Directory

• What is Dark Pool?
• Use Dark Pool what is the benefit?
• What is the controversy about Blackpool?  
• Decentralized Black Pool
• Summary

What is Dark Pool?

Dark pool is a tool that facilitates financial transactions in a secretive way. Unlike public exchanges, it does not have a transparent order book. Dark pools trade in a private manner (or are only visible when the transaction is executed).

The liquidity in the black pool is called black pool liquidity. Most dark pool transactions are block trades. A block trade is when a large amount of an asset is traded at a predetermined fixed price.

Black pools first appeared in the 1980s and were mostly used by institutional investors involved in large-scale transactions.

Institutional traders can place orders and trade secretly through dark pools without their intentions being discovered by the public. This is a very useful feature because institutional traders buying and selling large amounts of assets can create unfavorable situations that affect trades they have not yet executed.

Now that dark pools have grown into a significant part of the global stock market, this question will analyze their potential impact on the cryptocurrency world.

What are the advantages of Blackpool?

• Reduce the impact of market sentiment: Traders hope to stay away from the public eye when conducting large transactions.  
• Price advantage: Combining transactions can usually match the most suitable quotations and inquiries. In this case, both buyers and sellers can get a more favorable transaction price than in the open market (buyers purchase at a lower price and sellers sell at a higher price).  
• No slippage in transactions: Since most black pool transactions are large transactions completed at preset prices, traders can trade within the expected price. Complete the entire transaction.

What are the flaws of Blackpool?

• Conflict of interest: Because the trading order book is not public, there is no guarantee that the transaction will be completed under the best quotation conditions. If the institution conducting the transaction has a conflict of interest, this may cause interference with actual market prices.
• Infringement on market prices: If most trading occurs in dark pools, prices on public exchanges may not reflect the actual market. Most investing and trading rely on free information flows, and dark pool trading blocks the availability of information.
• Threatened by high-frequency traders (HFTs):Black pools will be an ideal paradise for high-frequency traders to plunder resources. If they had access to order book information, they could complete large transactions in advance and harm the interests of unsuspecting traders.
  Blackpool also supports another method called pinging, which uses a large number of small orders to hide subsequent large orders. It is used to evaluate the pending order area in the order book and also gives high-frequency traders the opportunity to have a negative impact on the market.
• The average transaction size has become smaller:Since the emergence of black pools in the 1980s, the average transaction size of black pools has decreased significantly. This shows that financial institutions that trade large volumes no longer exclusively use dark pool trading. This also makes dark pools less attractive and has a more negative impact on the market. Small-amount transactions prefer to be conducted on exchanges where the order book is publicly visible. Only in this way can the market develop in a healthy direction.  

Decentralized dark pool

Similar to the dark pool in the traditional stock market, there are also dark pools used for cryptocurrency transactions in some trading platforms.

Compared with traditional black pools, the advantage of decentralized black pools is a more secure digital verification method. The decentralized black pool protocol can provide fair market prices to all participants without the possibility of price manipulation.

In transactions involving multiple blockchains, cross-chain, atomic swaps can be used to facilitate transactions without intermediaries.

Decentralized black pools also use diverse encryption technologies, similar to zero-knowledge proof protocols, to verify the authenticity of black pool transactions.  

Black pools are also useful in illiquid cryptocurrency markets as they allow large trades to be completed without slippage. If a large trade is made in a illiquid market, it may result in a large loss on the margin, but if the same trade is placed in a dark pool, it can be completed without slippage.

Due to the lack of institutional investors in the cryptocurrency world, dark pools have a smaller impact on the cryptocurrency market, but this may change in the future.

Summary

Blackpool has always been a controversial topic due to the lack of complete transparency . It hides most of the trading volume, which is something you don't want to see in any trading market.

In recent years, with the advancement of cryptographic verification methods, dark pool transactions can also become more secure. Open source protocols can also be verified and every participant can enjoy the same rules, which also reduces the risk of using dark pools.