Confidential DeFi

Darkpool is one of the significant trade models used in traditional finance. A dark pool is a financial trading venue where investors can buy and sell financial instruments, such as equities and derivatives, without revealing their trading intention. When an investor submits a buy or sell order into the dark pool the order is not disclosed for other market participants to view. Rather, the order will wait “in the dark” until it is either removed by the owner, or until a matching counterparty order is discovered, at which point a trade will execute between the buyer and the seller (the exact mechanism used for matching orders varies between venues).

Protocols were introduced for three auction mechanisms commonly used in financial markets: (i) a continuous double auction (CDA), where buyers and sellers can post bids and offers at any time and a limit order book is used to perform continuous matching; (ii) a periodic double auction, where buyers and sellers first submit bids and offers during an open auction period before a single clearing price is calculated for all matches; and (iii) a periodic volume match, where orders submitted during the open period contain a value for quantity only (i.e., orders contain no limit price) and all matches trade at a single price determined by some external reference value (e.g., the current mid-price on the primary exchange).