Hyperliquid: The first step towards transparent dark pools

Source: Zuoye Waiboshan

I'm not crazy, and the title is not sensational. Let me explain it all.

Around 2008, Josh Levine (@bigjoshlevine) and others wanted to end the "conspiracy" of the US exchanges. The exchanges would give large customers superior order information, just a little faster than ordinary users. Ordinary users did not know that their orders would contribute profits to professional teams.

Unfortunately, the trading data display tool created by Levine was eventually absorbed by quantitative trading.Of course, the information is transparent, but there are always people whose information is more transparent than others.

As a long-term follower of FHE, I am very happy to see people, especially CZ, discussing the "Dark Pool", which is also a potential application scenario for real encryption technologies such as ZK, MPC, and FHE. However, it must be said that CZ's understanding of dark pools and blockchain-based dark pool practices do not seem to be completely consistent.

In the narrative about dark pools, CZ is targeting hiding large order information to avoid potential targeted attacks. In the eyes of James Wynn, the victim of this incident, this is definitely the technology he wants. Hyperliquid's on-chain mechanism plus the function of hiding information, a freer world is beckoning to us.

• No KYC, no fund review

• On-chain transactions, beware of plug-ins

Although Hyperliquid is not very centralized, and its leverage and liquidity cannot be compared with Binance, Hyperliquid's on-chain characteristics have successfully attracted its own whale users, which is consistent with the premise of Curve War that Curve is the only on-chain DEX used by professional traders.

However, strictly speaking, the Hyperliquid incident is not about mechanism design. It can even be said that the transparent nature of the chain is the reason why the "attacker" can see James' position and liquidation price, so CZ said that a dark pool DEX is needed.

No, this is not the same thing. The on-chain privacy trading track has been explored to the extreme. Not to mention Arcium's FHE dark pool route, "real" privacy protection tools such as Bitcoin, Zcash, and Tornado Cash have not been adopted by the mainstream market. Instead, ERC-7702 has many problems, but the reality is that more convenient functions are conquering the city.

People like convenience, and only a very small number of people pay for privacy.

Back to CZ's dark pool theory, I can say frankly that what he actually said was "

Hyperliquid after solving MEV

The core of high-frequency trading is to compete for price advantages over ordinary users.

• Preempt or wait for ordinary users to trade

• Predict or attack large transaction orders

• Be a little faster than high-frequency peers

The answer is obvious. TradFi's dark pool and blockchain's MEV have the same effect. In essence, this has nothing to do with privacy protection, but the transparency of transactions on the chain means that there is no real good way except "centralization" at this stage. If you remember, BNB Chain directly "commanded" nodes not to clamp, which barely controlled MEV.

If Hyperliquid completely eliminates MEV, then you can see that James's order will not be able to manipulate the market. The only question is how we can achieve all this:

1. 1. Eliminate the MEV route

2. 2. Improve the privacy route

Remember: dark pools are not "hiding transaction intentions" but "hiding transaction prices", which is closer to the execution process of MEV. The dark pools of blockchain that everyone imagines are more like ZK/FHE Hyperliquid optimized by MEV. The reason why it cannot be CEX is that centralization is the biggest MEV process.

The imagination space opened by Risc-V

The traditions of all dead ancestors haunt the minds of the living like nightmares.

Once again, the privacy route looks very similar to MEV, but the two are not directly related. The route of blockchain privacy technology originates from Bitcoin, PoW+P2P+small amount+one-time address, and the source of blockchain MEV and prevention technology is Ethereum. The decentralized blockchain consensus formation mechanism will inevitably lead to incoordination and noise.

After Ethereum embraces Risc-V in a big way, the MEV problem will still exist. Increasing the number of staked nodes to 2048 will even increase the voice of super nodes, but Risc-V will have new development opportunities in terms of software and hardware integration, especially the dark pool of FHE.

The current EVM underlying layer is not compatible with overly complex opcodes. The new VM mechanism will fundamentally change all of this. This is not an alternative to SVM and Move VM, but a real innovation. In short:

• OP Code and EVM: The new opcode will support complex technologies from a lower level, with one iteration and comprehensive improvement.

• New VM, new compatibility: Risc-V VM will be improved from the perspective of software-hardware collaboration, not just software optimization.

Here is a brief introduction to the significance of Risc-V. RAM and other architectures are chip hardware, on which OS such as Windows, macOS or Hongmeng can be built, but they are essentially products of commercial companies. Risc-V is an open source chip instruction set. Ethereum can completely customize its own system and get rid of its complete dependence on existing commercial hardware. Customization will bring new potential.

Back to the dark pool, we divide it into three levels: subject anonymity, transaction anonymity, and interaction anonymity:

1. 1. The blockchain itself is an anonymous subject system. Unlike TradFi, anonymity is the essence of the blockchain. James's self-explosion or the address association of the data analysis platform are both probabilistic matches. Without seeing the private key, it is impossible to truly determine the ownership of the funds;

2. 2. Transaction anonymity can be subdivided into price protection and order anonymity. Price protection means that the price cannot be changed after it is determined. Order anonymity can include price protection, but it can also only hide the on-chain address of the transaction order without forcibly constraining the transaction price;

3. 3. Interactive anonymity is a stage characteristic of blockchain. For example, the most classic deposit and withdrawal problem, if you use USDT, there is always the possibility of being tracked and frozen. This is why hackers let Bybit's USDT wallet go.

From the privacy route, Risc-V has the necessary conditions for building a dark pool, but the MEV problem will still exist. In current practice, the combination of ZK and TEE is the mainstream choice. TEE can isolate private keys, especially the multi-private key management system. ZK can achieve the concealment of order details, but whether MEV can be completely eliminated depends on subsequent developments.

At this point, FHE may be a better technical route. Its characteristics of post-encryption calculationscan achieve subject anonymity and transaction anonymity. The only problem is that it is expensive and slow. Under the expectation of Risc-V customized hardware, it is possible to support spot DEX, but there is a question mark for Perp DEX.

To sum up, the deep integration of Risc-V and ZK technology can provide a usable Perp DEX dark pool mechanism. The integration of FHE-specific Risc-V acceleration chip and Ethereum can achieve CZ's ideal blockchain version of TradFi dark pool - anonymous, high-frequency, and large-amount three-in-one.

Conclusion

Whether the dark pool will become a reality is not discussed for the time being, but this is obviously a capital and technology intensive track. Now there are only:

Opportunities of historical events - CZ wants to do a dark pool, and knows that CEX is not suitable for this;

Increasing relaxation of supervision - Tornado Cash and DeFi are decriminalized, transparent dark pools are not ridiculous, everyone just wants to trade safely, not money laundering

Clear market demand - the evolutionary direction of DEX is finally not to play Meme, professional traders need such tools, Curve and Hyperliquid are both role models.

Satoshi Nakamoto believed in Bitcoin, so Bitcoin was born. This time, can a transparent dark pool appear in the world?