Decentralized Dark Pool Trading Platforms

By Jake Frankenfield
Updated December 30, 2022
Reviewed by
Gordon Scott
Reviewed by Gordon Scott
Full Bio

Gordon Scott has been an active investor and technical analyst or 20+ years. He is a Chartered Market Technician (CMT).

Learn about our Financial Review Board
Fact checked by
Michael Logan
Michael Logan Headshot
Fact checked by Michael Logan
Full Bio
Michael Logan is an experienced writer, producer, and editorial leader. As a journalist, he has extensively covered business and tech news in the U.S. and Asia. He has produced multimedia content that has garnered billions of views worldwide.
Learn about our editorial policies

What Are Decentralized Dark Pool Trading Platforms?

Decentralized dark pool trading platforms are trading venues for anonymously trading cryptocurrencies. Exchanges such as Kraken had offered dark pools for cryptocurrency trading. Singapore-based Republic Protocol launched the first decentralized platform for dark pool trading in 2018. 

Key Takeaways

  • Decentralized dark pool trading platforms are anonymized trading venues for large trades of cryptocurrencies.
  • Decentralized dark pools are used to shield large trades from causing price slippage in mainstream markets.
  • Decentralized dark pools break down a cryptocurrency order into multiple fragments and match them back again using zero-knowledge proofs.

How Decentralized Dark Pool Trading Platforms Work

The advantage of dark pool trading within cryptocurrency markets is that transactions are anonymous and decentralized. This means the exchange occurs directly between two parties, is anonymous in nature, and is not facilitated by a third-party. Not only is the identity of the traders conducting the transaction not revealed, critical information relating to the trade—such as the price and volume at certain positions—is not divulged.

In trades involving multiple cryptocurrencies, atomic cross-chain swaps are performed between currency pairs supported by the platform.  

Dark pool cryptocurrency trades are thought to have a limited effect on equity markets because there are caps governing the number of such trades.  The cryptocurrency ecosystem is still evolving and the dearth of large institutional investors and liquidity in the space means that decentralized dark pool trades have a fairly limited impact on prices and trading in mainstream crypto markets.

How Do Decentralized Dark Pool Trades Work? 

After an order is received by the platform, it is broken down into fragments. The subsequent process is similar to the Bitcoin mining process. Nodes run multiparty computations and compete with each other to match the most orders and are rewarded with a portion of the overall fee for each match. A zero-knowledge proof is used to verify integrity of the transaction. Order fragments that are matched are recorded in the system and a notification is sent to other nodes regarding the match. Unmatched fragments are reused in matching the next set of orders.

Article Sources
Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.

  1. Kraken. "Introducing the Kraken Dark Pool."

  2. Ren Project. "Roadmap."

Take the Next Step to Invest
×
The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace.
Service
Name
Description