool is more like a decentralized trading platform that has undergone MEV optimization and ZK/FHE transformation. It cannot be a centralized exchange because centralization itself is the largest MEV process.

New Possibilities Unlocked by Risc-V

Traditional concepts often entangle innovative thinking like a nightmare.

It is reiterated that while the privacy protection approach appears similar to MEV on the surface, there is no direct correlation between the two. The development of blockchain privacy technology stems from Bitcoin and incorporates features such as PoW, P2P, microtransactions, and one-time addresses. In contrast, blockchain MEV and its mitigation technologies originate from Ethereum, where the decentralized blockchain consensus mechanism inevitably leads to disharmony and interference.

Even with Ethereum fully embracing Risc-V, the MEV issue will still exist. Increasing the number of staking nodes to 2048 may even enhance the influence of supernodes. However, Risc-V will bring new development opportunities in the integration of software and hardware, especially in the area of FHE dark pools.

Currently, the EVM layer struggles to support overly complex opcodes, and the new VM mechanism will fundamentally change this situation. This is not just a replacement for SVM or Move VM, but a true innovation. In short:

• OP Codes and EVM: The new opcodes will support complex technologies from a lower level, significantly enhancing performance in just one iteration.
• New VM, new compatibility: The Risc-V VM will be improved through hardware-software collaboration, not just limited to software optimization.

The significance of Risc-V is that it is an open-source chip instruction set. Ethereum can fully customize its own architecture, freeing itself from complete dependence on existing commercial hardware. This customization will bring new potential.

In terms of dark pools, we can divide them into three levels: subject anonymity, transaction anonymity, and interaction anonymity.

1. The blockchain itself is an inherently anonymous system, which is different from TradFi. Anonymity is the essence of blockchain; the self-disclosure of users or the address association by data analysis platforms is merely a probabilistic match. Without a private key, it is impossible to truly determine the ownership of funds.

2. Transaction anonymity can be subdivided into price protection and order anonymity. Price protection means that once the price is determined, it cannot be changed. Order anonymity can include price protection, but it can also only conceal the on-chain address of the transaction order without imposing constraints on the transaction price.

3. Interactive anonymity is a characteristic feature of the blockchain stage. For example, in the most typical issue of capital inflow and outflow, if certain stablecoins are used, there is always the possibility of being tracked or frozen.

From the perspective of privacy protection, Risc-V has the necessary conditions to build dark pools, but the MEV issue will still exist. Currently, the combination of ZK and TEE is the mainstream choice. TEE can isolate private keys, especially suitable for multi-key management systems; ZK can hide order details, but whether it can completely eliminate MEV remains to be seen.

In this regard, FHE may be a superior technological route. Its characteristic of encrypted computation can achieve subject anonymity and transaction anonymity. The only issue is the high cost and slow speed. With the expectation of Risc-V customized hardware, there is hope for the possibility of supporting spot DEX. However, there is still uncertainty regarding perpetual contract DEX.

In general, the deep integration of Risc-V with ZK technology may produce a usable perpetual contract DEX dark pool mechanism. The combination of FHE-specialized Risc-V acceleration chips and Ethereum is expected to achieve the ideal blockchain version of TradFi dark pools—anonymous, high-frequency, and large-scale integration.

Conclusion

Whether dark pools will become a reality is still unknown, but it is clearly a capital and technology-intensive field. Currently, we see:

Historical Opportunity - Certain industry leaders intend to develop dark pools and realize that centralized exchanges are not suitable for this task.

Regulatory environment improvement - certain mixing tools and DeFi are gradually being decriminalized, and the concept of transparent dark pools no longer seems ridiculous. People just want safe transactions, not money laundering;

Clear market demand - the evolution direction of DEX is no longer limited to speculative concepts. Professional traders need such tools, and some DEXs have already set an example.

Satoshi Nakamoto believed in Bitcoin, and thus Bitcoin was born. This time, can a transparent dark pool be realized in this world?