The world’s first decentralized dark pool exchange, RenEx, launched on September 27, 2018, as per an announcement shared with BTCManager.
Dark Pools 101
Developed by Singapore-based Republic Protocol, the platform focuses on trading large volumes of cryptocurrencies on hidden order books, called “dark pools,” between high-net-worth buyers and sellers. The product is a common feature of Wall Street, with some of the world’s most premier banks like Goldman Sachs and J.P. Morgan offering the exchange category to institutional clients.
While dark pools operate on traditional trading mechanisms, the actual trading takes place on hidden order books away from the general public and retail traders. They give institutions a way to exchange millions of dollars on a single trade without affecting the market or causing panic among retail traders.
As per research, over 15 percent of the U.S. trading volume is represented by dark pools, proving the although the market is rather obscure, there exists enormous demand.
Much of the dark pool market is controlled by brokers, exchange agents, or centralized parties; meaning trades are executed at the prices and commissions set by bourses. Concerns also mount on the practice being a “predatory” ground for high-frequency hedge funds, which jump on the orders in quick succession after discovering the trades.
Republic Protocol CEO Taiyang Zhang told BTCManager in a mail:
“The key advantage of dark pools is the hidden order book. However, in traditional centralized equities markets, there’s just no way to guarantee that the pool operators cannot see (and sell information on) the trades inside those pools.”
To combat against the fallacies as mentioned in the points above, a blockchain-based dark pool lends trust to large volume transactions and could create more synergy among trading participants. All trades would be secure, verifiable, and fair.
RenEx’s trading protocol ensures all transactions are conducted anonymously, and not even Republic Protocol can observe the trades at a given time. The trading process is straightforward – a seller can list his offer in ETH, BTC, or REN (Republic Protocol’s native token) trade pairs, and wait for it to be matched by a buyer. However, the transaction’s details are made public once the trade is completed and stamped on the blockchain.
Traditional institutional investors and other large volume traders can now safely enter into the decentralized, atomic cross-chain trading of digital assets. Zhang adds:
“Similarly, although there have been a few attempts at creating dark pools, none have achieved truly hidden order books and failed to get traction in the crypto markets. For the first time, this will allow large volume traders to tap the incredible potential of dark pools and opening digital asset markets to institutional investors with huge minimum trade volumes that would otherwise suffer significant price slippage if they trade on open order books.”
Providing further comfort to traders with robust governance and compliance requirements, the RenEx platform also supports the integration of institutional grade know-your-customer (KYC) and anti-money laundering (AML) compliance integration.
Post the launch of RenEx, Republic Protocol aims to create “competitive” dark pools that cater to different trader preferences, such as fee, governance, and regulation. In addition, the protocol can be used for exchanges to build native dark pool networks.