ZeroEx: The First Cross-Chain Dark Pool

Introduction

Traders lost approximately $675 million due to MEV tactics alone. But the losses don't end there. Large traders face daily challenges including slippage, MEVs, and adverse price movements as a consequence of large orders being visible and targeted in the market. These issues cumulatively result in billions of dollars in losses, with traders’ strategies often being copied, anticipated, or manipulated.

Inspiration

The inspiration for ZeroEx came from the pressing need to mitigate these massive, recurrent losses that undermine the integrity and efficacy of digital asset trading. Observing the efficacy of dark pools in traditional finance, where 40-50% of stock trades maintain privacy to avoid market manipulation, we envisioned a similar solution for the cryptocurrency domain.

Solution

ZeroEx represents a revolutionary step forward: a cross-chain dark pool where trades are invisible to the public eye. By leveraging the technology of Chainlink, ZeroEx facilitates secure, anonymous trading without the risks of MEV or slippage, ensuring that trades are executed quietly and efficiently across multiple blockchain networks.

How It Works

ZeroEx leverages cutting-edge cryptographic technologies to create a secure, private trading environment on a cross-chain platform. Below is a detailed step-by-step breakdown of the underlying mechanics:

1. Deposit and Encryption: Users start by depositing funds into the exchange's smart contract. Orders are then encrypted using homographic encryption to ensure that they remain hidden from all parties, including the exchange itself.

2. Homomorphic Encryption: ZeroEx employs homomorphic encryption, which allows computations to be carried out on ciphertexts, producing an encrypted result that, when decrypted, matches the result of operations performed on the plaintext. This technique is crucial for maintaining the confidentiality of order details throughout the matching process.

3. Distributed Key Generation: The cryptographic keys required for the homomorphic encryption are generated and managed through a secure multi-party computation (MPC) protocol, specifically using the TNO-MPC protocols for distributed key generation. This ensures that no single party ever has access to the complete key, thereby enhancing security.

4. Volume Matching Algorithm: The core of our matching engine is inspired by the volume matching algorithm described in the paper on bucket-based and volume matching algorithms.

5. Order Execution: Once a orders are matched is found, the order is executed on-chain. The execution process is transparent and can be verified by all participants, providing a layer of trust and security post-transaction.

6. Cross-Chain Functionality: Utilizing Chainlink, ZeroEx facilitates cross-chain interactions, allowing traders from different blockchains, such as Avalanche and Arbitrum, to execute trades seamlessly. This interoperability is crucial for providing a diverse and liquid market.

7. Post-Execution Transparency: After the order is executed, the details become visible to the public. This post-market transparency is intended to add an additional layer of trust and accountability to the platform.

ZeroEx's innovative use of these advanced technologies not only protects against common trading risks such as MEV, slippage, and front-running but also establishes a new standard for privacy and security in digital asset trading.

Here's a more structured and clear format for the installation instructions for your project:

Installation

To get started with ZeroEx, follow these installation steps for both the frontend and the matcher components of the platform.

Frontend Installation

To set up the frontend for ZeroEx, follow these commands:

# Navigate to the frontend directory
cd frontend

# Start the frontend application
npm run dev

Matcher Installation

The matcher component involves setting up the MPC (Multi-Party Computation) dark pool. Perform the following steps to get it up and running:

# Navigate to the MPC dark pool directory
cd mpc-darkpool

# Install required Python packages
pip install -r requirements.txt

# Start the MPC process
python src/main.py

# Start the Executor process
python src/ccip.py

These steps will set up the necessary components for both the user interface and the backend matching logic of ZeroEx.

Demonstration

Challenges

We already knew about MPC and Homographic Encryption but implementing it was a bit difficult still our team pulled it off and built a great protocol.

Impact

ZeroEx is poised to radically transform the crypto trading landscape by addressing one of its most critical pain points. It promises to:

1. Save billions of dollars lost to MEV, slippage, and quote fading.
2. Foster deeper, more liquid markets in DeFi.
3. Attract institutional traders seeking secure, private venues.

Future Directions

ZeroEx is not just a platform for trading existing crypto assets. It is designed to be extensible, with future capabilities including trading futures, options, and leveraging positions.

Conclusion

ZeroEx is more than just a trading platform—it's a step towards a more robust, efficient, and equitable DeFi ecosystem. Let's build a better DeFi together!

LICENSE

ZeroEx is open source and freely available for commercial and private use under the MIT License. This licensing choice reflects our commitment to the open development and widespread dissemination of our technology, fostering innovation and collaboration within the community.